FEMA Must Reimburse For Differing Conditions On Repair Project

Friday, February 23, 2018 5:18 am
March 2018 - Volume 46 Number 3

A federal agency testified as to what it believed should have been an architect’s and contractor’s thought process regarding surprise site conditions---but those opinions had no bearing on who shouldered the contractual risk for the cost of the surprise. Hint: it was the federal government.

Background: In 2005, Hurricane Katrina flooded the Templeman detention facility in New Orleans. In 2006, FEMA issued a project worksheet for repair work necessary to return portions of the facility to pre-disaster condition. Orleans Parish Sheriff’s Office (OPSO) contracted with McDonnell Group, LLC and Archer Western Contractors LTD Joint Venture (McDonnell/AWC) to perform the work. In January 2013, OPSO approved two change orders, totaling more than $500,000, related to subsurface obstacles encountered during the project. OPSO paid McDonnell/AWC for the changed work and then sought reimbursement from the Federal Emergency Management Agency (FEMA). FEMA refused to pay, arguing that the change order work was within the scope of the parties’ fixed-price contract and therefore not reimbursable.

Change order 5, priced at $221,199, applied to the removal of "unforeseen cypress stumps and root masses" that were initially discovered in 2011 during preparation for pile driving. Changer order 7, priced at $289,708, applied to the removal of "an unknown underground wooden drainage structure" that similarly obstructed installation of the building’s new concrete piles and foundations.

After FEMA denied OSPO’s reimbursement request for these expenses, the parties entered into arbitration which then led to this appeal.

Argument: FEMA argued that a "plain language reading" showed that the OSPO-McDonnell/AWC contract contemplated the change order work items---i.e., removal of stumps and the underground structure---and included them as part of the accepted costs. Thus, the responsibility for any "cost overruns" related to these included items was OSPO’s, not FEMA’s.