Federal Court Rules Contractor Is Not Intended Third-Party Beneficiary under Owner-Engineer AgreementIn March, a Massachusetts federal court addressed whether a design-builder contractor could recover for breach of contract under an intended third-party beneficiary theory against a design firm hired by the project owner to complete 30% designs. In Arco Ingenieros, S.A. DE C.V. v. CDM International Inc., a Salvadoran contractor entered into a design-build agreement with the U.S. government to build eight schools and a health clinic in El Salvador as part of a hurricane relief effort.

The design-build agreement included 30% designs, which were to form the design criteria for the project. The agency had contracted separately with a U.S. engineering firm via a task order to complete the 30% designs. After construction started, the contractor alleged the designs provided by the agency were defective and did not actually constitute 30% designs. Ultimately, the contractor filed suit against the agency and the engineer. As one theory of liability, the contractor claimed to be a third-party beneficiary under the task order between the agency and the engineer. The engineer moved to dismiss the contractor’s complaint arguing that the contractor was not an intended third-party beneficiary under the task order.

The federal court agreed and entered an order dismissing the contractor’s breach-of-contract claim against the engineer. The court reasoned that nothing in the task order evidenced an intent that the engineer’s design work was to benefit the contractor. While the contractor may have been an incidental beneficiary of the task order, the task order language provided that the engineer’s express purpose under the agreement was to provide design services to the government agency only. The statements in the separate design-build agreement that the contractor could rely on the 30% designs produced under the task order did not alter the task order’s intent. The court found this approach consistent with other federal decisions holding that general contractors are generally not intended beneficiaries of owner-architect agreements.

While not surprising, the federal court’s decision in this matter demonstrates the complexity of commercial contract disputes in the construction industry. With owners, engineers, contractors, and subcontractors all entering into different interrelated agreements, there is always potential that a particular contract or subcontract will be detrimentally impacted by another party’s failure to perform under a different agreement on the project. For owners, they can manage these risks by making all downstream parties insert language into their contracts that shows the owner is an intended third-party beneficiary.

For contractors, engineers, and other parties that are more parallel in the contracting hierarchy, it may be more difficult to contract around these risks. A contractor can mitigate this risk by seeking indemnification or other protection from the owner or other direct contractual party for interference, negligence, or delays by non-parties. Additionally, the design-builder contractor here could have considered the 30% designs more closely, rather than relying on the owner’s representations, and the contractor could have requested an opportunity to review the design task order to evaluate the risks of relying on potentially defective design criteria. If you have more questions about bringing contract claims as a third-party beneficiary, please feel free to contact Aman Kahlon.

DOL Seeks Approval of New Approach for Monitoring Construction Contractor Compliance with Affirmative Action RequirementsThe Department of Labor’s Office of Federal Contract Compliance Program (OFCCP) recently requested approval from the Office of Management and Budget (OMB) of a new approach to review federal construction contractors’ compliance with OFCCP’s Affirmative Action Program (AAP) and record-keeping requirements (view a copy of the supporting statement for the request). OFCCP hopes to employ less burdensome compliance checks in greater quantity as opposed to more intensive compliance reviews or audits. In addition, OFCCP plans to harmonize the procedures by which compliance checks are conducted.

For federal contractors who satisfy the jurisdictional thresholds, OFCCP is charged with administering and enforcing three equal employment opportunity laws: Executive Order 11246, Section 503 of the Rehabilitation Act of 1973, and the Vietnam Era Veterans’ Readjustment Assistance Act of 1974 (VEVRAA). These laws are designed to prevent discrimination on the basis of race, color, religion, sex, sexual orientation, gender identity, natural origin, and disability, and to prevent discrimination against protected veterans, including disabled, recently separated, and active duty veterans. The laws also require federal contractors to implement affirmative action programs for marginalized groups, disabled individuals, and veterans, and to avoid retaliatory actions against employees for discussing salary or pay.

Currently, under 41 CFR §§ 60-1.20, 60-300.60, and 60-741.60, OFCCP may conduct compliance evaluations that consist of one or any combination of investigative procedures, including a compliance review, an off-site review of records, a compliance check, and/or a focused review. Federal construction contractors are currently subject to compliance reviews that are lengthier and more involved than compliance checks. If OFCCP’s proposal is approved, future compliance check notices to contractors will likely request the following:

  • Personnel records that list construction trade employment activity (applicants, hires, promotions, layoffs, recalls, voluntary terminations, and involuntary terminations), including the name, job classification, gender, race and/or ethnic designation for each employee or applicant (41 CFR § 60-1.12(a) and (c))
  • Payroll records for all construction trade employees working in the Standard Metropolitan Statistical Area(s) (SMSA) or in the Economic Area(s) (EA) during the specified review period, submitted by project, including each employee’s name or ID, gender, race/ethnicity, hire date, trade(s), total hours worked in each trade, overtime hours worked in each trade, wage rate(s) for each trade, apprenticeship status, and employment type (e.g., full-time, part-time, temporary, contract, per diem, day labor)
  • Examples of job advertisements and postings
  • Documentation of accommodation requests received and their resolution, if any
  • A copy of the current Section 503 AAP
  • A copy of the current VEVRAA AAP
  • Documentation of the data collection analysis
  • Documentation of the most recently adopted VEVRAA hiring benchmark

For federal construction contractors impacted by these potential changes, now may be a good time to start re-evaluating your compliance and record-keeping procedures related to AAPs. While OFCCP anticipates that the new compliance check approach will reduce the burden on contractors, contractors will likely need some time to adjust to the new protocols, especially as it pertains to records described above and related programs. Also, because OFCCP anticipates being able to conduct more compliance checks (approximately 500 annually), contractors may be subject to oversight more often, and it may make sense to update or modify existing AAP compliance regimes to accommodate the changing landscape.

If you have questions about your compliance program or what the OFCCP’s proposal means for your business, please feel free to contact Aron Beezley or Aman Kahlon.

The General Services Administration (GSA) recently announced that, “[d]ue to corrective action being taken in response to a U.S. Court of Federal Claims protest, the government has rescinded all contract awards made in response to solicitation no. QTA0016GBA0002,” which is for the Alliant 2 Small Business Governmentwide Acquisition Contract.

What happened?

GSA Rescinds All Alliant 2 Small Business Awards in Response to ProtestThe subject solicitation, which was originally issued in June 2016 and contained a total ceiling of $15 billion, sought proposals for the Alliant 2 Small Business Governmentwide Acquisition Contract, a multiple-award, indefinite-delivery, indefinite-quantify contract, for information technology services.

In February 2018, the GSA awarded contracts to 81 different small businesses under the solicitation.

Thereafter, more than 15 disappointed offerors filed bid protests with the Government Accountability Office (GAO), challenging various aspects of the GSA’s evaluation and awards (B-415789, et al.).

During the pendency of the GAO protests, however, one of the disappointed offerors filed a separate bid protest at the U.S. Court of Federal Claims (COFC). This COFC protest divested the GAO of jurisdiction over the pending protests, and the GAO thus dismissed the pending protests in May 2018.

One of the original GAO protesters, Citizant, Inc. (Citizant), then filed its own protest with the COFC in June 2018, alleging a series of errors associated with the evaluation of more than 20 awardees. Approximately nine months later, in March 2019, the COFC found in favor of Citizant, agreeing that the contracting officer acted arbitrarily by crediting certain offerors with points for proposing an adequate Cost Accounting System (CAS) and by failing to rationally evaluate certain offerors’ proposed pricing.

As a result, the COFC enjoined “the GSA from proceeding with the current awardee list” and directed “the GSA to reevaluate the proposals in a manner that redresses the errors” discussed in the COFC’s decision.

In response to the Citizant COFC decision, the GSA announced on March 26, 2019, that it “has rescinded all contract awards made” under the Alliant 2 Small Business solicitation, “returning to a pre-award status.”

What does this mean for Alliant 2 Small Business offerors?

According to the GSA’s March 26, 2019, announcement, which was posted on www.fbo.gov, “[p]roposal evaluation will continue and a new source selection decision is expected at a point to be determined.”

The GSA’s announcement further states that “[s]olicitation number QTA0016GBA0002 on www.fbo.gov remains the official location for solicitation information – please continue to monitor it for updates.”

Finally, the announcement states that “GSA understands that you might have questions and those can be sent to a2sb@gsa.gov, which might be addressed in a question and response release to all parties on FBO.”

Please feel free to contact Aron Beezley or Sarah Osborne if you have any questions about this noteworthy development.