Moshe Safdie and Associates, Inc. v. General Services Administration, CBCA 2386, October 13, 2011.
A well recognized and highly regarded architectural firm recently found out the hard way that the government’s Limitation on Funding (“LOF”) contract clause, FAR 52.236-22, is not to be trifled with. Moshe Safdie and Associates, Inc. (“MSA”) has appeared on the cover of Newsweek and is a frequent guest of such notable TV personalities as Charlie Rose.
The dispute arises from a contract between the General Services Administration (“GSA”) and the MSA firm for the design of a courthouse in Springfield, MA. The design contract, in the amount of $2.3 million, required the architect to deliver bid-ready documents within 27 weeks and contained a construction cost limit of $35 million. The LOF clause in the contract put a limit on the construction costs and read as follows:
“When bids or proposals for the construction contractor received that exceed the estimated price, the contractor [MSA] shall perform such redesign services as are necessary to permit contract award within the funding limitation. These additional services shall be performed at no increase in the price of the contract.”
Bids came in higher on the original courthouse design than the cost limitation of $35 million. The GSA then adjusted the construction cost limit to $43.8 million and directed MSA to redesign the project to meet this new limit. MSA proceeded with the redesign, but the second round of bids also exceeded the new price limit of $43.8 million. The GSA did not then seek further redesign from MSA, but instead, it entered into a construction contract for approximately $53 million ($18 million higher than the original cost limitation of $35 million).
MSA ultimately filed a claim against GSA seeking payment for approximately $3 million in uncompensated changes to MSA’s design drawings. The GSA counterclaimed, seeking 5.2 million because MSA was 20 months late in delivering the bid-documents, which caused the GSA to receive bids that reflected increased construction costs.
MSA sought a summary judgment (judgment as a matter of law and without a trial) contending that the contract barred the GSA’s counterclaim for construction cost escalation. MSA asserted that because the LOF clause provided a specific remedy for contract breach, redesign of the project to meet the construction cost limit, that the GSA could not seek damages beyond that specific and narrow remedy. MSA took the position that the GSA was limited to redesign services at no cost only and thus, the GSA was barred from pursuing any other forms of relief such as consequential damages for construction cost escalation.
The Civilian Board of Contract Appeals disagreed. It held that GSA is entitled to both “specific performance” (additional design services at no cost) and damages for breach (the difference between the revised construction limit and the price of the construction contract the GSA ultimately awarded). The Board held that “while the [LOF] clause might be read to provide an exclusive remedy by implication,” the clause did not use any wording regarding delay damages. Thus, MSA’s argument failed and the GSA’s $5 million claim was permitted to proceed to trial.
This case is a wake up call for designers that they can face consequential damages if they are late in performing their work. Many private construction design contracts now contain waivers of consequential damages and limitation of liability provisions, however, this government contract contained no such clauses.
To the extent MSA sought the LOF clause to be narrowly interpreted, exclusive remedies (like liquidated damage clauses) need to be written very precisely to be enforced. In this instance, the Board believed that the FARs were not narrowly drafted, and thus permitted the government to seek consequential damages.