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Garco Construction, Inc. v. Secretary of Army

United States Court of Appeals, Federal Circuit

May 9, 2017


         Appeal from the Armed Services Board of Contract Appeals in Nos. 57796, 57888, Administrative Judge Craig S. Clarke.

          STEVEN D. Meacham, Peel Brimley LLP, Henderson, NV, argued for appellant.

          KENNETH DiNTZER, Commercial Litigation Branch, Civil Division, United States Department of Justice, Washington, DC, argued for appellee. Also represented by Benjamin C. Mizer, Robert E. Kirschman, Jr., Scott D. Austin.

          Before Wallach, Hughes, and Stoll, Circuit Judges.


          Stoll, Circuit Judge.

         Garco Construction, Inc., appeals a decision of the Armed Services Board of Contract Appeals denying Garco's damages claim arising out of its contract with the U.S. Army Corps of Engineers to build housing units on Malmstrom Air Force Base. Garco argues that a change in the base access policy prevented its subcontractor from bringing many of its workers onto the base, requiring its subcontractor to hire and train more workers, and forcing it to incur additional costs. Garco also alleges a constructive acceleration of the contract. Because we conclude that there was no change to the base access policy, we reject Garco's arguments and affirm the Board's decision.


         Malmstrom Air Force Base in Great Falls, Montana, is the largest missile complex in the Western Hemisphere. The base houses the Minuteman III intercontinental ballistic missiles, which carry a nuclear payload. The U.S. Army Corps of Engineers put out for bid Contract No. W912DW-06-C-0019 to build housing units on the base, and on August 3, 2006, awarded the contract to Garco Construction, Inc. Garco subcontracted some of the work to James Talcott Construction ("JTC") in September 2006. JTC had performed considerable work on the base in the past.

         The Corps of Engineers-Garco contract contained two provisions especially pertinent here: (1) it incorporated Federal Acquisition Regulation ("FAR") § 52.222-3, which provides that contractors are permitted to employ ex-felons; and (2) it required contractors to at all times adhere to the base access policy. The base access policy, in place since at least 2005, indicated:

A 911 Dispatcher will run the employees['] name[s] through the National Criminal Information Center [("NCIC")] system for a wants and warrants check. Unfavorable results will be scrutinized and eligibility will be determined on a case-by-case basis by the 341 SFG/CC.

J.A. 51 (emphasis added).

         After work on the contract began, JTC began experiencing difficulty bringing its crew onto the base. JTC bussed many of its workers to the base from a local prison's pre-release facility, and those workers in particular experienced difficulty accessing the base. Other JTC workers who were not from the pre-release facility but who had criminal records were also refused base entry. JTC's President testified that JTC had not encountered similar access denials in its performance of other Malmstrom contracts over the nearly twenty years it had worked on the base.

         Malmstrom's Chief of Security Forces Plans and Programs at the time, Michael Ward, stated in a 2012 declaration that JTC had been "essentially by-pass[ing] security procedures" at the base. J.A. 279, ¶ 6. Mr. Ward explained that JTC had been gaining base access for its bussed-in, pre-release facility workers by having a retired military member ride on the bus and vouch for everyone on it, which the base permitted at the time. Eventually, there was an incident on a Garco jobsite where a prerelease facility worker beat his manager with a wrench, and Mr. Ward later discovered that this worker had a violent criminal background.

         In May 2007, JTC voiced concerns to Garco and the Air Force regarding the difficulty it experienced getting its workers onto the base, although it acknowledged that violent criminals and sex offenders should not be granted base access. Informal communications from the Air Force indicated that violent criminals and sex offenders would continue to be denied base access. After numerous exchanges between the parties, the Base Commander Major General Sandra Finan[1]-who was ultimately responsible for base access-issued a memorandum on October 22, 2007, indicating:

The 911 Dispatch Center will input all listed employees' name[s] and data into the National Criminal Information Center (NCIC) database for a background check in accordance with Air Force directives. Unfavorable results from the background check will result in individuals being denied access to the installation, including, but not limited to, individuals that are determined to fall into one or more of the following categories: those having outstanding wants or warrants, sex offenders, violent offenders, those who are on probation, and those who are in a pre-release program. The definition of sex offender and violent offender can be found at Montana Code Annotated § 46-23-502.

J.A. 151 (emphases added).

         Two days after Maj. Gen. Finan issued her base access memorandum, JTC submitted a request for equitable adjustment ("REA") of the contract. JTC explained in the REA that its inability to use convict labor on the base greatly reduced the size of the experienced labor pool from which it could hire in the Great Falls, Montana, area. JTC claimed that, as a result, it incurred nearly half-a-million dollars ($454, 266.44) of additional expenses from additional time interviewing and hiring new workers, paying overtime to new workers, and training new and less experienced workers. Notably, the REA only requested additional money; it did not request a time extension.

         The Air Force denied the REA, and JTC, through Garco, requested reconsideration by the contracting officer. Eventually the claim reached the Armed Services Board of Contract Appeals. The Board first granted partial summary judgment, "holding that [Maj. Gen.] Finan's 22 October 2007 base access memorandum was a sovereign act and the Air Force was not liable for damages from that date forward." Appeals of-Garco Constr., Inc., ASBCA No. 57796, 15-1 B.C.A. (CCH) ¶ 36, 135 (Sept. 22, 2015). In a later decision, the Board held that the base access policy in place at contract award in August 2006 was also a sovereign act, and moreover, was not changed by the October 2007 memorandum. The Board therefore rejected Garco's argument that prior to October 22, 2007, the Air Force could only deny access to workers who had outstanding "wants or warrants." Instead, the Board found that a "wants and warrants" check was synonymous with a background check and Maj. Gen. Finan's memorandum was simply a clarification of- not a change to-the base access policy, and therefore the Air Force was not liable for damages before the memorandum issued either. The Board also concluded that the Air Force's increased enforcement of the base access policy did not constitute a constructive acceleration of the contract, and that JTC could not recover under that theory.

         Garco appeals the Board's decision, and we have jurisdiction under 28 U.S.C. § 1295(a)(10) and 41 U.S.C. § 7107(a)(1).


         On appeal, Garco raises two narrow issues, which we address in turn below: (1) that Maj. Gen. Finan's October 2007 memorandum changed the base access policy and the policy it allegedly supplanted did not authorize the exclusion of workers with criminal records; and (2) that the Air Force's sovereign act of denying base entry to JTC's workers constituted a compensable constructive acceleration of the contract. Notably, Garco concedes that if we determine Maj. Gen. Finan's October memorandum did not change the base access policy, then their arguments fail. See Oral Arg. at 4:28-4:48, 16-1936.mp3. Garco does not challenge the Board's determination that the base access policy is a sovereign act.[2]


         Garco first asserts that the base access policy did not authorize the Air Force to prohibit workers with a criminal record from entering the base until Maj. Gen. Finan's October 2007 memorandum issued, and therefore JTC's request for equitable adjustment (or REA) should have been granted. As support, Garco turns to the language of the base access policy, particularly its reference to the NCIC "wants and warrants check" that the 911 dispatcher was to perform under the policy. Garco argues that this language is plain on its face and means that only a search for outstanding wants or warrants was to be performed. Garco argues that anything more, such as a search of a criminal record, falls outside the stated restrictions on access. Garco also directs us to a line from Maj. Gen. Finan's testimony where she stated that denying access from those with a violent background or in prerelease programs was a "large change" to the base access policy. Appellant Br. 37 (citing J.A. 299). As further support, Garco notes that Maj. Gen. Finan's October 2007 memorandum refers to a "background check, " rather than a "wants and warrants check."

         Addressing Garco's argument requires us to interpret the base access policy, an agency regulation. This is a legal issue which, under the Contract Disputes Act, 41 U.S.C. §§ 7101-09, we review de novo. Gen. Dynamics Corp. v. Panetta, 714 F.3d 1375, 1378 (Fed. Cir. 2013). However, "[t]he agency's construction of its own regulations is 'of controlling weight unless it is plainly erroneous or inconsistent with the regulation.'" Reizenstein v. Shinseki, 583 F.3d 1331, 1335 (Fed. Cir. 2009) (quoting Cathedral Candle Co. v. U.S. Int'l Trade Comm'n, 400 F.3d 1352, 1364 (Fed. Cir. 2005)); see also Auer v. Robbins, 519 U.S. 452, 461 (1997). Garco does not challenge this proposition, but instead argues that no deference is due when the agency's interpretation contradicts the plain and sensible meaning of the regulation. Roberto v. Dep't of the Navy, 440 F.3d 1341, 1350 (Fed. Cir. 2006).

         We disagree with Garco that the plain text of the base access policy unambiguously resolves the dispute. As when we construe statutory language, we must consider the regulation as a whole and the term "wants and warrants check" in the context in which it was used. See Textron Lycoming Reciprocating Engine Div., Avco Corp. v. United Auto., Aerospace & Agric. Implement Workers of Am., 523 U.S. 653, 657 (1998) ("[I]t is a fundamental principle of statutory construction (and, indeed, of language itself) that the meaning of a word cannot be determined in isolation, but must be drawn from the context in which it is used." (internal quotation marks omitted)); Robinson v. Shell Oil Co., 519 U.S. 337, 341 (1997) ("The plainness or ambiguity of statutory language is determined by reference to the language itself, the specific context in which that language is used, and the broader context of the statute as a whole."). While there may be some merit to Garco's argument that the plain meaning of "wants and warrants check" in isolation suggests a check only for wants or warrants, the surrounding language casts doubt on that interpretation.

         For example, the sentence immediately following the disputed "wants and warrants check" language reads: "Unfavorable results will be scrutinized and eligibility will be determined on a case-by-case basis." J.A. 51. This directive for a case-by-case analysis of unfavorable results suggests that the check is more searching than a simple check for outstanding wants or warrants. Indeed, the government introduced testimony that anyone with a want or warrant would be immediately detained and would not be "scrutinized" with "eligibility . . . determined on a case-by-case basis." J.A. 25. Garco's explanation that this sentence could mean that the Air Force may grant base access to those with old, but still outstanding, warrants is not convincing. At bottom, we find that this sentence cuts against Garco's plain meaning interpretation such that we must consider the Air Force's ...

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