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Haustechnik v. Caldera

U.S. Court of Appeals, Federal Circuit

May 13, 1999


Before Newman, Lourie, and Clevenger, Circuit Judges.

The opinion of the court was delivered by: Clevenger, Circuit Judge.

Donat Gerg Haustechnik ("Gerg") appeals the denial by the Armed Services Board of Contract Appeals ("ASBCA" or "Board") of its appeals challenging the Army's reduction in contract price for work done installing an Energy Monitoring and Control System ("EMCS") in the Army's Katterbach, Germany, military facility ("Katterbach"). See ASBCA Nos. 41197 and 42001 (Oct. 9, 1997). Because we conclude that Gerg failed to provide the Army with a system having the requisite configuration and capabilities called for by the contract, we affirm.


In April 1987, pursuant to fixed-price U.S. Government Contract No. DAJA04-87-C-0864 ("the contract"), Gerg undertook two projects for the Army: conversion of the extant Katterbach heating, ventilation, and hot water supply systems from a site-based boiler facility to one suitable for heat transfer from a new Army facility in the neighboring municipality of Ansbach; and installation of an EMCS at Katterbach to monitor and control the heat transfer therefrom. Gerg duly completed the conversion project, which represented about 80 percent of the DM 45 million contract price. Only the installation project concerns this appeal. The parties agree that the Army received an EMCS configured differently from the contract specifications and drawings, but dispute the consequences of this fact.

The specifics of the contractually-defined EMCS and the one actually delivered are complex. We distill here those contract provisions and Board findings most pertinent to this appeal.

To accommodate heat monitoring and control to 115 Katterbach buildings, the contract requested installation of a "Honeywell System Delta" EMCS "in accordance with attached specifications . . . and drawings." The specifications and drawings set forth a system configuration in which data are collected at designated building locations along the system, integrated via a series of 11 Direct Digital Control ("DDC") panels, transmitted via "data bus" cables to a Central Control Unit ("CCU") containing a single communications link termination ("CLT") and modem located at a single Katterbach location ("Building 5826"), and then moved via a single, high quality telephone line to a Central Control Master Place ("CCMP") located about eight kilometers away at another U.S. Army facility ("Hindenburg Kaseme"), at which EMCS installations in various Ansbach-area Army facilities are centrally monitored and controlled. To ensure against the risk of losing communications over the telephone line between the CCO and the CCMP, the contract also required that the Katterbach EMCS be operable locally from the CCU, independent of the CCMP. The foregoing provisions were fixed by contract clauses expressly forbidding "direct changes of work . . . [or] any other actions to be taken by the contractor which may change contractual provisions," authorizing "no other individual except the contracting officer and the contracting officer's representative . . . to issue instructions or directions regarding this contract," and allowing only the contracting officer "to execute this contract or any modification or change order thereto."

Gerg subcontracted with Honeywell Regelsysteme GmbH ("Honeywell") to install all aspects of the Katterbach EMCS save for the data bus cables and PVC conduits carrying them, which Gerg installed itself.

And here the troubles began. Honeywell's project manager, Franz Rehbein, decided that the data bus configuration shown in the contract drawings would not work. He discarded the arrangement and reconfigured the system into 16 data buses terminating at 6 CLTs, each separately connected to the CCMP via its own telephone line. As a result of the reconfiguration, portions of the data buses shown in the contract drawings, notably those designated to be longer than 1000 meters, were deleted. The system's adaptability to future data bus additions for new buildings was compromised by added system complexity. Central control of the Katterbach EMCS from Building 5826 was no longer possible; the system's automated monitoring and control functions were vested entirely in the CCMP. As a consequence, a projected transfer of the CCMP to Katterbach could no longer be carried out.

Before the Board, Mr. Rehbein attempted to justify his reconfiguration on three grounds. First, he alleged various discrepancies between the contract drawings and the actual worksite conditions. Second, he pointed to a contract provision requiring that the wiring between each DDC panel and the CCU "be arranged to . . . enable operation over a wiring length of up to 1000 m[eter] data bus, without incurring additional expense." Moreover, in line with standard German industry practice, Honeywell had warranted reliable data transmission only up to 1000 meters, and Mr. Rehbein expressed concern over Honeywell's potential liability to Gerg. Third, Mr. Rehbein asserted that a maximum of eight DDC panels could be connected to an individual data bus. If so, the 11 data buses in the contract drawings could serve no more than 88 DDC panels, thus requiring a system reconfiguration to increase the number of data buses to accommodate the more than 100 DDC panels necessary to service the 115 Katterbach buildings connected to the system.

Notwithstanding Mr. Rehbein's justifications, Gerg further argued to the Board that the Army was, or should have been, aware of the reconfiguration prior to its execution, yet it said nothing. The Army had appointed Rudolph Gmelch of the Utilities Division of the Directorate of Engineering and Housing, U.S. Military Community, Ansbach, to represent that division at meetings regarding the EMCS project and to ensure that the installed system operated satisfactorily. The Utilities Division was responsible for generating technical documents that informed the contract specifications and drawings. Mr. Gmelch regularly discussed the project with Mr. Rehbein during the course of the installation. As such, Gerg asserted, Mr. Gmelch clearly should have known of the reconfiguration, and his knowledge should have been imputed to the contracting officer or his representative, whose silence should be construed as acquiescence.

The Board found that Mr. Rehbein failed to explain how the differences between the contract drawings and site conditions warranted wholesale reconfiguration of the contract design; that amplifiers and repeaters, contemplated by the contract, could extend the cable transmission capabilities well beyond 1000 meters; that additional DDC panels could be accommodated by subdividing the existing data buses; and that no evidence was proffered to support the notion that Mr. Gmelch ever informed the contracting officer or his representative of the reconfiguration prior to its execution. Based on its review of the contract and the evidence of record, the Board rejected Gerg's arguments that the contract merely contemplated performance objectives to be met by Gerg's own design and that in any event the Army had acquiesced to the changes made by Honeywell. Accordingly, the Board awarded the Army its asked-for contract price reduction. Gerg now appeals, vesting us with jurisdiction pursuant to 28 U.S.C. § 1295(a)(10) (1994).


The Contract Disputes Act ("CDA"), 41 U.S.C. § 609(b) (1994), governs this court's review of Board decisions. While we exercise plenary review of the Board's legal Conclusions, see, e.g., Erickson Air Crane Co. of Washington, Inc. v. United States, 731 F.2d 810, 814 (Fed. Cir. 1984), our review of the Board's factual findings is strictly limited: under the CDA, the Board's decision on any factual question shall be final and conclusive and shall not be set aside unless the decision is fraudulent, arbitrary, capricious, so grossly erroneous as to necessarily imply bad faith, or is unsupported by substantial evidence. See 41 U.S.C. § 609(b) (1994); T. Brown Constructors, Inc. v. Pena, 132 F.3d 724, 727 (Fed.Cir. 1997); Erickson, 731 F.2d at 814.

Gerg argues that the pertinent contract provisions were performance specifications that successfully summoned the ingenuity of Gerg's subcontractor; that the Army approved of the subcontractor's reconfiguration; and that even if the pertinent contract provisions were design specifications, they were fatally defective so as to absolve Gerg of liability. The Army contends that without permission Gerg delivered an EMCS unilaterally reconfigured to a costlier-to-use and less convenient system than the one it contracted for, and used fewer materials than invoiced.

We agree with the Army. Our review of the contract leads us to conclude that the pertinent contract provisions, including the specifications and drawings, were design specifications from which Gerg had "no discretion to deviate." Blake Constr. Co. v. United States, 987 F.2d 743, 745 (Fed Cir. 1993); see also J.L. Simmons Co. v. United States, 412 F.2d 1360, 1362 (Ct. Cl. 1969) (requiring contractor to follow design specifications "as one would a roadmap").

To be sure, the contract gave Gerg some leeway in meeting contract requirements to allow for adaptation to site conditions unascertainable at the time of contract. For example, the specifications required installation of "separate line trenches" for connection to separate buildings in a manner that conformed to the actual trench route selected by a separate contractor. Accordingly, the contract provided that "[a]ctual line routing shall be determined on site prior to commencement of work. The details on th[e designated] drawing cannot be used as workshop drawings and details for each individual element [shall be ascertained] according to the actual situation on site." The contract provided even more generally that "[u]nless stated otherwise, all quantities and measurements stated in the specifications, drawings, and [p]rice breakdown are estimates only" and required the contractor to "familiarize" itself with the job site, to "determine the exact details" and "to include all work necessary to perform the job" for the offered price.

Gerg essentially argues from such provisions that the contract did not disclose the requisite "roadmap" to accord it design-specification status. But, as we have previously stated, "[i]t is not only possible, but likely that a contractor will be granted at least limited discretion to find the best way to achieve goals within the design parameters set by contract." Blake, 987 F.2d at 746. The real question, then, is "how much discretion" the contract afforded Gerg in its configuring of the Katterbach EMCS. Id. The contract specifically required installation of a CCU at Katterbach Building 5826 that could function as an automated backup system to monitor and control the Katterach EMCS from a single local site in the event of a communications breakdown with Ansbach. Whatever the extent to which Gerg had some discretion to reconfigure the system, substantial evidence supports the Board's Conclusion that this explicit contract design requirement was not met.

Moreover, Gerg's arguments that the contract specifications and drawings were fatally defective address a factual issue on which substantial evidence supports the Board's findings that this was not the case. Amplifiers and rectifiers could have extended the usable range of the cable wires. Splitting could have accommodated the 11 data bus contract requirement. In any event, even some defect in the specification does not, in and of itself, transfer to the contractor the "unfettered discretion to complete the contract in any manner it sees fit." Blake, 987 F.2d at 746.

As to Gerg's argument that the Army had at least constructive knowledge of its reconfiguration, we note the explicit contract stipulation that precluded even the contracting officer from authorizing changes to the specifications absent a contract modification or change order, let alone Mr. Gmelch. Only the contracting officer and his designated representatives were authorized to give instructions, orders or directions to the contractor. Designation by the terms of the contract could only be effectuated by letter from the contracting officer. No such letter was issued to Mr. Gmelch. The Board found in any event no evidence to support the notion that the contracting officer or his representative had any notice of the reconfiguration, let alone that the contracting officer or his representative ever approved of the Honeywell reconfiguration through Mr. Gmelch. By the terms of Gerg's deal with the Army, Mr. Gmelch was simply not authorized to approve of contract changes either individually or as a conduit, either directly or indirectly. Gerg's imputation argument must therefore fail.

In view of the foregoing, the Board's decision in favor of the Army is affirmed.


No costs.


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