Government Contracts Government Responsible for Costs of Aborted Docking Evolution
Tuesday, August 11, 2020

Government Responsible for Costs of Aborted Docking Evolution

By Government Contracts Editorial Staff

A contractor was entitled to costs associated with the unsuccessful dry-docking of a Navy destroyer, the Armed Services Board of Contract Appeals ruled, because an instruction incorporated into the contract placed responsibility for the costs on the government. The delivery order for the maintenance, modernization, and repair of the USS Truxtun included major milestones for docking and undocking. When the contractor hauled the vessel onto its dry-dock, the starboard inhaul cable snapped. The contractor then switched to manual operation, but one of the outhaul cables “came off the reel and started catching inside the box.” The contractor recommended cutting the fouled outhaul cable and continuing with the docking, but the government directed the contractor to abort the dry-docking and undocking process, referred to as an “evolution,” and return the vessel to the pier. In denying the contractor’s request for an equitable adjustment, the government cited safety issues arising from a five-hour schedule delay and a severely degraded operating system. On appeal from the deemed the denial of the subsequent claim, the board rejected the contractor’s constructive change and abuse of discretion arguments.

Cost Impacts. The contractor prevailed based on a portion of a Navy instruction incorporated into the delivery order addressing “cost impacts.” The instruction stated that when “the ship’s safety or other Navy interests would be jeopardized by the action of the contractor,” the government’s docking observer must “direct the [contractor] to refrain from such action until the issue is resolved.” The instruction further stated “[s]uch a procedure will not relieve the contractor of responsibility but will protect the Navy’s interest even though there may be cost impact.” The instruction also made clear “[s]afety and protection of the Navy’s interest in the vessel shall take precedence over concern for possible cost impact.” The “cost impact” language was susceptible of two interpretations—cost to the contractor or cost to the government. Although it did not make sense that the government would be concerned about costs to the contractor compared to safety of the ship, that interpretation fell within the “zone of reasonableness.” As a result, there were two reasonable interpretations, which meant the language was ambiguous.

Latent Ambiguity. The ambiguity was not patent, so the contractor did not have a duty to inquire about the meaning of “cost impact.” If an ambiguity is latent, the language will be interpreted against the drafter pursuant to contra proferentum. Here, the government must have had a reason to put the “cost impact” language in the instruction, and the board could not ignore it at the contractor’s expense. One reasonable construction of the government’s intent was that it wished to encourage the docking observer to halt the docking whenever there were safety concerns but did not wish to punish the contractor when the observer, in retrospect, was being overly cautious. In any event, the government wrote the instruction and could clarify its intent, but in this case, it had to “live with the ambiguity it created.” The board concluded that the contract placed responsibility for the “cost impact” of the docking observer’s decisions on the government, sustained the appeal, and remanded the case for a determination of quantum. (Metro Machine, ASBCA, ¶96,066).

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