Differing site conditions, delay, breach of implied warranty, withholding superior knowledge, and wrongful termination of U.S. Army Corp of Engineers dredging contract. Marine Industrial Construction, LLC, v. the United States. United States Court of Federal Claims (2022), by Hugh Anderson

Summary: Marine Industrial is a dense, fact-laden 58-page decision that addresses numerous issues of interest. This summary will focus on just one of the issues: the project owner’s withholding of superior information.

The 2014 Corps of Engineers contract called for dredging of the Quillayute Waterway (including an adjacent marina known as the boat basin) in La Push, Washington. The waterway is dredged every 2-3 years. The contractor, Marine Industrial Construction, had 60 years of experience as a dredger, but did not have recent experience with the Waterway. Marine was not aware that the 2014 bidding/contract documents were different from previous documents for dredging the Waterway. The Corps had been frustrated by not receiving enough interest from bidders in past years, so it streamlined the 2014 solicitation by (among other things) revising the specifications and removing warnings to bidders about the presence of “sunken boats, fishnets, steel trolling wire, and machinery”—conditions that the reviewing court summarized as “all likely to cause frequent downtime.”

The solicitation for the contract urged bidders to conduct a site visit to inspect the “character, quality, and quantity of surface and subsurface materials or obstacles,” but the site visit was not mandatory. Marine Industrial did not inspect the site.

After the bids were received, the Corps advised Marine Industrial that its low bid was 31% below an independent government estimate, and “significantly lower than all other bids,” and therefore asked Marine to verify its bid. Marine did so and the government awarded the contract to Marine. Various delays, weather problems, and dredging issues hampered the contractor’s progress, leading the government to issue a cure notice, a show-cause letter, and finally a termination for cause. Marine Industrial sued the government for wrongful termination and the government countersued for damages related to procuring a replacement contractor.

Decision: During the litigation in the Court of Claims, Marine Industrial contended that the Corps had withheld superior knowledge regarding minimum pipe size for the dredging discharge; debris; log traffic on the Waterway; and clay soil conditions. The claims regarding log traffic and clay were rejected, but Marine was successful in establishing breach of contract based on the government withholding knowledge regarding the pipe size and debris.

To show a breach of contract under the superior knowledge doctrine, the plaintiff must produce specific evidence that it (1) undertook to perform the work without vital knowledge of a fact that affects performance, cost, or duration; (2) the government was aware that plaintiff had no knowledge of and had no reason to obtain such information; (3) the applicable contract specification misled plaintiff or did not put it on notice to inquire; and (4) the government failed to provide the relevant information.
As to minimum dredging pipe size, previous dredging contracts for the Waterway had contained a specification requiring a 12-inch minimum discharge pipe size. This requirement was removed from the 2014 contract, as part of the government’s effort to streamline the procurement, increase bidding, move toward a performance-based contract, and avoid dictating the contractor’s means and methods. The

Court of Federal Claims ruled:
Once the government sets a minimum requirement for a solicitation, it is not required to maintain that minimum requirement for every subsequent solicitation. Where, however, the government establishes a minimum requirement that it uses for several years—one it identifies multiple times as minimally “sufficient”—and then fails to inform bidders that it has removed the minimum requirement, the government impermissibly withholds vital knowledge.

As to debris, the court rejected the government argument that Marine Industrial could have gained knowledge of the presence of debris in the boat basin by conducting a site visit. In testimony, the government’s contracting officer had admitted that a site visit would not have revealed “what is beneath the water.” More importantly, in contrast to prior solicitations that had included specific information about substantial man-made debris, the government had informed bidders in 2014 that bidders “may encounter accumulations of forest trash, sunken logs, stumps, and miscellaneous debris….Except as indicated, the government has no knowledge of cables, pipes, or other artificial obstructions or of any wrecks, wreckage, or other material that would necessitate…additional equipment for economical removal.” The court stated:
From a bidder’s perspective, if the contracting agency preemptively stated it had no knowledge of such things, then most bidders would exercise their “right to rely on the government’s specifications,” as it would be highly unlikely any investigation or inquiry on the part of the bidder would reveal any more information. By making such patently false representations, the government must have been fully aware plaintiff was without knowledge of the over thirty years of man-made debris and sunken vessels that awaited plaintiff in the boat basin. Plaintiff could not possibly possess knowledge which the on-site contracting agency allegedly lacked…no contractor could have discovered the boat basin contained over thirty years of man-made debris accumulated from its use as a “garbage dump.”

The court summarized that “the superior knowledge doctrine imposes upon a contracting agency an implied duty to disclose to a contractor otherwise unavailable information regarding some novel matter affecting the contract that is vital to its performance” (quoting a controlling federal decision on the subject).

Comment: The EJCDC standard documents address owner disclosures regarding site conditions, the presence of hazardous materials, and utilities (Underground Facilities). The superior knowledge doctrine is somewhat broader in scope—disclosure of any information that would be vital to contractor’s performance—but as indicated in the Marine Industrial case, this is an implied duty, not typically an express contract provision.