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Trg Construction v. District of Columbia Water & Sewer Authority

May 9, 2013


Appeal from the Superior Court of the District of Columbia (CAB-8260-08) (Hon. Brook Hedge, Trial Judge)

The opinion of the court was delivered by: King, Senior Judge:

(Argued October 17, 2012

Before WASHINGTON, Chief Judge, MCLEESE, Associate Judge, and KING, Senior Judge.

This case arises out of a contract dispute between the District of Columbia Water and Sewer Authority (D.C. Water) and its contractor, TRG Construction. TRG was hired to renovate the bathrooms at D.C. Water's Central Operations Facility. The project took longer than both parties originally anticipated and disputes arose. Ultimately, D.C. Water terminated TRG "for convenience" in accordance with the contract. TRG then filed claims for various damages. After TRG's claims were denied by D.C. Water, TRG filed this action in the District of Columbia Superior Court, where the trial judge granted D.C. Water's motion for partial summary judgment in full. This appeal followed.

We remand the case to the trial court for a determination of whether TRG is entitled to "termination for convenience" damages and whether D.C. Water waived a "timeliness" defense with respect to TRG's claim for delay damages. In all other respects we affirm the decision of the trial court.

When TRG initially contracted with D.C. Water, it agreed to complete the bathroom renovations by June 13, 2004. However, delays plagued the project, and the deadline for completion was eventually extended to July 31, 2005. Shortly before that deadline, TRG asked for another extension. On August 4, 2005, D.C. Water responded by asking for a "Time Impact Analysis" explaining the delay and the proposed extension. TRG failed to provide the Analysis within D.C. Water's five calendar-day window, but did submit an Analysis in eleven days, on August

15. D.C. Water declined to grant the request, based on both the merits and because it was late. Shortly thereafter, D.C. Water sent TRG a "Cure Notice," explaining "what it claimed were numerous deficiencies" in the work TRG had already completed. TRG declined to fix the problems D.C. Water complained of, arguing both that its work was not defective and that the guarantee period for its work had expired. On September 2, 2005, D.C. Water terminated TRG's contract "for convenience" under 21 DCMR § 5350.1.*fn1

TRG claims a variety of damages stemming from D.C. Water's conduct under the contract.*fn2 Each will be addressed in turn.

I. Termination for Convenience Damages

In Count IV of its complaint, TRG claims "termination for convenience" damages. Under the contract with D.C. Water, if TRG was terminated for convenience, it was still entitled to "the cost" of any work already performed under the contract, plus a "fair and reasonable" amount of profit for that work. However, D.C. Water was also entitled to "deduct[ ] . . . any claim which [D.C. Water] may have against [TRG] in connection with the contract."

TRG initially claimed it was entitled to the following: payment of the last two invoices it submitted to D.C. Water in the amount of $44,798.60; the cost of increasing its bond premiums; the cost of materials it purchased and left with D.C. Water; and anticipatory profits.*fn3 In response, D.C. Water argues that it properly withheld TRG's payment because it had its own claims against TRG. According to D.C. Water, because TRG failed to (1) timely submit a Time Impact Analysis in response to D.C. Water's August 4, 2005 letter, and (2) "respond to the cure notice" or "commence repairs," D.C. Water was permitted to "deduct[ ] its claims against TRG" from the termination for convenience award, reducing it to zero.

We must remand for further consideration of this issue. The Superior Court's opinion granting summary judgment does not adequately explain the basis for denying the relief sought even if D.C. Water was correct in finding that the Time Impact Analysis was inadequate and there was a failure to cure. Further, the court did not explain, in light of the principles set forth below, the basis for concluding that TRG was obligated to cure. Finally, the court appeared to erroneously characterize TRG's claim as one based entirely on a theory that D.C. Water acted in "bad faith" when terminating the contract.*fn4 We do not understand TRG's termination for convenience claim this way, and TRG concedes that D.C. Water had the power to terminate the contract. Further, D.C. Water has not argued that this court should affirm on the basis of the reasoning set forth by the trial judge in the summary judgment order. As a result, we reverse the Superior Court's order as to Count IV of TRG's complaint and remand the case to the trial court for further proceedings on this issue.

Because our case law on termination for convenience claims is not well developed, we will also highlight some principles to guide the Superior Court on remand. As we have noted before, "[w]ith few exceptions, District contracting practice parallels federal government contract law." District of Columbia v. Organization for Envtl. Growth, Inc., 700 A.2d 185, 198 (D.C. 1997) (quoting Dano Res. Recovery, Inc. v. District of Columbia, 620 A.2d 1346, 1351 (D.C. 1993)). Further, the termination for convenience language at issue in this case closely resembles the termination for convenience language in the federal acquisition regulations. See 48 C.F.R. § 52.249-2 (g)(2), (k) (2012). Therefore, we conclude that the decisions of the federal courts on termination for convenience are persuasive authority on related issues. Cf. Puckrein v. Jenkins,884 A.2d 46, 56 n.11 (D.C. 2005) (federal cases interpreting rules identical to the local rules are persuasive authority); Perry v. Gallaudet Univ.,738 A.2d 1222, 1226(D.C. 1999) ("Interpretations of federal rules identical to our rules are accepted as persuasive authority.").

The federal courts have been careful to balance the ability of the government to freely terminate a contract for convenience with the corresponding right of a contractor to recover costs after being terminated. Specifically, the courts have held that, following a termination for convenience, a contractor "is entitled to recover for its reasonable, allocable, and allowable costs incurred with respect to termination inventory even if such inventory did not comply in all respects with specification requirements." Best Foam Fabricators, Inc. v. United States, 38 Fed. Cl. 627, 640 (1997) (quoting New York Shipbuilding Co.,ASBCA No. 15443, 73-1 B.C.A. ΒΆ 9852 at 46,018-19). However, a contractor's costs are not recoverable if they stem from a "gross disregard by [the contractor] of its contractual obligations." Id. (quoting New York Shipbuilding, supra,73-1 B.C.A. at 46,019). Further, after a termination for convenience, "the government may not obtain reprocurement costs for work that it ...

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