- Contractor Required to Post Payment and Performance Bonds Despite Lack of Contract Requirement
- November 16, 2018 | Author: Lori Ann Lange
- Law Firm: Peckar & Abramson A Professional Corporation - Washington Office
In a recent decision, the Court of Appeals for the Federal Circuit held that a contractor was required to furnish payment and performance bonds even though its government contracts did not include the standard FAR clause (FAR 52.228-15, Performance and Payment Bonds – Construction) that requires the furnishing of such bonds. K-Con, Inc. v. Secretary of the Army, No. 2017-2254, 2018 WL 5780251 (Nov. 5, 2018). The Federal Circuit concluded that the requirement to furnish the bonds was read into the contracts by operation of law under the Christian doctrine.
The contractor entered into two task order contracts with the Army for pre-engineered metal buildings: one contract called for the design and construction of a laundry facility and the other called for the construction of a communications equipment shelter. The solicitations indicated that the these were commercial item contracts. Payment and performance bonds are not required to be furnished on commercial item contracts.
After award, the Army instructed the contractor to provide payment and performance bonds. The bonds were not furnished until nearly two-years later, during which time the Army did not issue notice to proceed with the work. During the two-year delay, the cost of providing the metal buildings increased and the contractor submitted a delay claim for those costs, claiming that the delay in issuing the notice to proceed was solely due to the Army’s decision to add the requirement to furnish the bonds. The Army denied the claim and the contractor appealed to the ASBCA, which denied the appeal.
The first issue before the Federal Circuit was whether the contracts were construction contracts, since there would be no requirement to submit the bonds if the contracts were commercial item contracts. The Federal Circuit found that there was a patent ambiguity as to whether the contracts were construction contracts or commercial items. A patent ambiguity exists when a contract contains inconsistent terms that would place a reasonable contractor on notice of the inconsistency. When a contract is patently ambiguous, the contractor has a duty to seek clarification from the Government. In this case, the Federal Circuit concluded that the contracts were patently ambiguous because the contracts included many construction-related tasks and contained requirements applicable only to construction contracts such as the payment of Davis-Bacon Act prevailing wages.
The second issue was whether, assuming the contracts were construction contracts, the contractor had to furnish the bonds. The contractor argued that it had no obligation to furnish the bonds because the Army had not included that requirement in the contracts. The Federal Circuit held that the bonding requirement was included in the contracts through the operation of the Christian doctrine. The Christian doctrine, which was established by the case of G.L. Christian & Assocs. v. United States, 312 F.2d 418 (Ct. Cl. 1963), permits a court or board of contract appeals to insert a clause into a government contract by operation of law if the clause is mandatory under applicable regulations such as the FAR and the clause expresses a significant or deeply ingrained public procurement policy.
The Federal Circuit held that bonding requirements are mandatory in government construction contracts because contractors are required to furnish bonds under the Miller Act, 40 U.S.C. §§ 3131-34. To implement this statutory requirement, FAR 28.102-1 requires that FAR 52.228-15 be included in construction contracts in excess of $150,000.
The Federal Circuit also held that the bonding requirements express a significant or deeply ingrained public policy as they are intended to provide security for those who furnish labor or materials in the performance of government contracts. Payment bonds provide a remedy to protect subcontractors and suppliers who cannot obtain a mechanic’s lien on government property. Therefore, the Federal Circuit held that the contractor was required to supply the bonds and it affirmed the ASBCA’s decision denying the appeal.