Maladministration of a Construction Contract: Part 3

A contractor has the right to enjoy least-cost performance consistent with its scope of work and compliance with the contractual specifications. Unless the contract specifies otherwise, the owner may not interfere with the contractor’s sequencing of work or methods of construction. Maladministration is an entitlement the courts recognize that allows contractors to recover costs when the owner’s actions or inactions interfere with the contractor’s work.

Maladministration rulings are often based upon the doctrine of implied warranty that provides “an implied provision of every contract … [is] that neither party to the contract will do anything to prevent performance thereof by the other party, or that will hinder or delay [the other party] in its performance.”¹

This is the third blog post in a three-part series on maladministration claims in construction contracts. The first post describes constructive change, method of performance, overzealous inspection, and third-party interference with the contractor’s work as examples of maladministration of a construction contract, and the second post discusses failure to assign work and failure to coordinate. This third post considers restriction of work hours, failure to direct the work, and additional examples of maladministration, as well as contractor’s remedies for when the owner fails to properly administer the contract.

Restriction of Work Hours
Interference with the contractor’s ability to work by restricting its work hours may constitute maladministration. In La Madera Services,² a claim was sustained for the cost of maintaining drilling equipment on a well-drilling site on weekdays on which the contractor was denied the opportunity to operate the equipment for the 12 hours per day that it had planned. The contract prohibited performance on weekends and holidays, when the contractor had also wished to operate, but it did not limit the number of hours per workday. The BCA ruled that the contractor was entitled to recover costs for lost work hours due to being restricted to an eight-hour workday.

Failure to Direct
Failure by the owner to direct the contractor also may constitute maladministration. In Dunbar & Sullivan Dredging Company,³ a contractor performing a tandem hydraulic dredging and embankment fill operation was entitled to an equitable adjustment for costs incurred because of the contracting officer’s failure to direct a change to the contract.

Material was sucked up from an adjacent river bottom and pumped to the fill operation, where it was placed and shaped according to levee design. Large amounts of unsuitable material were dredged and placed within the cross section of the levee embankment. Under one of the contract paragraphs, the contracting officer had a duty to direct the removal of the unsuitable material and/or direct a relocation of the dredge to find more favorable material. Any such direction by the contracting officer would then have been compensated under the changes clause.

The government’s admission that the paragraph was provided in the contract to deal with such a contingency dispelled any doubt as to an assumption of risk for unsuitable material. The repeated complaints of the contractor’s subcontractor, corroborative daily reports indicating the dredging of unfavorable material, and the substantial mud/silt flow ahead of the fill operation all served as sufficient notice to the contracting officer that a situation that should have triggered a change existed. Rather than issuing a change, however, the contracting officer chose to evade responsibility in various ways.

At the end of the project, a large amount of unsuitable material accumulated, and the work could not be completed until this material was removed. After repeated denials of responsibility by the government, the contractor was required to remove the unsuitable material at its own expense. The BCA concluded, “Appellant is entitled to an equitable adjustment in the contract price for the increased costs of complying with the constructive change to its contract …”⁴

Other Examples
In addition to the above examples, maladministration can occur if the owner fails to: issue a progress payment when due; grant a legitimate request for an extension of time; follow a contractual termination procedure, which may then result in a wrongful termination; properly communicate information to the contractor; accept equal substitutions; reasonably approve proposed subcontractors; respond to requests for information; correctly interpret the specifications; or recognize valid change order requests.

Contractor’s Remedies
These cases illustrate actions or inactions by the owner that unreasonably interfere with the contractor’s right to enjoy least-cost performance. In almost all cases of maladministration, the orders of the owner are found to be overt acts or communications that knowingly force or induce the contractor to perform in a manner the owner desires. To be unreasonable in exercising its discretion, the owner must deny the contractor a reasonable method of performance with no commensurate benefit to the owner.

If the contractor believes that owner actions or inactions represent maladministration, the contractor should send letters to notify the owner of all owner-caused impacts. The contractor should document any owner-caused cost and schedule impacts. Finally, the contractor should maintain a log of documents sent to the owner for review, notify the owner when time requirements are not met, and record the actual dates that the documents were returned. While the contractor may not be able to prevent maladministration by the owner, these simple actions by the contractor can mitigate the impact of maladministration and help to secure the contractor’s right to recover its increased costs and time of performance.

¹     George A. Fuller Co. v. United States, 69 F. Supp. 409 (108 Ct. Cl. 1947).

²     La Madera Services, ASBCA 29518, 87-1 BCA ¶ 19621 (1987).

³     Dunbar & Sullivan Dredging Company, ENGBCA 5218, 87-2 ¶ 19,773 (1987).

⁴     Id.

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