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The VA has experienced a couple of warranty issues and a power outage that are the direct result of the contractor’s work. Construction was completed and the VA had taken beneficial occupancy and given final acceptance of the building. Since that time the VA has experienced several warranty issues; two of which have caused significant additional cost to the facility.

 

Split Fittings: Fittings installed on water lines to sinks began failing almost immediately after beneficial occupancy and there have been multiple failures since then. Over time (6 months or so) the VA was able to convince the contractor to replace all of the fittings. This work is only recently completed and the success of the new fittings is still unknown. The local facility did have to cancel several patient appointments.

 

Complete Power Outage: The VA campus where the building in question is located experienced a complete power outage. This outage impacted the surrounding neighborhood. It took approximately 1.5 hours to make repairs and to obtain clearance from the local utility company to restore power to the campus. The subcontractor was called out to trouble shoot and make the repairs. They discovered that the transformer was tied-in incorrectly, which caused a major power surge, blowing fuses all over the campus, damaging a compressor and a door controller. This also caused cancellation of patient appointments.

 

Rightfully so, the facility would like to recover actual damages incurred and is looking for direction. Once they know what costs can be recovered they will assemble the data. What costs can be recovered?

  1. Materials. Is the cost of the replacement items – fuses, compressor, door controller, etc. – recoverable?

  2. Lost Patient Appointments? HQ reimburses local facilities for each patient appointment. The amount per appointment varies depending on the type of appointment. The loss of these appointments directly impacts the revenue the facility will receive. Can the facility recover the cost of these appointments?

  3. Normal Duty Hours – Labor Expended. Several VA employees were pulled off of their normal duties to attend to this outage. Is the cost of these labor hours recoverable?

  4. Overtime Labor Hours. VA employees worked several hours of overtime on two different days directly on the task of recovering from the outage. Is the cost of these OT hours recoverable?

  5. Overhead (OH). The Deputy Director and the Emergency Preparedness Official both worked about a day and a half on the recovery efforts from this outage. While the facility understands it cannot be compensated for lost reputation, can it be compensated for the OH expended due to this outage?

  6. Utility Company Costs. In the event the utility company decides to back charge the VA for expenses incurred due to this outage, can the VA recover these costs as well?

 

Once the facility compiles all of this information, how do we go about recovering these costs from the contractor?

 

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Hi, CharliD,

A few questions before I try to engage...

Have you read the contract?  Do any contract clauses or other terms and conditions address your situation?  Are your attorneys of any help?

Have you written and posted a CPARS report that tells the story?

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The contract does not address actual damages resulting from the contractor's work when those damages are incurred after final acceptance. I have also submitted this to VA legal counsel, but thought I would see what I could find here as well. And, because the CPARS was already completed, then no, it does not address this problem.

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17 hours ago, CharliD said:

the VA was able to convince the contractor to replace all of the fittings. This work is only recently completed and the success of the new fittings is still unknown.

 

My thoughts that may help in your discussion with your lawyers.

Under what remedy action do you intend to seek the “actual damages” you have indicated? 

I ask because the ability to seek such damages is usually connected to breach of contract.   As you have described the scenario I am not quite sure if you have a breach as you have indicated that the contractor has been convinced to correct the defective work under the warranty clause, therefore the quick view is they have complied with the contract.  

Also the usual construction warranty clause 52.246-21 provides for only reasonable costs of repair and/or reduction in price but does not allow for most of the damages you have listed.   Reference paragraph (c) of the FAR clause. 

The VAAR does not appear to provide a supplemental clause that would extend the right provided in the FAR clause.  I would add that a whole read of the contract may provide for the ability to seek such damages but in my experience this seldom occurs as the Government typically just uses its prescribe clause(s) and nothing more. 

The view I have provided above is a general one and would point to Norfolk Shipbldg. and Drydock Corp., ASBCA No. 21560, as possible case law that may be applicable.  This reference comes from various Government contract law desk guides or books. 

There may be other avenues as well under law to seek the damages but my experience is limited in these areas so I am sticking to contract remedies so to speak.

Bonds – Did the contract include the requirement to include bonds?  If so remember the Performance Bond is good for the period of warranty as well.  While not a tool to seek the damages it is a tool that can be used to convince a contractor to perform warranty work or get the warranty work done otherwise.  Reference the “Obligation” portion of the Standard Form 28.

52.246-21, again.  Remember that work corrected under the warranty clause has an extended warranty of 1 year after the correction. Reference paragraph (d) of the clause.

CPARS – The CPARS system allows for addendum to a final report to allow for recording performance pursuant to a warranty clause.   Reference  Section E, paragraph 5.3 of the Guidance for the Contractor Performance Assessment Reporting System (CPARS).

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18 hours ago, CharliD said:

Construction was completed and the VA had taken beneficial occupancy and given final acceptance of the building.

CharliD:

First, as C Culham has pointed out, damages are a remedy for breach of contract. Are you saying that you think the contractor breached the contract? I don't really want an answer to that. I'm prompting you to think about how you would answer the question. Now here's a related question:

Second, I presume that the contract under which the work was done included FAR 52.236-12, Inspection of Construction (AUG 1996). If so, read the last sentence of the last paragraph:

Quote

Acceptance shall be final and conclusive except for latent defects, fraud, gross mistakes amounting to fraud, or the Government’s rights under any warranty or guarantee.

Emphasis added. You said that the VA had made final acceptance. Are you saying that the problems you described were the products of latent defects, fraud, or gross mistakes amounting to fraud? I don't really want an answer. I'm suggesting that you ask yourself that question. Before you answer the question for yourself, ask yourself whether you know what those things are. Those are technical terms. Have you read up on them?

As for your question about how to recover those costs, assuming that the government is entitled to recover, see FAR Subpart 32.6, Contract Debts.

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Split Fittings:  It seems the contractor honored its warranty obligations.  That's good.

Complete Power Outage:  You need to read para. (i) of the clause at FAR 52.246-12, Inspection of Construction, if that clause is on your contract.  You need to determine if the faulty tie-in work fits under "latent defects, fraud, [or] gross mistakes amounting to fraud."  If YES, then you might have a remedy -- whether or not that remedy will reach to the actual damages you are imagining, I cannot say.

CPARS:  Please do an updated CPARS.

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6 minutes ago, ji20874 said:

CPARS:  Please do an updated CPARS.

Before you update CPARS, make sure you are on solid ground!

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25 minutes ago, Vern Edwards said:

Before you update CPARS, make sure you are on solid ground!

I agree!  

But then, when you do the CPARS report, do it factually and unemotionally -- if it is a fact that the contractor tied in the transformer incorrectly, and that resulted in a major power surge, blowing fuses all over the campus, damaging a compressor and a door controller, and cancellation of patient appointments, you may say so in the CPARS.

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Thank you all for your responses. Both FAR 52.246-12 and FAR 52.246-21 are in the contract and as you note there is not much there. The latent defect may come into play; however, there will still be no way to recover full costs incurred. Also, I'll read the case referenced by C Culham.  This situation just came to light, but once I know outcomes we will certainly post an amendment to their CPARS report.

FAR 32.601(b)(11) should be applicable here. It does not look like it will extend beyond materials and direct labor; however.

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If a latent defect is discovered after acceptance, it can nullify the acceptance.  

See discussion and some citations,  starting on page 18 in Chapter 19 of the Contract Attorneys Deskbook .

If acceptance is nullified then both parties have the rights and responsibilities under the contract that they had before inspection and acceptance.  Think about it. If faulty work caused damage to existing utilities or structures or property - including nearby property during contract performance, the contractor would be (may be)  responsible for damages and some collateral damage under the clause 52.236-9,  Protection of Existing vegetation, Structures, Equipment, Utilities and Improvements.  

What are your lawyers saying? 

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18 hours ago, joel hoffman said:

If a latent defect is discovered after acceptance, it can nullify the acceptance.

Be careful! That's not what the Contract Attorneys Deskbook (Ch. 19) says. The word "nullify" does not appear anywhere in that reference.

The rules about the government's post-acceptance rights are very complicated and the Government's rights after discovery of a latent defect might be more limited than suggested by the word "nullify." See e.g., FAR 52.246-2, paragraphs (k) and (l). The best reference is Cibinic et al., Administration of Government Contracts 5th, pp. 761 - 789. Generally, the government's post acceptance rights are broader when there has been fraud or a gross mistake amounting to fraud than they are after discovery of a latent defect. 

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That's why the OP needs the advice of an attorney with knowledge of construction contract law and the resources to research the case law.  It is correct that the Deskbook didn’t use the word “nullify”. It did mention “revoking acceptance” and “avoiding the finality if acceptance”.  Nullify and revoke are synonyms of each other (as well as “void”), although I don’t represent myself to be an attorney or to know the legal distinctions between them.

EDIT: I am merely  mentioning another possible approach or remedy to consider under a different clause than mentioned herein.  I asked what the OP's attorney are saying. The OP would be a fool to take action on his or her own on such a post acceptance issue without consulting legal counsel. 

I had some experience with latent defects, where we* were able to obtain repairs beyond the warranty period by effectively revoking acceptance of that part of the work. The situations didn’t develop into claims. In one instance, the contractor improperly hooked up building transformers, resulting in 130 volts in a dorm,  damaging real property equipment and personal property. It was a long time (30 years) ago.  Of course, we* had to establish that there wasn't a patent defect - that it was latent. I think we also successfully dealt with a “gross mistake as amounts to fraud” once. Again, a long time ago. 

What are your lawyers saying? 

EDIT: Consider

1) is acceptance final and conclusive? 

2) If not, then can contract clause 52.236-9 be used in order to hold a contractor responsible for damaging property, including property near the site (neighborhood?) and possibly for consequential damages (chargeback by the utility?). I have successfully used it several times during my career for contractor caused damage during contract performance.

Hopefully, the OP has access to an attorney and to a copy of “Administration of Government Contracts”. 

(* "We" => my particular US Army Corps of Engineers' organizational assignments)

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What does FAR 52.246-2, Inspection of Supplies -- Fixed-Price, have to do with a construction contract (in particular, paragraph (l) ) ? I didn’t catch the distinction that you were trying to make. "Be careful!"

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Joel:

Did "Be careful!" upset you?

When you said that the government could nullify acceptance on the basis of a latent defect, I wish you had made it clear that the nullification would apply only to the acceptance of the defective work. It would not allow the government to nullify the entire acceptance. it would not, for instance, give the government a second bite at mistaken acceptance of a patent defect in the same work. None of the inspection clauses provide for that. The right of revocation applies only with regard to the exceptions listed, which are the same in FAR 52.246-2 and 52.246-12. The right appears to be broader in the case of fraud and gross mistakes amounting to fraud.

You didn't say that a latent defect would empower the government to revoke the entire acceptance, but you did not make it clear that it wouldn't. Nullify struck me as too broad. No board has ever used the phrase "nullify acceptance" in the context of contract quality assurance, nor has the COFC or its predecessors. In the language of the law, nullify is not quite a synonym of revoke.

Thus, "Be careful!" I didn't say you were wrong. I know how provocative that can be at Wifcon.

I'm sorry that "Be careful!" upset you so much. I can see by your last two posts that you took "Be careful!" to be an insult. There, there. No such insult was intended, but I apologize anyway.

Vern

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Got it, thanks for the clarification, Vern. I did not clearly state that I was referring to revocation of acceptance of latently (that is actually a word) defective work which caused the damages, not necessarily all of the work.  I admit too, that I was lazy and didn’t want to keep switching between tabs on this $&@#%€£ IPhone to retrieve the correct term from the Deskbook Article.  

I agree with you that synonyms may not exactly fit under every context.  

I didn’t go into depth. My intent was to introduce another clause to consider, other than those being discussed in this thread. To be applicable in this scenario,  there must be an exception to finality of acceptance of the faulty work.  

I have used the 52.236-9 clause several times to hold contractors responsible for damages to existing work, utilities and even to adjacent construction. The key in this instance is to be able to avoid final acceptance of the faulty work, so that the operative clause in the contract during pre-acceptance will allow the government to hold the contractor accountable for direct damages to the government.

The clause is typically used where contractor activities damage existing site work and vegetation, sidewalks, curbs, streets, underground utilities, etc.  

However, by the plain language of the clause, it is also applicable to scenarios, where faulty electrical and plumbing installation disrupts or damages other electrical systems and may cause water damage. If the electrical utility incurs costs due to a contractor’s negligence, those damages should be the contractor’s responsibility, too.

Im speculating here. But it would appear that faulty connections (in PEX?)  may be either the result of using faulty crimp rings or faulty crimping. It would be very difficult, in my estimation, for the VA or other typical government agencies to have prior knowledge of such faulty work or to be able to visually detect the faulty connections.  That’s one reason why plumbers can charge such high prices for their services. I recently told a plumber that I would have hired a doctor or lawyer to fix my frozen/burst water line had I known how expensive it would be for a 30 minute repair. But I learned how to install PEX water lines and associated fittings. 

 I don’t know about lost opportunity or lost business but suspect that it would require a clear breach of contract or something other than the normal contract clauses. It goes both ways. It is difficult for contractors to recover loss of opportunity, etc. 

If a KO, contract specialist or other contract administrator isn’t intimately familiar with all the construction contract clauses or what conditions can except the government from finality of acceptance, they are are treading on dangerous ground if they don’t consult with an attorney who has experience in construction contract law/case law. I will be frank that many of the attorneys that I worked with needed some “nudging” and enlightenment, too. 

No, you didn’t upset me. But I figured that I was seizing an “ I gotcha” moment with regard to the paragraph (l) reference to inspection of supplies. :) 

 

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Hello All -

What are my attorney's saying? They are saying our ability to recover for damages is very limited. And due to other extenuating circumstances within this region of the VA I really cannot give any more information. Suffice it to say that "its complicated." And yes, I am in regular communication with our OGC.

I had always thought of FAR 52.236-9 as a "during construction kind of application," but in reading it I may need to be more creative in my thought process.

 

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3 hours ago, CharliD said:

I had always thought of FAR 52.236-9 as a "during construction kind of application," but in reading it I may need to be more creative in my thought process.

Yep .  Again, the key to utilize 52.236-9 after acceptance is to be able to establish that the faulty construction that caused the damage is/are due to latent defects, fraud or gross mistake as amounts to fraud , etc. 

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