Material Breach of Contract by Government in Construction Project

On December 9, 2014, the Civilian Board of Contract Appeals (“CBCA”) ruled in favor of contractor Kiewit-Turner, after a finding of material breach of contract on the part of the government, allowing Kiewit-Turner to stop work on a VA Hospital being constructed in Aurora, Colorado, which was supposed to be completed in May 2015. 

The project has been in the works since the late 1990s and is aimed at providing better medical care and facilities for our veterans.

An integrated design and construct (“IDc”) contract was awarded to Kiewit-Turner, to be the general contractor, in August 2010, at which point the design was roughly 50% complete.  The VA did not use the IDc mechanism properly, even from the start.

The CBCA made three determinations in its material breach of contract appeal decision:

• The VA did not come close to providing a design that would fit within the estimated construction cost at award of roughly $600 million (the amount authorized by Congress)
  • Kiewit-Turner said it could not finish the project for less than $1 billion
• The VA was in material breach of the contract by failing to provide a design to the contractor that could be constructed for the estimated construction cost at award
  • Kiewit-Turner was deprived a benefit and, therefore, a material breach of contract.
  • Kiewit-Turner cannot be adequately compensated
  • There is a small likelihood that the VA can rectify its failure
  • The VA did not comply with the required standards of good faith and fair dealing in government contracts
• Kiewit-Turner has the right to stop performance as a matter of law (a right granted by a finding a material breach of contract)
  • Kiewit-Turner continued construction for as long as possible, to avoid being charged with default
    • They even spent roughly $100 million out-of-pocket to keep the project moving
  • If there is a finding of material breach of contract, the non-breaching party has the right to stop performance on the contract

Colorado Congressman Mike Coffman issued a statement noting that he will work with the Colorado congressional delegation and VA officials to resolve the material breach of contract issue and “find a path forward.”

See the full decision here.  Note: Watson & Associates represented one of the subcontractors in this case. See additional information about construction scope of work changes,  common law breach of contract remedies , privity of contract and voidable contracts.

If you have any questions about material breach of contract, the decision, or for help with any of your government contracting matters, please call  our government construction law attorneys at 1-866-601-5518.