Hamm filed a claim and appealed a denial to the ASBCA which, in turn, denied the appeal by reason of the failure of Hamm, according to the ASBCA, to be misled by the defect. Hamm appealed to the CAFC who reversed the ASBCA. Interestingly, the ASBCA found that the Government specification was, in fact, erroneous but that Hamm was not misled by the error in the specification.

Nevertheless, the Court affirmed precedent that “when a contractor is faced with an obvious omission, inconsistency, or discrepancy of significance, he is obligated to bring the situation to the Government's attention if he intends subsequently to resolve the issue in his own favor.”⁴ The Court continued, stating, “when a contractor-claimant seeks to recover an equitable adjustment for additional work performed on account of a defective specification, the contractor-claimant must show that it was misled by the defect…the contractor-claimant must show both that it relied on the defect and that the defect was not an obvious omission, inconsistency, or discrepancy of significance - in other words, a patent defect - that would have made such reliance unreasonable.”⁵ In other words, contractors have the right to rely on Government furnished estimates…as long as the contractor acted reasonably.

The CAFC launched into a discussion of a defect and an ambiguity. The Court defined an ambiguity as more than one reasonable

interpretation of a contract, but failed to provide a definition of a defect.

Nevertheless, the Court did explain that a contractor may not recover from a patent ambiguity or a patent defect, but may recover from a latent ambiguity or a latent defect. “In other words, just as a contractor may recover for a latent ambiguity, a contractor may not recover for a patent ambiguity; just as a contractor may recover for a latent defect, a contractor may not recover for a patent defect.”⁶ Consequently, under the implied warranty of specifications, the contractor “must show that it was misled by the error in the specifications in order to recover an equitable adjustment.”⁷ Stated differently, a contractor cannot recover a loss if it was “aware of a defect in the specification at the time of entering into a contract.”⁸ Thus the CAFC awarded Hamm damages due to the latent defect in the Navy specification.

The CAFC also decided the case of Turner Construction Co., Inc. v. United States, No. 03-5055, on May 22, 2004. The Court cited precedent that “where a contract contains a latent ambiguity, the Court will construe the ambiguous term against the Government as drafter of the contract, provided that the contractor's interpretation was reasonable and the contractor relied on that interpretation when preparing its bid.”⁹

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