A Contractor Makes a Dangerous Gamble When Its Bid Price Assumes the Approval of Local Permitting Authorities

Should a federal government construction contractor assume that its permit request for a construction project will be approved by local state authorities? Absolutely not, according to the United States Court of Appeals for the Federal Circuit. The Federal Circuit found that the plain language of FAR’s Permits and Responsibilities Clause, which was incorporated into a Federal Bureau of Prisons contract, allocated any financial cost associated with permitting solely on the contractor.

Bell/Heery was awarded a design-build construction contract to build a new federal prison in New Hampshire. The project specifications detailed a “cut-to-fill” site, meaning that the project land had to be leveled by excavating, or “cutting” materials from one area of the work site and using the same materials to fill lower areas. Bell/Heery’s proposal incorrectly assumed that the local environmental officials, the New Hampshire Department of Environmental Sciences (NHDES), would approve the cut-to-fill operations – and as an unfortunate result, Bell/Heery had to incur approximately $7.7 million in excess costs to perform, because NHDES did not approve the anticipated efficient cut-to-fill operations.

Bell/Heery attempted to recover the excess $7.7 million from the Federal Bureau of Prisons, arguing that the agency was contractually required to engage with NHDES about the cut-to-fill specifications and that the agency breached its duty of good faith and fair dealing by failing to engage with NHDES, among other allegations. The Federal Circuit did not agree, citing the FAR Permits and Responsibilities Clause, which made the contractor responsible for all permitting costs. Contractors putting together bids for federal government work should keep this decision in mind when pricing their bids, to ensure that they account for the possibility of permitting roadblocks and how these hurdles will impact their bottom line.

Katie Lipp is an attorney with the Washington, DC regional business law firm Berenweig Leonard, LLP. Katie can be reached at klipp@berenzweiglaw.com.