Category Archives: FAR contracts

Final Acceptance of Work on a Construction Project – Implications – Part 3 of 5

In certain cases, final acceptance can mean that the owner has acknowledged that the work met the requirements of the plans and specifications, barring the owner from later asserting differently. In an Ohio case, Beasley v. Monoko, Inc., 958 N.E.2d 1003 (Ohio App. 10th Dist. 2011), the Ohio Department of Transportation (“ODOT”) made final inspections and acknowledged final acceptance of work on a bridge painting contract. ODOT then made final payment to the contractor. Several years later, post-completion inspections connected with a statewide highway contractor kickback investigation, revealed that the original painting work had not been performed correctly. ODOT then sued the contractor arguing that its acceptance ODOT then sued the contractor arguing that its acceptance of the work did not mean that ODOT could not demand full compliance with the plans and specifications. The contractor argued that ODOT’s final inspection and acceptance of the work precluded all subsequent allegations that the work was not performed properly. The court relied on the common law and on specific language in the contract and found ODOT’s formal acceptance of the work was a legal acknowledgement that the work met the requirements of the plans and specifications. The court cited the following contract language:

This contract will be considered complete when all work has been completed and the final inspection made, the work accepted and the final estimate approved, in writing by the director. The Contractor will then be released from further obligations except as set forth in his bond.

The quoted language indicated that “final acceptance” was effectively a final acknowledgement of contract compliance and thus precluded any subsequent arguments that the contractor had not performed properly. The court therefore dismissed all claims against the contractor.

Final Acceptance of Work on a Construction Project – Implications – Part 2 of 5

Contracts often define how final acceptance will occur, but that is not always the case. In federal government contracts, the contracting officer will often issue a letter formally “accepting” the work, or designated portions thereof. On the other hand, some form contracts avoid using the term “final acceptance” in favor of discussing the conditions the contractor must satisfy to obtain the release of “final payment.” For example, the Consensus DOCS standard “General Conditions” state that when “Final Completion” has been achieved, the contractor may invoice for its “Final Payment.”
Even though contracts may avoid using “final acceptance” language, the law will always recognize that at some point in the closeout process, the owner “accepts” the work as performed and the risk of loss passes to the owner. While the precise moment of “final acceptance” cannot always be determined, contractors should nevertheless be aware of the significance of this contract milestone and the restrictions it places on the owner’s right to subsequently require corrections to the work.

Design Professional’s Obligation to Redesign if Bids Are Too High

Federal government design contracts typically include clauses related to a designer’s obligations and potential liabilities. One clause, FAR 52.236-22, Design Within Funding Limitations (“DFL” clause) obligates the design professional to prepare a design for the project, which will permit the award of a construction contract at a price that does not exceed the estimated construction price set forth in the contract with the designer. If the bids or proposals exceed that estimated price, the DFL clause obligates the design professional to perform such redesign services at no cost to the government in order to permit a contract award within the funding limits.
In the last few years, the cost of construction has experienced very little or any growth due to inflation. In fact, bids or proposals have often been well below pre-recession government estimates. As with most economic cycles, that recent trend will end eventually and federal agencies may face escalating construction prices as compared to construction estimates developed in the 2009-2012 time frame. What is the potential extent of the design professional’s liability when that occurs? A recent decision of the Civilian Board of Contract Appeals, Moshe Safdie and Assoc., Inc. v. GSA, CBCA No. 2386, 11-2 BCA ¶ 34,851 clearly indicates that a designer’s potential liability may well extend beyond a duty to re-design the project at no cost to the government.

In the Moshe Safdie matter, the GSA the designer agreed to design a courthouse with an estimated adjusted target price of $43.8 million. Bids on the original design “significantly exceeded” the $43.8 million target.The designer performed the re-design, but the new bids also exceeded the $43.8 million target. The GSA then awarded a construction contract for $53,314,000 and made a claim for $5,275,880: the additional amount expended by the government due to the designer’s failure to deliver contract-compliant bid documents. GSA asserted that because contract-compliant documents were not delivered until 20 months after the due date it incurred escalated construction costs.

The CBCA held that in certain circumstances, the government may be able to recover delay or consequential damages and stated that it needed to address several factual and legal issues including:

  • The foreseeability of the delay damages sought by GSA;
  • The effect of the Responsibility of Architect-Engineer Contractor clause on the designer’s obligations;
  • The parties’ pre-dispute, contemporaneous interpretation of the DFL clause;
  • The parties’ intent and possibly trade practices and customs.