Government Contracts Damages Award for Avgas Remediation Upheld
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Tuesday, August 21, 2018

Damages Award for Avgas Remediation Upheld

By Government Contracts Editorial Staff

The Court of Appeals for the Federal Circuit affirmed a damages award because the Court of Federal Claims did not err in determining that all costs for remediating an aviation gas disposal site were attributable to World War II avgas contracts. Appealing a $99.5 million damages award, the government contended the CFC “failed to allocate between recoverable and non-recoverable costs” when it found all of the clean-up costs attributable to avgas production under the contracts. According to the government, the CFC failed to apply “longstanding canons of contractual interpretation” and allocate costs based on the relevant clause in the contracts. However, the Federal Circuit previously determined the government was required to pay all remediation costs incurred by reason of the avgas contracts, so further contract interpretation was not necessary for the damages inquiry, and the CFC was free to determine that some or all of the waste was attributable to the contracts.

Secondary Waste Product. Addressing the government’s other arguments, the Federal Circuit determined the CFC did not err in adopting the year 1946 as the relevant timeframe for the “but-for” analysis, because it gave greater weight to the contractors’ evidence that 1946 reflected “normal” refinery operations. Also, the CFC properly included acid sludge in the damages calculation because, even if the acid sludge was a secondary waste product, it was still directly related to the initial reaction used to create avgas, the contracts explicitly acknowledged avgas production would result in the production of acid sludge produced from treatment of non-avgas products, and the government was aware the contracts’ 6–7 percent profit margin required the contractors to maximize revenues from non-avgas petroleum by-products. Finally, the CFC did not clearly err in allocating acid sludge from non-contractual avgas production, and there was no evidence any waste derived from production of non-contractual sales of avgas was actually dumped at the site. (Shell Oil Co., et al. v. U.S., CA-FC, 62 CCF ¶81,435).

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