Archer Western Contractors. LLC v. U.S. Department of Transportation ( 2022 )

United States Court of Appeals
FOR THE DISTRICT OF COLUMBIA CIRCUIT
Argued November 15, 2021 Decided July 26, 2022
No. 20-1520
ARCHER WESTERN CONTRACTORS, LLC,
PETITIONER
v.
UNITED STATES DEPARTMENT OF TRANSPORTATION AND
FEDERAL AVIATION ADMINISTRATION,
RESPONDENTS
On Petition for Review of an Order
of the Federal Aviation Administration
Jonathan J. Straw and Steven D. Meacham argued the
causes for petitioner. On the briefs was Larry W. Caudle Jr.
Corinne A. Niosi, Senior Trial Counsel, U.S. Department
of Justice, argued the cause for respondent. With her on the
brief was Brian M. Boynton, Acting Assistant Attorney
General.
Before: ROGERS and WALKER, Circuit Judges, and
EDWARDS, Senior Circuit Judge.
Opinion for the Court filed by Circuit Judge WALKER.
2
WALKER, Circuit Judge: The Federal Aviation
Administration hired Archer Western Contractors to build air
traffic structures for an airport in Las Vegas. Archer completed
the work, but there was some turbulence along the way. Archer
now challenges the FAA’s resolution of three contract disputes.
On the first dispute, the FAA said that Archer waited too
long to challenge the FAA’s failure to provide an equitable
adjustment for a modification to the contract. For the second
dispute, the FAA said that Archer’s claim regarding contract
modifications’ “cumulative impact” was also untimely. As for
the third dispute, the FAA found that Archer had failed to
install proper rectangular airducts.
We hold that the FAA erred in dismissing as untimely
Archer’s failure-to-provide-an-equitable-adjustment claim.
We agree with the FAA on the other two issues.
I
Archer built an air traffic control tower, a terminal radar
approach control building, a parking garage, and a guard shack
at what was then called McCarran International Airport in Las
Vegas. Over the course of the multi-year construction process,
the FAA repeatedly changed the work that it had hired Archer
to perform. Those contract modifications sometimes required
Archer to stop work and incur delay costs.
After one of the delays, Archer requested an “equitable
adjustment,” which is the compensation that the parties’
contract requires the FAA to pay Archer when contract changes
“increase . . . the cost of, or time required for performing the
work.” JA 136.
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In December 2013, the FAA formally denied Archer’s
requested equitable adjustment, opting instead to unilaterally
adjust the contract and award Archer less for the delays than it
asked for. A year and four months later, in April 2015, Archer
filed a notice of contract dispute with the Office of Dispute
Resolution for Acquisition (ODRA), which is the FAA’s
dispute-resolution tribunal. The notice listed first among its
claims the FAA’s breach of contract for “Failure to Provide
Equitable Adjustment for Significant Design Modification.”
JA 533.
Archer also brought other claims to the ODRA, including
one related to its HVAC ductwork. Archer installed two types
of airducts — round and rectangular. After installation, the
contractually required antimicrobial coating in the round ducts
began to flake off. There was also evidence of inadequate
adhesion in the rectangular ducts. In response, the FAA
rejected all the ducts as non-compliant with the contract and
required Archer to replace them. Because Archer thought only
the round ducts needed replacing, it sought reimbursement for
the cost of replacing the rectangular ducts.
Four years later, in 2019, the ODRA received notice of a
cumulative-impact claim. According to Archer, the FAA’s
successive, significant changes to the contract rippled out to
decrease the efficiency of the entire project. That cumulative
impact, said Archer, generated additional, compensable costs,
even for unchanged work.
The ODRA dismissed Archer’s failure-to-provide-an-
equitable-adjustment claim as untimely, relying on contractual
and regulatory provisions that require filing a claim within two
years of its accrual. It reasoned that Archer’s claim accrued
back in December 2012 when the FAA proposed the relevant
contract change, not in December 2013 when the FAA denied
4
Archer’s requested equitable adjustment. Recall that Archer
filed its failure-to-provide-an-equitable-adjustment claim in
April 2015.
In addition, the ODRA dismissed Archer’s cumulative-
impact claim as untimely because it had been raised for the first
time in 2019, several years after the closing of the two-year
window for filing claims.
Finally, the ODRA found that the FAA had reasonably
rejected all of the rectangular airducts in addition to the
defective round airducts.
The FAA adopted the ODRA’s findings and
recommendations in a final order. Archer then petitioned this
Court for review. See 49 U.S.C. § 46110.
II
“Our review is confined to determining whether the FAA’s
order adopting the ODRA’s findings and recommendations is
arbitrary or capricious or contrary to law.” Multimax, Inc. v.
FAA, 231 F.3d 882, 886 (D.C. Cir. 2000); see also 5 U.S.C.
§ 706(2)(A) (arbitrary or capricious standard). The FAA falls
short of that standard when its decision “is not supported by
substantial evidence” or when it “has made a clear error in
judgment.” Multimax, 231 F.3d at 886 (cleaned up).
A
We begin with the first of Archer’s claims — that the
ODRA, and thus the FAA, incorrectly dismissed as untimely
Archer’s claim for “Failure to Provide Equitable Adjustment
for Significant Design Modification.” JA 533.
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We agree with Archer.
Government contracts often require the government
agency to compensate the contractor when the agency’s
modifications to the contract cost the contractor time or money.
That compensation is called an equitable adjustment. Archer’s
contract with the FAA requires the FAA to make an “equitable
adjustment” when certain unexpected changes to the contract
“increase . . . the cost of, or time required for performing the
work.” JA 136.
Government contracts also often provide for the
adjudication of disputes that might arise between the agency
and the contractor. In Archer’s contract with the FAA, the
contract said of equitable adjustments that the “[f]ailure to
agree to any adjustment shall be a dispute.” JA 137.
Finally, when disputes like that arise, government
contracts often require a contractor to file claims based on those
disputes in a certain forum and by a certain time. In Archer’s
contract with the FAA, that forum is the “dispute resolution
system at the” ODRA. JA 133. And that time is “within two
(2) years of the accrual of the contract claim involved.” JA
133; see also 14 C.F.R. § 17.27(c) (“A contract dispute against
the FAA shall be filed with the ODRA within two (2) years of
the accrual of the contract claim involved.”). FAA regulations
specify that a claim accrues when “all events relating to a claim
have occurred, which fix liability . . . and permit assertion of
the claim.” 14 C.F.R. § 17.3(b).
So to sum up so far, under the terms of Archer’s contract
with the FAA, Archer is entitled to an equitable adjustment if
a contract modification by the FAA costs Archer time or
money. The parties’ failure to agree to that equitable
adjustment is a contract dispute. And a claim based on that
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dispute must be filed with the ODRA within two years of the
claim’s accrual.
That’s what happened here. After the FAA cost Archer
time by changing the work it required, Archer requested an
equitable adjustment. The FAA denied that request for an
equitable adjustment in December 2013. At that point, the
claim accrued because it was then that “all events relating to a
claim have occurred, which fix liability . . . and permit
assertion of the claim.” 14 C.F.R. § 17.3(b). Then, a year and
four months later, in April 2015, Archer filed a claim with the
ODRA for what it labeled the FAA’s “Failure to Provide
Equitable Adjustment for Significant Design Modification.”
JA 533. In it, Archer noted the FAA’s contractual obligation
“to make an equitable adjustment upon submittal of a proposal”
by Archer for qualifying costs. JA 533. It referred to the
contract’s changes clause, provision 3.10.1-16, which defines
as a dispute the “[f]ailure to agree to any adjustment.” JA 136-
37.
Archer’s claim (in April 2015) for the FAA’s failure to
provide an equitable adjustment was timely because it was filed
within two years of the FAA’s denial of the equitable
adjustment (in December 2013).
The FAA says Archer’s failure-to-provide-an-equitable-
adjustment claim accrued before December 2013. But that is
precluded at least by the contract and litigating positions before
us. In this situation, a claim for the FAA’s failure to agree to
an equitable adjustment cannot accrue until the FAA fails to
agree to the equitable adjustment. Only then can it be said that
“all events relating to [the] claim have occurred, which fix
liability . . . and permit assertion of the claim.” 14 C.F.R.
§ 17.3(b). And the FAA does not dispute that it was in
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December 2013 that the FAA and Archer failed to agree on an
equitable adjustment. 1
To the extent the FAA suggests that the regulation defining
accrual, 14 C.F.R. § 17.3(b), can redefine the accrual period for
the contract’s failure-to-agree dispute, it is incorrect. Even if
we assume that the FAA is right — that pursuant to 17.3(b),
denial of a request for an equitable adjustment was “not a
prerequisite to accrual or the filing of a contract
dispute,” — the parties entered into their contract before that
regulation went into effect, so the contract controls. See 14
C.F.R. § 17.27(c) (“If an underlying contract entered into prior
to the effective date of this part provides for time limitations
for filing of contract disputes with the ODRA, which differ
from the aforesaid two (2) year period, the limitation periods in
the contract shall control over the limitation period of this
section.”). The contract provided that Archer could file a
dispute if the parties “[f]ail[ed] to agree to any adjustment.” So
a claim for the FAA’s failure to agree to an equitable
adjustment could not accrue until then.
The FAA’s brief is replete with the dates of other disputes
between it and Archer. But those are not the disputes that
matter. Perhaps if Archer had brought a constructive-change-
of-contract claim, the FAA could argue that that claim accrued
in December 2012 when the FAA proposed changes to
Archer’s contract. And perhaps if Archer had brought a claim
for delay, the FAA could argue that that claim accrued in
January 2013 when Archer told the FAA it was stopping work
1
Because the FAA does not argue for an earlier date on which it
believes the parties first “failed to agree” on an equitable adjustment,
we do not decide whether a party’s claim for “failure to agree” could
accrue at some point before a formal rejection of a request for an
equitable adjustment.
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or in February 2013 when Archer began tracking costs and
delays.
But all of that is beside the point. Archer does not ask us
to review the FAA’s adjudication of a constructive-change-of-
contract claim or a delay claim. We are reviewing a failure-to-
provide-an-equitable-adjustment claim. And that claim was
timely filed only one year and four months after it
accrued — well within the two-year window for Archer to file
a claim.
B
Next, we discuss Archer’s second claim — that the
ODRA, and thus the FAA, incorrectly dismissed as untimely
Archer’s cumulative-impact claim for the synergistic effect of
multiple contract modifications on the unchanged remainder of
the contract.
We agree with the FAA.
Archer’s contract requires that disputes filed with the
ODRA “shall contain . . . [a] detailed . . . statement . . . of the
legal grounds for the contractor’s positions regarding each . . .
count of the contract dispute (i.e., broken down by individual
claim item).” JA 133 (emphasis added); see also 14 C.F.R.
§ 17.27(a) (disputes “should contain . . . [a] detailed . . .
statement . . . of the legal grounds underlying the contract
dispute, broken down by individual claim item”). So to bring
a cumulative-impact claim, Archer needed to give a statement
of the legal grounds for that specific claim.
Archer did nothing like that within the two-year window.
It failed to list a cumulative-impact claim as an “individual
claim item” in the notices it filed with the ODRA. JA 133. In
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fact, Archer has not argued that it mentioned “cumulative
impact” — or a synonym for it — in those notices at all.
At oral argument, Archer said that its “cumulative impact
claim arises from all the facts from all the counts.” Transcript
of Oral Argument at 8:15-16. That is not good enough — not
when the contract requires that claims be “broken down by
individual claim item.” JA 133. The FAA cannot be expected
to divine — from vague references by Archer, nested within its
other claims — a nuanced cumulative-impact claim for costs
associated with unchanged work, which are not directly
traceable to an individual disruption, are not readily
foreseeable, and are not easy to calculate.
Archer needed to separately allege a claim for cumulative
impact within two years of that claim’s accrual. Instead, the
ODRA did not receive notice of Archer’s cumulative-impact
claim until 2019. JA 118. That was well past the contract’s
two-year limit for filing a claim. The FAA was therefore
correct to dismiss Archer’s cumulative-impact claim as
untimely.
C
We turn to the last of Archer’s claims — that the FAA
incorrectly rejected the rectangular airducts that Archer
installed. 2
Here again the FAA prevails.
We will not disturb an agency’s factual finding when
“substantial evidence” supports that finding. City of Santa
2
To be precise, Archer installed the airducts through subcontractors
Gallagher-Kaiser Corporation and Liberty Duct.
10
Monica v. FAA, 631 F.3d 550, 554 (D.C. Cir. 2011) (citing 49
U.S.C. § 46110(c)). Substantial evidence means “more than a
scintilla” of evidence. Town of Barnstable v. FAA, 740 F.3d
681, 687 (D.C. Cir. 2014) (cleaned up)). So even when the
record is “unclear,” it’s enough for the agency to rely on “such
relevant evidence as a reasonable mind might accept as
adequate to support a conclusion.” Pham v. National
Transportation Safety Board, 33 F.4th 576, 581 (D.C. Cir.
2022) (cleaned up). An agency’s “conclusion may be
supported by substantial evidence even though a plausible
alternative interpretation of the evidence would support a
contrary view.” Western Air Lines, Inc. v. Civil Aeronautics
Board, 495 F.2d 145, 152 (D.C. Cir. 1974).
The parties’ contract required an antimicrobial coating to
“form the interior surface of the duct[s].” JA 125-26. As
Archer admitted at oral argument, coating that flakes would
violate that contract. Because Archer acknowledges that the
round ducts were flaking, it agreed that many of them needed
to be replaced. However, Archer maintains that the coating’s
adhesion on the rectangular ducts was sufficient and thus that
the FAA should not have required Archer to replace them.
Substantial evidence supports the FAA’s finding that the
antimicrobial coating on the inside of Archer’s rectangular
ducts would likely not adhere sufficiently over time. The FAA
based its conclusion on several findings, including the presence
of oil in the rectangular ducts due to a failure to properly clean
the ducts before the coating was applied. The evidence also
included testing that showed 17 instances of an adhesion rating
of 0 on a scale where 0 is the worst score. And the evidence
included flaking in the turning vanes of the rectangular ducts.
Those are among the reasons the FAA’s expert testified that,
with the information the FAA had, he would probably have
11
made the same decision to reject and replace the rectangular
ducts.
We need not decide whether any one of those pieces of
evidence constitutes substantial evidence on its own. Together,
they are enough.
First, take the oil found in the rectangular ducts. The round
ducts had oil because they had been poorly cleaned. That oil
caused extensive flaking in the round ducts, which were made
in the same place and by the same manufacturers as the
rectangular ducts. Although there was less oil in the
rectangular ducts, the FAA found there was enough oil in them
to indicate that the problem that plagued the round ducts would
also plague the rectangular ducts. That reasonable finding was
supported by an expert’s testimony that the presence of even
small amounts of oil could lead to variability in coating
adhesion.
Second, look at the adhesion test scores. Although some
of the spot-tested rectangular ducts showed acceptable
adhesion levels — the parties dispute how many — a
significant number (17) received the lowest grade possible (0).
Those results came from the same test that was used by the
company Archer hired to investigate the flaking, by that same
company when Archer’s subcontractor hired it, and by the
manufacturer of the antimicrobial coating.
Third, consider the flaking in the turning vanes of the
rectangular ducts. Turning vanes are components of airducts
that direct airflow around corners. It is far from unreasonable
to suspect that flaking there bodes poorly for the adhesion in
the rest of the rectangular ducts.
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For each of those three categories of evidence, Archer has
a ready response. It notes that there was less oil on the
rectangular ducts than on the circular ducts. It argues that the
adhesion tests were taken in an improper way and applied a
grading standard that was too rigorous. And it adds that the
turning vanes could have been replaced without removing the
main parts of the rectangular ducts.
But those arguments against the FAA’s view merely show
“a plausible alternative interpretation of the evidence” that
“would support a contrary view.” Western Air Lines, 495 F.2d
at 152. They do not eliminate the “relevant evidence” that
would allow “a reasonable mind” to accept the FAA’s view “as
adequate to support” its factual “conclusion.” Pham, 33 F.4th
at 581 (cleaned up). It is not our place to say how much oil is
enough oil to portend a flaking problem, which testing method
is the most accurate, or whose testing standard is the most fair.
In short, there is substantial evidence that the antimicrobial
coating failed to sufficiently adhere to the rectangular airducts.
And because Archer concedes that the FAA could reject the
airducts if the antimicrobial coating did not “form the interior
surface of the duct[s]” as required by the contract, JA 125-26,
the FAA was not arbitrary and capricious when it required
Archer to replace the rectangular ducts.
* * *
We grant the petition in part and deny it in part: We vacate
the FAA’s order only as to its dismissal of Archer’s first claim
for failure to provide an equitable adjustment. The other
challenged aspects of the FAA’s order are not arbitrary and
capricious.
So ordered.