This week, the Federal Circuit heard oral argument in Hawaiian Dredging Construction Co. v. United States, a government contract case on appeal from the Court of Federal Claims. In it, the Federal Circuit is reviewing a dismissal of a complaint seeking damages based on alleged government-caused delays in a contractor’s fulfillment of its contractual obligations. Judges Dyk, Clevenger, and Prost heard the oral argument. This is our argument recap.
Michael Zisa argued for Hawaiian Dredging Construction Co. He began by arguing that the Court of Federal Claims erred for four reasons. First, he explained that it erred by “effectively finding that Hawaiian Dredging assumed all risks under a firm fixed price contract.” He explained that such a finding “ignored well settled law that, under a fixed price contract, a contractor is entitled to increased costs . . . resulting from the government’s directed or constructive changes.” Second, he argued, the lower court “did not accept Hawaiian Dredging’s well plead allegations as true” or “construe the allegations in the light most favorable to Hawaiian Dredging.” Third, he said, the lower court “erred in dismissing portions of Hawaiian Dredging’s claims that weren’t subject to the motion to dismiss and weren’t addressed in the opinions or briefings.” Lastly, he briefly argued, the lower court “abused [its] discretion.”
A judge asked about the supposed claims that weren’t addressed by the lower court. Zisa explained that “the contracting officer’s final decision” determined that “there were several line items in the final payment application” that “constituted an overpayment totaling $892,000.” In the final decision, “the contracting officer said Hawaiian Dredging had to reimburse the money,” and in its “complaint Hawaiian Dredging challenged the decision.” He argued, however, that this particular claim “wasn’t addressed in any of the briefings” and yet “was dismissed, which left Hawaiian Dredging with no recourse.” On this issue, the same judge later asked whether, “under the government’s view of the repayment provision,” the government is arguing it is “entitled to the repayment because your claim was dismissed.” Zisa agreed.
Related to the argument that Hawaiian Dredging is entitled to increased costs resulting from government delays, another judge noted the absence of the argument in the government’s brief that, if “there is an absence of any provision in the contract with time, you read in a reasonable time requirement.” According to Zisa, Hawaiian Dredging “alleged it was not foreseeable that it was going to take four months . . . for the government to obtain” a right of way, which would allow Hawaiian Dredging to complete its work. In response, a judge asked “how much time was left at the back end,” once the government obtained the required rights of ways. Zisa responded that “there was still a long contract duration to perform the work,” but, he said, what is important is the “impact of that four month delay.” He noted that Hawaiian Dredging was “80% complete with the design” when the final right of way was received.
Russell Upton argued for the United States. A judge quickly asked, “why didn’t you address the reasonable time issue in your brief?” A judge similarly commented that “that’s an argument that you could have made in your brief, but you didn’t.” Later, after Upton admitted that the argument was raised in the blue brief, a judge remarked that “the failure to address it really amounts to a forfeiture of the argument.” Upton, however, disagreed.
A judge commented that it seemed clear that Hawaiian Dredging is alleging “it was unreasonable for the government to take so long to get” the rights of ways, and not “exclusively” because the government didn’t get them before Hawaiian Dredging was in breach. In response, Upton argued “the reasonableness issue doesn’t come into it, because that was not the claim presented to the contracting officer.”
A judge asked a series of questions regarding Hawaiian Dredging’s recoupment claim. During this discussion, Upton conceded that it was “raised for the first time in the briefing at this court” and “was not raised in the motion to dismiss.” Upton later argued that “the repayment and the utilities issues are connected.” He indicated that “the contract was clear” and the “utilities claim was presented” and dismissed. He argued “the way the court ruled was that the contract was clear that dealing with utility companies [and] preparing utility agreements . . . was solely the responsibility of the contractor.” A judge clarified by asking whether Hawaiian Dredging’s argument is that “the government delayed in signing off on the utility agreements.” Upton responded by suggesting that is a “mischaracterization of the underlying claim.” He explained that, “if you read the claim itself in the contracting officer’s final decision, . . . the issue is the delay by non-party utility companies in performing utility work.”
In Zisa’s rebuttal, a judge asked him whether the argument is that the government needed to get the rights of way beforehand, or “whether your complaint also covered the unreasonableness of the delay of doing it while the contract was ongoing.” In response, Zisa read aloud from the complaint. He argued the relevant agency “ignored its responsibility for causing project delays” and the “unforeseen . . . delay to timely secure the final right of way . . . delayed the final road design and grading.” He explained that, “after the notice to proceed was issued,” Hawaiian Dredging anticipated that the right of way “was going to be provided in a reasonable amount of time.” Ultimately, he argued, “we believe that it was not provided in a reasonable amount of time,” which “constituted a change to the contract.”
Next, he argued, while Hawaiian Dredging was “responsible” for relocation work and had “to coordinate with utility owners,” once the agreements were prepared “they were for the government to sign.” He highlighted that the “allegation is that the government sat on its hinds and didn’t sign those” agreements.
We will continue monitoring this case and report on developments.