SUBSTITUTING MATERIALS AND FAILURE TO COMPLY WITH CONTRACTUAL REQUIREMENTS

It is important to remember that if you are going to substitute materials from those specified, you need to make sure there is proper approval in doing so–make sure to comply with the contractual requirements to substitute materials.  Otherwise, you could be in a situation where you are contractually required to remove the installed substituted materials and replace with the correct specified materials.  This is not the situation you want to find yourself in because this is oftentimes a costly endeavor.  This was the situation in Appeal-of-Sauer, Inc., discussed below, on a federal project.  The best thing that you can do is comply with the contractual requirements if you want to substitute materials.   If you are in the situation where it is too late, i.e., you already installed incorrect materials, you want to demonstrate the substituted materials are functionally equivalent to the specified materials and/or come up with an engineering solution, as required, that could be less costly then ripping out the installed material and replacing with the correct material.  Even doing so, however, is not a “get out of jail free card” and does not necessarily mean there is not a strong basis to require you to install the correct specified material.

In Appeal of- Sauer, Inc., ASBCA 61847, 2021 WL 4888192 (ASBCA September 29, 2021), a federal project’s engineering requirements required cast iron piping for the above ground sanitary system.   However, the prime contractor installed PVC piping instead of cast iron piping.  The prime contractor believed it had the appropriate approval through its submittal.  The government, through its contracting officer, directed the prime contractor to remove installed PVC piping to replace with cast iron.  The government did not believe PVC piping was the functional equivalent of cast iron piping for the above ground sanitary system due to its concern with the noise level of waste materials flowing through the piping.  The prime contractor submitted a claim for its removal and replacement costs which was denied by the contracting officer.  On appeal with the Armed Services Board of Contract Appeals, the Board agreed with the contracting officer explaining: “While we agree that a design change could be approved by the designer of record and brought to the attention of the government before being incorporated into the design documents, the [prime contractor’s] task order required that such a design change meet the minimum requirements of the solicitation and accepted proposal.  The plumbing submittal [the prime contractor] issued here, showing the use of PVC instead of cast iron for the above ground waste piping, did not meet the minimum requirements of the solicitation.”  Appeal of-Sauer, Inc., supra.

The prime contractor argued the government approved the deviation and use of PVC by another government representative.  This argument failed because only the contracting officer had the authority to change a contract or task orderAppeal of-Sauer, Inc., supra (citing FAR clauses that reference that only the contracting officer has authority to modify or deviate from a contract).

Next, the prime contractor argued estoppel and waiver in that government personnel were present and observed the construction of the above ground sanitary piping with PVC and waited 16 weeks before directing the prime contractor that it could not use PVC piping.   The prime contractor argued this unreasonable delay should be deemed the government constructively accepting PVC and the government either waived the right to demand strict compliance with cast iron or should be estopped from demanding such compliance. This argument failed:

Here, only the contracting officer could vary the task order requirements.  Therefore, to establish waiver, [the prime contractor] must demonstrate that the contracting officer knowingly rescinded the government’s right to require compliance with a task order minimum requirement.  Even assuming government personnel on site may have observed the installation and use of PVC pipe, there is no evidence that the contracting officer knowingly waived the task order requirement.

The government is generally entitled to insist upon strict compliance with the contract specifications and to require correction of nonconforming work.  There are instances, however, where the government may waive strict compliance with contractual requirements and is estopped from later re-imposing those requirements upon the contractor.  These cases require knowing failure to exact performance – presumably by one with authority to waive contractual terms.

Appeal of-Sauer, Inc., supra (internal quotations mitted).

Lastly, the prime contractor argued under the economic waste doctrine—that removing the PVC and replacing it was cast iron constituted economic waste, particularly since PVC and cast iron piping are functionally equivalent.  “To establish economic waste, the work performed must substantially comply with the specifications; the work must be adequate for the intended purpose; and the cost of correction must be economically wasteful.  Economic waste does not ipso facto excuse non-performance but serves to limit excessive damages for repair of non-conforming work.”  Appeal of-Sauer, Inc., supra(internal quotation omitted).

The Board found that economic waste did not apply because the prime contractor did NOT substantially comply with the specification and PVC was not the functional equivalent to cast iron based on the intended application (which was to control the noise level and sound transmission of waste materials flowing through the piping).  Further, while the government was receptive to another remedial measure, none was offered to the government.

Please contact David Adelstein at dadelstein@gmail.com or (954) 361-4720 if you have questions or would like more information regarding this article. You can follow David Adelstein on Twitter @DavidAdelstein1.

 

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