When a contractor takes on the responsibility to obtain permits and comply with governmental requirements in constructing a project, it also takes on the risk that those permits and requirements will be more onerous than anticipated. No matter how experienced a contractor is at estimating, sequencing and planning a job, the unforeseen may leave it without a remedy when things don’t go as expected.
Such was the case in Bell/Heery v. United States, 739 F.3d 1324 (Fed. Cir. 2014). The plaintiff was awarded a $238 million project by the Federal Bureau of Prisons to design/build a new correctional facility in Berlin, New Hampshire. Included in its contract was the following clause, a variant of which is commonly found not only in federal but in state and private construction contracts: “The Contractor shall, without additional expense to the Government, be responsible for obtaining any necessary licenses and permits, and for complying with any Federal, State, and municipal laws, codes, and regulations applicable to the performance of the work.”
Bell/Heery assumed, based on its earlier experience with the New Hampshire Department of Environmental Services, that it would be able to perform “cut and fill” operations in a single step, moving earth from the high area of the site to the low area to level the terrain. That proved to be wishful thinking. DES conditioned its Alteration of Terrain permit on disturbing a maximum of forty acres at any given time, and then imposed a number of multi-step requirements which, according to the contractor, “caused excessive re-handling and handling of materials, increased equipment and manpower needs, caused problematic stockpile management, required additional import materials, increased costs for erosion control measures, added temporary stabilization areas, required temporary stockpile stabilization, required additional areas of restoration and rework and necessitated work during unanticipated winter weather conditions.” Id. at 1329. Bell/Heery sought an adjustment of over $7 million as compensation for these unanticipated burdens.
The federal Court of Claims would have none of it, and the appellate court likewise rejected the claim, finding that the burden of obtaining and complying with state and local permits for the project was on the contractor. Moreover, the court ruled that no equitable adjustment was due because the federal government did not control the actions of the state environmental agency, and had no duty to intervene on the contractor’s behalf.
Although the case was decided under federal law, don’t expect a different rule under New Hampshire law. Our Supreme Court has stated that “One who by contract or agreement binds himself to an obligation possible to perform must perform it, and he will not be excused from performance because of unforeseen difficulties.” Town of Bedford v. Brooks, 121 N.H. 262, 266 (1981). Unlike a post-execution change in the law, misgauging at bid time how an existing set of regulations will be applied by the regulator “is not a case where an unforeseen situation has arisen since the execution of the agreement,” Colebrook Water Company v. Parsons, 88 N.H. 217, 219 (1936).
Faced with contract language similar to Bell/Heery’s – such as AIA A201 § 3.7.2 (“The Contractor shall comply with and give notices required by applicable laws, statutes, ordinances, codes, rules and regulations, and lawful orders of public authorities applicable to performance of the Work”) – a wise contractor will confirm his understanding of the applicable regulatory requirements, preferably in writing, with the agency involved before finalizing his bid. Even if the agency is noncommittal on a proposed construction methodology, valuable insight can be gained in the dialogue, and the risks can be better quantified.
Such was the case in Bell/Heery v. United States, 739 F.3d 1324 (Fed. Cir. 2014). The plaintiff was awarded a $238 million project by the Federal Bureau of Prisons to design/build a new correctional facility in Berlin, New Hampshire. Included in its contract was the following clause, a variant of which is commonly found not only in federal but in state and private construction contracts: “The Contractor shall, without additional expense to the Government, be responsible for obtaining any necessary licenses and permits, and for complying with any Federal, State, and municipal laws, codes, and regulations applicable to the performance of the work.”
Bell/Heery assumed, based on its earlier experience with the New Hampshire Department of Environmental Services, that it would be able to perform “cut and fill” operations in a single step, moving earth from the high area of the site to the low area to level the terrain. That proved to be wishful thinking. DES conditioned its Alteration of Terrain permit on disturbing a maximum of forty acres at any given time, and then imposed a number of multi-step requirements which, according to the contractor, “caused excessive re-handling and handling of materials, increased equipment and manpower needs, caused problematic stockpile management, required additional import materials, increased costs for erosion control measures, added temporary stabilization areas, required temporary stockpile stabilization, required additional areas of restoration and rework and necessitated work during unanticipated winter weather conditions.” Id. at 1329. Bell/Heery sought an adjustment of over $7 million as compensation for these unanticipated burdens.
The federal Court of Claims would have none of it, and the appellate court likewise rejected the claim, finding that the burden of obtaining and complying with state and local permits for the project was on the contractor. Moreover, the court ruled that no equitable adjustment was due because the federal government did not control the actions of the state environmental agency, and had no duty to intervene on the contractor’s behalf.
Although the case was decided under federal law, don’t expect a different rule under New Hampshire law. Our Supreme Court has stated that “One who by contract or agreement binds himself to an obligation possible to perform must perform it, and he will not be excused from performance because of unforeseen difficulties.” Town of Bedford v. Brooks, 121 N.H. 262, 266 (1981). Unlike a post-execution change in the law, misgauging at bid time how an existing set of regulations will be applied by the regulator “is not a case where an unforeseen situation has arisen since the execution of the agreement,” Colebrook Water Company v. Parsons, 88 N.H. 217, 219 (1936).
Faced with contract language similar to Bell/Heery’s – such as AIA A201 § 3.7.2 (“The Contractor shall comply with and give notices required by applicable laws, statutes, ordinances, codes, rules and regulations, and lawful orders of public authorities applicable to performance of the Work”) – a wise contractor will confirm his understanding of the applicable regulatory requirements, preferably in writing, with the agency involved before finalizing his bid. Even if the agency is noncommittal on a proposed construction methodology, valuable insight can be gained in the dialogue, and the risks can be better quantified.
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