Construction Law Insights

BAE Sys. Ordnance Sys. v. Fluor Fed. Sols., LLC, 2021 U.S. Dist. LEXIS 247425, 2021 WL 6134685 (W.D. Va. Dec. 29, 2021)

BAE Sys. Ordnance Sys. v. Fluor Fed. Sols., LLC, 2022 U.S. Dist. LEXIS 58432, 2022 WL 969773 (W.D. Va. Mar. 30, 2022)

The US Army Joint Munitions Command (“Army”) contracted with BAE Systems Ordnance Systems, Inc. (“BAE”) to operate and maintain the Radford Army Ammunition Plant (“RFAAP”) under a basic ordering agreement (“BOA”). Under BOA Task Order 002, BAE contracted to replace the legacy NC facility at the RFAAP with a newer one (the “NC Project”). Initially, BAE subcontracted the NC Project to Lauren Engineers & Constructors (“Lauren”), but later terminated Lauren. Despite terminating Lauren, BAE’s timeline to complete the NC Project remained unchanged and BAE was required to use Lauren’s design for the NC Project. After terminating Lauren, BAE solicited bids from other subcontractors using a Request for Proposals (“RFP”) that included a Statement of Work (“SOW”) describing the requirements of the NC Project’s design and construction. BAE gave interested bidders access to the Lauren design and other related documents and required the selected subcontractor to perform in accordance with the 85% complete Lauren design, that the Lauren design could be relied on for accuracy, and the selected subcontractor only had to complete the unfinished parts. Fluor Federal Solutions, LLC (“Fluor”) submitted a request for information (“RFI”) asking BAE about the standards referenced in the SOW. BAE allegedly responded by emphasizing the importance of the Lauren design. During the bid and review process, Fluor was unable to determine the completeness of the Lauren design but relied on BAE’s assertion that the design was 85% complete.

BAE rejected Fluor’s initial bid as being too high given what BAE had already paid Lauren for its design and told Fluor to lower its bid because the design was close to complete. Fluor lowered its price and submitted another bid proposal that outlined a firm-fixed price design/build that forecasted 32 months to complete the NC Project. BAE awarded Fluor an Undefinitized Contract Action (“UCA”) in an amount of $9 million dollars, later increased to $32 million. BAE selected the equipment systems and retained responsibility for the process design, while Fluor was responsible for the design and construction of systems to support BAE’s plans. Under the UCA, Fluor began procuring materials and physical construction before a formal subcontract was agreed upon. On December 17, 2015, BAE and Fluor agreed to a firm fixed price design and build subcontract (the “Subcontract”) in which Fluor agreed to design, construct, and partially commission the NC Project for $245,690,422.00, which included money spent already in the UCA. The Subcontract included an unforeseen contingency provision, which set aside an additional $14 million, “other than changes to the contract compensable under the Changes clause.”

Fluor did not meet its forecasted timeline. Over the subsequent 5 years, the schedule continued to be pushed out by Fluor due to various causes. At several points, the Army issued BAE show cause orders and BAE forwarded the same to Fluor. When this litigation began, Fluor was scheduled to complete its work by December 2020, 2.5 years beyond the originally agreed upon completion date.

On September 30, 2020, BAE sued Fluor for breach of contract. On May 24, 2021, Fluor counterclaimed for breach of contract, quantum meruit, and unjust enrichment. Fluor’s counterclaim alleged that Fluor was not at fault for failing to meet the agreed upon schedule and Fluor had $183 million in outstanding change proposals when the litigation was filed.

Fluor moved to dismiss BAE’s breach of contract claim related to Descope Work and breach of contract claim for recovery based on Fluor’s alleged delay. The Court denied Fluor’s motion to dismiss BAE’s breach of contract claim because BAE alleged plausible claims. The Court denied Fluor’s motion to dismiss BAE’s $9 million in concessions to the Army because BAE plausibly alleged this was a direct and not a consequential damage that BAE suffered because of Fluor’s breach of the Subcontract. The Court granted BAE’s motion to strike Fluor’s damages that exceeded the $30 million cap in the Subcontract. In Virginia, parties may limit their risk of loss through contract as long as it does not contravene public policy.

The Court also held that Virginia Code § 11-4.1:1 was inapplicable. Virginia Code § 11-4.1:1 provides that “A subcontractor … may not waive or diminish … his rights to assert claims for demonstrated additional costs in a contract in advance of furnishing any labor, services, or materials. A provision that waives or diminishes a subcontractor’s … right to assert claims for demonstrated additional costs in a contract executed prior to providing any labor, services, or materials is null and void.” Because Fluor performed work under the UCA before the Subcontract was executed, the Court held that Virginia Code § 11-4.1:1 was inapplicable. The Court’s interpretation of Virginia Code § 11-4.1:1 should be given further consideration by readers.

The Court denied BAE’s motion to dismiss Fluor’s breach of contract counterclaim related to the implied warranty of plans, designs, and specifications under the Spearin doctrine. The Court found the Subcontract to be ambiguous regarding design responsibility, allowing for a plausible implied warranty of design counterclaim.

The Court denied BAE’s motion to dismiss Fluor’s breach of contract counterclaim related to equitable adjustment of the Subcontract price. Neither the Subcontract nor the Changes provision of the FAR provide for equitable adjustment of change proposals made by Fluor that were not accepted by BAE. However, FAR 52-243-4, entitled “Changes,” incorporated by reference into the Subcontract, provides for equitable adjustment for changes required by the Contracting Officer. If BAE falls into this category for changes Fluor alleged BAE required it to make, Fluor’s counterclaim would state a plausible claim for equitable adjustment for costs incurred by Fluor to make changes required by BAE.

The Court denied BAE’s motion to dismiss Fluor’s breach of contract counterclaim related to BAE’s alleged breach of the duty of good faith and fair dealing. Fluor adequately plead that BAE breached the duty of good faith and fair dealing by misrepresenting the status of the Lauren design, interfering with Fluor’s performance of the Subcontract, and not compensating Fluor for work unilaterally implemented by BAE.

The Court dismissed Fluor’s unjust enrichment and quantum meruit claims. Because unjust enrichment claims are only appropriate in the absence of an enforceable contract, and neither party here challenged the validity or enforceability of the Subcontract, Fluor’s unjust enrichment claim had to be dismissed. The Court also found that the compensation sought by Fluor was for work covered by the Subcontract.

PLDR Law Scott Kowalski 1 PLDR Law Mark Burgin 1

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