Failure of Prime Contractor to Comply With "Percentage of Work" Requirements Entitles Government to Damages
In a case of first impression, the United States Civilian Board of Contract Appeals upheld a contracting officer’s final decision assessing damages against a prime contractor that failed to comply with the requirement to perform at least 50% of the on-site work. On a contract awarded by the Federal Highway Administration ("FHWA"), prime contractor, Singleton Enterprises ("Singleton") subcontracted the vast majority of its work to Talley Construction ("Talley"). Singleton’s only employees on-site were supervisors, which Singleton apparently borrowed from Talley but paid directly. It was unclear whether Singleton had paid for equipment used on the site, but the CBCA determined that whether or not Singleton had paid for equipment costs, it still performed substantially less than 50% of the value of on-site work.
The FHWA decided that if Singleton did not perform the on-site work, it was not entitled to the benefit of the unit prices it charged for that work. Talley was essentially acting as prime contractor so the FHWA decided it should only pay Singleton what Singleton was paying Talley. To calculate its damages, once the final quantities were determined, the FHWA multiplied Talley’s unit price to Singleton for the work, which was less than Singleton’s unit price to the FHWA for the work. Singleton had already been paid more than the FHWA would have paid based on Talley’s pricing. The appeal upheld not only the FHWA’s decision that it was entitled to recoup its "overpayment" damages from Singleton for not meeting the percentage of work requirement but also the reasonableness of the FHWA’s method of calculating its damages for that breach.
The decision notes that it has no precedential value. However, in similar circumstances, contractors should expect both the Department of Transportation and the Civilian Board of Contract Appeals to act as they did here. See Singleton Enterprises v. Department of Transportation, CBCA No. 2716, June 14, 2012.