February 15, 2006

CQC Staffing

In 2005 the ASBCA issued a decision regarding its interpretation of the typical Contractor Quality Control (CQC) provisions found in a COE contract, which could have some expensive consequences for those performing under these COE Contractor Quality Control (“CQC”) requirements or similar provisions used by other federal government agencies. M.A. Mortenson Co., ASBCA No. 53349, 05-2 BCA ¶ 33,014.

The contract in Mortenson involved the construction of a $120 million hospital project for the USAF and the Department of Veterans Affairs. The contract was awarded and administered by the Corps of Engineers (“Corps”). The Contractor Quality Control specifications required the contractor (Mortenson) to name an individual within its organization who was responsible for the overall management of the contractor’s quality control program (“CQC System Manager”). That person was to be on site at all times. The CQC specification used by the Corps expressly stated that the CQC System Manager “shall be employed by the Contractor. . .”

The CQC staffing specifications also required that a registered mechanical engineer and a registered electrical engineer be on site on a full time basis from the date that the respective discipline’s submittals were available for review until the respective discipline’s work was completed. Unlike the specification applicable to the CQC System Manager, there was no requirement that either the mechanical or electrical engineer be employed by the “Contractor”. After performance began, Mortenson introduced one of the mechanical subcontractor’s employees as its mechanical engineer on the quality control staff.

The Corps’ Administrative Contracting Officer (“ACO”) required that both the mechanical engineer and the electrical engineer be employees of Mortenson, not its subcontractors. Following an exchange of letters, which addressed Mortenson’s opinion that the COE’s interpretation was a change to the contract, the Corps’ ACO wrote Mortenson and stated:

. . . Upon further review, I agree that the contract did not specifically require the mechanical and electrical quality control personnel to be directly employed by the prime contract; consequently, I agree that my previous directive was a change to the contract requirements.

The ACO and Mortenson could not agree that any compensation was actually due for this “change.” Ultimately, the Corps issued a unilateral modification which altered the CQC specification to expressly require that both engineers be “employed directly by the Contractor”. On appeal, Mortenson sought in excess of $750,000 on behalf of itself and the two affected subcontractors due to this changed requirement. The ASBCA denied the appeal on all bases.

Analysis of CQC Requirements

The ASBCA rejected the argument that it should defer to the “admissions” (statement of agreement) by the Corps’ ACOs (actually two different individuals) that the directives to Mortenson that it employ the mechanical and electrical engineers were changes. Simply ignoring the principle that some weight should be afforded to the parties’ mutual or pre-dispute interpretation, the ASBCA stated that what the two Corps’ employees admitted was “inconsequential” and that the Board found “no value in ‘admissions’ regarding how [it] should interpret the contract.”

Relying on the Federal Circuit’s decision in England v. Sherman R. Smoot Corp., 388 F.3d 844, 856 (Fed. Cir. 2004), the Board gave no weight to the unilateral modification. Under the Smoot decision, an interim decision such as the unilateral modification does not bind the government on appeal. In this case, it was given no evidentiary weight.

The ASBCA then addressed the merits of Mortenson’s interpretation argument. In the Board’s opinion, the absence of the requirement that either the mechanical or electrical engineers be employees of the prime contractor was not material. The Board noted that the contract required Mortenson to ensure that the work of the subcontractors complied with the contract documents. In the ASBCA’s view, allowing the subcontractors to “police themselves” when the contract placed that responsibility on Mortenson frustrated the very purpose of requiring Mortenson to establish an effective quality control staff. (Actually the contractor has to “police itself”, but this was not discussed by the ASBCA either.) The Board offered no explanation for the purpose of the express requirement in the specifications that the CQL System Manager be employed by the contractor. In effect, under the Board’s analysis that requirement simply became a group of surplus words.

Comments

• In federal government contracting in the 21st century, unilateral modifications may have little value or weight upon appeal to a board or the Court of Federal Claims. This is a change from the customary expectation that the boards would not, in general, undo the benefit of an unilateral modification.
• Do not anticipate that the traditional principles of contract interpretation will be followed if a board finds an overriding policy purpose for a particular requirement. In the ASBCA’s view, Mortenson’s interpretation produced “a weird and whimsical result” and it was rejected on that basis.
• If you are about to bid or submit a proposal on a federal government contract, review the CQC staffing specification included in the proposed contract documents.

The Corps has a very effective internal system for distributing “helpful” information. We are accustomed to seeing references to Mortenson if the topic is field overhead. Now Mortenson will be cited for CQC staff requirements.

Thomas J. Kelleher, Jr.
404/582-8016
[email protected]
Member of the State Bars of Georgia and Virginia