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By W. Samuel Niece
Howrey LLP
The Court of Federal Claims has held that the 6 percent limitation on design services applied to the architecture and engineering ("A&E") component of a contract between the National Oceanographic and Atmospheric Administration and a contractor for comprehensive project planning and construction management services for modernization and consolidation of NOAA's 100-plus weather forecasting facilities. But, the court held, because NOAA failed to comply with the 6 percent limitation in awarding the contract, the A&E portion of the contract was void ab initio (invalid and not enforceable) even though the contractor had fully performed the contract - including the A&E portion. Fluor Enterprises, Inc. f/k/a Fluor Daniel, Inc. v. United States, 64 Fed.Cl. 461, 2005 U.S. Claims LEXIS 78 (2005).
The Law
Under 41 USC §254:
(a). Except as provided in subsection (b) of this section, contracts awarded after using procedures other than sealed-bid procedures may be of any type which in the opinion of the agency head will promote the best interests of the Government..
(b). [I]n the case of a cost-plus-a-fixed-fee contract. a fee inclusive of the contractor's costs and not in excess of 6 percent of the estimated cost, exclusive of fees, as determined by the agency head at the time of entering into the contract, of the project to which such fee is applicable is authorized in contracts for architectural or engineering services relating to any public works or utility project..
Under the Brooks Architect-Engineers Act (Brooks Act), 40 USC §§541-544, all A&E services must be procured through negotiated procurement procedures that focus on professional qualifications rather than price.
Accordingly, contracts for A&E services are procured through "procedures other than sealed bid-procedures" and are, therefore, subject to the 6 percent fee limitation.
The Contract
In 1986, NOAA entered into a negotiated, level-of-effort contract with Fluor to manage the consolidation of 249 weather offices into 116 weather forecasting offices as part of a comprehensive modernization of the National Weather Service. Fluor's work under the contract included planning, design and construction management. The actual construction was done under sealed-bid construction contracts awarded by NOAA and administered by Fluor.
Fluor ultimately received $42,531,626 for all of its services under the contract. After the work was done and Fluor had been paid, the NOAA contracting officer asserted that: (a) $5,551,549 of this $42,531,626 applied to A&E services; (b) the total estimated cost of construction designed by Fluor was $49,852,262; (c) 6 percent of $49,852,262 was $2,991,136; and (d) Fluor should repay $2,560,413 ($5,551, 549 - $2,991,136) to NOAA on the basis of 41 USC §254 (b)'s 6 percent limitation on A&E fees.
The Dispute
The contracting officer issued a final decision demanding repayment of the $2,560,413. Fluor filed a complaint in the U.S. Court of Federal Claims challenging the contracting officer's final decision and seeking a judgment that Fluor was not liable for any overpayment, arguing that the 6 percent fee limitation in §254 (b) was not applicable. Fluor and the federal government filed cross-motions for summary judgment on entitlement.
In finding for the government on the applicability of the 6 percent fee limitation, the court rejected Fluor's argument that the NOAA contract was for design-build. NOAA did not become authorized to use design-build until passage of the Clinger-Cohen Act (41 USC §253 m) in 1996. In addition, Fluor's contract included construction management but not construction. Accordingly, the Court found that the NOAA project used the traditional design-bid-build method of project delivery rather than design-build.
After finding in favor of the government on the applicability of the 6 percent fee limitation, the court then went on sua sponte (on its own motion) to examine the validity of the A&E portion of the contract. Recall that §254 (b) allows a fee for A&E services "not in excess of 6 percent of the estimated cost, exclusive of fees, as determined by the agency head at the time of entering into the contract, of the project to which such fee is applicable." [emphasis added]
The court found that NOAA had not estimated the construction costs at the time it entered into the contract but instead attempted to apply the 6 percent limitation to cost estimates developed by Fluor well into contract performance. The court held that NOAA's failure to estimate the cost of construction at the time of contract award (and thus the 6 percent limitation on A&E services) meant that the A&E portion of the contract was void ab initio (from the beginning).
The court found that because the contract had been fully performed, Fluor should be compensated on a contract-implied-in-fact or quantum meruit basis and "strongly urge[d] the parties to seek settlement on the issue of the reasonableness of Fluor's payments."
The Court of Federal Claims has retained jurisdiction in an attempt to facilitate a settlement. At a May 13, 2005, telephonic status conference, the parties indicated that settlement discussions were under way. A joint report on the status of these discussions is due on August 12, 2005.
Lessons Learned
As the court noted: "Fluor bore the risk that the contracting officer's failure to comply with the statute [§254 (b)] might undermine his authority to enter into a contract of the type here and that the contract might be later deemed unenforceable."
Thus, government contractors may find it advisable to conduct their own due diligence to assure themselves that the contracting officer knows the law and is applying it correctly.
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For more information about the issues covered in this report, please contact W. Samuel Niece in our San Francisco office at 415-848-4979 or at nieces@howrey.com or contact your Howrey attorney. For more information about Howrey's Construction Practice Group, click here.
©2005 Howrey LLP
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