A subcontractor on a federal project installed fiber-reinforced manholes instead of the specified steel-reinforced manholes meeting the ASTM requirements. When government demanded that these be replaced (after they had already been installed) the subcontractor argued that this constituted economic waste. Expert witnesses for the government and the subcontractor had opposing views on whether the fiber-reinforced manholes were adequate. Both parties moved for summary judgment, which was denied because the Court concluded that factual issues were in dispute as to whether the economic loss doctrine overrode the requirement of strict compliance with the contract. David Boland, Inc. v United States, 161 Fed. Cl. 303 (2022).
This project involved a wastewater collection system being built for the government which would be owned and operated by a private firm – Aqua Engineers, Inc. Aqua hired Boland, Inc. as a subcontractor to perform the construction of the system. The contract between Aqua and the government incorporated ASTM C478, and that standard required steel reinforcement of manholes. That standard further provides that manhole components failing to conform to any of its requirements are subject to rejection. The contract required strict compliance with its terms and conditions.
Boland breached the contract by installing non-conforming manholes. When the government was about to require replacement of the manholes, Bolan sought a variance from the contract terms. It supported that request with expert reports stating that the fiber-reinforcement was satisfactory. The government seemed about to grant this variance request but later changed its mind because Aqua would not accept the covers without some kind of guarantee by the government that they were adequate. Since the government would not do that, Boland was required to remove and replace the manholes.
There was engineering evidence supporting Boland’s position. But the government experts opined that it was possible that during installation the manholes could have been damaged without the government’s knowledge, and this would subject them to greater likelihood of cracking in the future.
Discussion of the Economic Waste Doctrine.
The economic waste doctrine is governed principally by a decision issued in the case of Granite Construction Co. v. United States. In that case, the government required a contractor building a lock and dam to remove and replace waterstop that didn’t strictly meet the contract requirements. The court there held that this constituted economic waste and therefore allowed the contractor to recover from the government its costs of correcting the nonconforming work.
A contractor can recover correction costs under the economic waste doctrine when it can show that the cost of correction is economically wasteful and the work is otherwise adequate for its intended purpose. Courts hold that a cost of correction is “economically wasteful” when it is disproportionate to the loss of value that resulted from noncompliance. And work is deemed “adequate for its intended purpose” when it substantially complies with contractual specifications.
In this case, the court considered the expert evidence and concluded that it was not clear that the product provided by Boland would be adequate. That is a genuine dispute that will need to be decided at trial rather than by summary judgment.
About the author: Article written by J. Kent Holland, Jr., a construction lawyer located in Tysons Corner, Virginia, with a national practice (formerly with Wickwire Gavin, P.C. and now with ConstructionRisk Counsel, PLLC) representing design professionals, contractors and project owners. He is founder and president of a consulting firm, ConstructionRisk, LLC, providing consulting services to owners, design professionals, contractors and attorneys on construction projects. He is publisher of ConstructionRisk Report and may be reached at Kent@ConstructionRisk.com or by calling 703-623-1932. This article is published in ConstructionRisk Report, Vol. 24, No. 10 (December 2022).
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