The foregoing concept was evident in Daewoo Engineering and Construction Company, Ltd v. United States of America (“Daewoo”), No. 02-1914c, decided by the United States Court of Federal Claims (the “Court”) on October 13, 2006. Daewoo was awarded a contract by the U. S. Corps of Engineers to build a 53 mile road on the Republic of Palau in the North Pacific. The project was scheduled to be completed in 1,080 days for $88 million. The initial bid was $73 million, but because it was substantially below the Government's internal estimate of $100 million, Daewoo was allowed to increase their proposed amount by $15 million to $88.6 million. During the course of construction, Daewoo alleged it was delayed by poor soils, inclement weather and other adverse conditions. As a result, it filed a claim under the Contract Disputes Act7 for an additional $66 million. When the Corps denied the claim, Daewoo filed suit.
At trial, Daewoo was unable to support not only their initial proposal but also their claim. Daewoo was unable to furnish evidence that they had performed due diligence during the pre–award (proposal) process to obtain a clear understanding of the environment at Palau and, therefore prepared and submitted a specious price proposal.
Daewoo performed some work during the first two years of the contract. During this period, Daewoo protested to the Corps that they were encountering differing site conditions.
Eventually Daewoo submitted a certified claim to the Corps of Engineers for $64 million in equitable adjustments including $13.4 million in “incurred damages” and $50 million for anticipatory costs. The Contracting Officer denied the claim and Daewoo appealed to the Court.
The Court's opinion was nothing less than a devastating indictment of Daewoo. The Court stated that “Daewoo had little idea how to bid this contract.” The Court stated that testimony of Daewoo employees were examples of “Daewoo's lack of good faith” and that the claim was a “negotiation ploy.” At trial, Daewoo's employees testified that the incurred damages part of the claim, in the amount of $50.6 million, was intended to “get the Government's attention” presumably so the Government would listen to the complaints of Daewoo and grant some relief. The Court determined that “Daewoo was among the bidders that did not heed the Government's warnings and obtain expert assistance in compiling its bid.” Moreover, there was no basis of estimate (“BOE”) prepared, so no one at Daewoo knew how the productivity rate was calculated or even who calculated it. Furthermore, Daewoo failed to create a critical path that would show project completion according to contract requirements.
