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KINGSTON CONSTRUCTORS v. WASHINGTON METRO. AREA TR

June 6, 1996

KINGSTON CONSTRUCTORS, INC., Plaintiff,
v.
WASHINGTON METROPOLITAN AREA TRANSIT AUTHORITY, Defendant.



The opinion of the court was delivered by: SPORKIN

 This matter comes before the Court on cross motions for summary judgment. *fn1" Plaintiff appeals from a decision by the Corps of Engineers Board of Contract Appeals ("the Board"), denying its claim for an equitable adjustment in the price of a contract to replace certain electrical transformers utilized in defendant's rail system. Defendant asks this Court to grant summary affirmance of the Board's decision.

 BACKGROUND

 This case involves a contract between defendant Washington Metropolitan Transit Authority ("WMATA") and plaintiff Kingston Constructors, Inc. ("Kingston"). The contract called for Kingston to remove and destroy all of the electrical transformers in WMATA's rapid transit rail system that used liquid polychlorinated biphenyl (PCB). *fn2" The contract further called for Kingston to procure and install 53 dry-type replacement transformers. The 53 replacement transformers were to be manufactured by Power Energy Industries ("PEI"), a subcontractor identified by Kingston and approved by WMATA.

 The contract had a specified price of $ 4,422,000.00 and was to be completed by March 25, 1992. Among other terms, the contract called for liquidated damages of $ 1,000 for each calendar day of delay in completion beyond the time specified.

 After PEI had produced some six units, testing of one of the units revealed that there was misplaced insulation within the unit which caused a short circuit problem. Approximately one month later, in early October 1991, two other units failed testing and were found to have the same insulation defect. Following additional testing, WMATA authorized Kingston/PEI to begin installation of the transformers. Upon installation of the first transformer -- which had passed all routine and induced voltage tests -- the unit functioned for a few minutes and then failed, creating a great outpouring of smoke. PEI concluded that the failure was due to misplaced insulation.

 The parties then renewed discussions about how to ensure the integrity of the transformers. Such assurances were particularly important because the continuity of WMATA's rail transit system was totally dependent on the reliability of the transformers. Kingston proposed a visual inspection test which involved cutting a window into each transformer. This would allow an inspector to look at the unit to determine whether the insulation was properly placed. WMATA rejected the visual inspection test out of concern that such an incision might significantly shorten the life of the transformer.

 Meanwhile, at the request of Kingston/PEI, the MET Electrical Testing Company of Baltimore performed extended applied voltage tests (also called "hi-pot" tests) on 11 transformers located at the Manassas warehouse. Six transformers failed this test, including at least one that was known to be free of the misplaced insulation problem.

 By this time, PEI had manufactured a total of 22 transformers. The numerous failures had significantly lessened WMATA's confidence not only in the integrity of the transformers but also in the validity of the Kingston/PEI testing program. Accordingly, as a condition for accepting the 22 transformers, WMATA required that two transformers again undergo complete design and routine tests, this time by KEMA Laboratory, an independent laboratory selected by Kingston.

 The prescribed tests were conducted at KEMA Laboratories from February 19-24, 1992. Both transformers failed the tests. By this time, WMATA had completely lost confidence in the transformers and rejected the entire lot. Kingston reprocured the transformers from another manufacturer and eventually completed the contract. Due principally to WMATA's rejection of the 22 PEI transformers, Kingston incurred substantial additional costs and liquidated damages charges. *fn3"

 Kingston asked the Board to grant an equitable adjustment in the amount of the contract ($ 1,424,457.00) and a time extension of at least 286 calendar days for completion of the contract. After a nine day trial, the Board granted in part Kingston's request, awarding Kingston $ 254,171.00. Specifically, the Board concluded that Kingston was entitled to an equitable adjustment in the costs and delays associated with all extra-contractual testing, as well as a reduction in liquidated damages from $ 1,000 to $ 500 per day for each day of unexcused delay in contract completion.

 Kingston now seeks judicial review of the administrative decision on the grounds that the Board committed errors of law and made factual findings which were not supported by substantial evidence.

 STANDARD OF REVIEW

 The standard of review in this case is governed by the contract itself which states that the decision of the U.S. Army Corps of Engineers Board of Contract Appeals "shall be final and conclusive unless [a court of competent jurisdiction] determines the decision to have been fraudulent, or capricious or not supported by substantial evidence." The contract also states that "Nothing in this Contract ... shall be construed as making final the decisions of the Board of Directors or its representative on a question of law." Accordingly, this Court may reverse the decision below only if that decision is (1) erroneous as a matter of law; (2) based on findings of fact which are fraudulent, capricious, arbitrary, or so grossly erroneous as to ...


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