bell/heery v. United States , 739 F.3d 1324 ( 2014 )

United States Court of Appeals
for the Federal Circuit
______________________
BELL/HEERY, A JOINT VENTURE,
Plaintiff-Appellant,
v.
UNITED STATES,
Defendant-Appellee.
______________________
2013-5002
______________________
Appeal from the United States Court of Federal
Claims in No. 11-CV-0462, Judge Lawrence J. Block.
______________________
Decided: January 7, 2014
______________________
ROBERT D. WINDUS, Moore & Lee, LLP, of McLean,
Virginia, argued for plaintiff-appellant. With him on the
brief was RICHARD O’SHEA WOLF.
ELLEN M. LYNCH, Trial Attorney, Commercial Litiga-
tion Branch, Civil Division, of Washington, DC, argued for
defendant-appellee. On the brief were STUART F. DELERY,
Principal Deputy Assistant Attorney General, JEANNE E.
DAVIDSON, Director, HAROLD D. LESTER, JR., Assistant
Director, and DEVIN A. WOLAK, Trial Attorney.
______________________
2 BELL/HEERY v. US
Before PROST, MAYER, and REYNA, Circuit Judges.
Opinion for the court filed by Circuit Judge REYNA.
Dissenting opinion filed by Circuit Judge MAYER.
REYNA, Circuit Judge.
Bell/Heery, a Joint Venture (“BH”), appeals from the
decision of the United States Court of Federal Claims
dismissing its complaint for failure to state a claim upon
which relief can be granted pursuant to Rule 12(b)(6) of
the Rules of United States Court of Federal Claims
(“RCFC”). See Bell/Heery v. United States, 106 Fed. Cl.
300 (2012) (“CFC Decision”). Because BH has failed to set
forth facts sufficient to state a viable claim for the re-
quested relief under the theories presented in its com-
plaint, we affirm.
BACKGROUND
This appeal involves a contract dispute between BH
and the Federal Bureau of Prisons (the “FBOP” or “Gov-
ernment”). In April 2006, the FBOP issued a Request for
Proposal (“RFP”) soliciting bids for the “design-build”
construction of a federal correctional institution in New
Hampshire. The RFP detailed the specifications for the
project and the duties of prospective contractors. In
particular, the construction project involved a “cut-to-fill”
site, meaning that the ground for the project had to be
made level by excavating (or “cutting”) materials from one
area of the work site and using those materials to fill the
lower areas. The contract mandated that the cut-to-fill
operations be performed in compliance with the rules and
regulations of the New Hampshire Department of Envi-
ronmental Sciences (“NHDES”). These requirements
included obtaining and complying with an Alteration of
Terrain (“AOT”) permit for the cut-to-fill operations.
The RFP included a section entitled “Certification,
Codes, Regulations, and Permits,” which included several
BELL/HEERY v. US 3
subsections regarding substantive and procedural obliga-
tions assumed by prospective bidders in addressing state-
related permit requirements in their construction plans.
RFP § C.4. First, the provision advised that the contrac-
tor would be responsible for “prepar[ing] the necessary
documentation and forms required for the permits, and
shall apply for, pay for and obtain all such permits and
submit the application(s) for the FBOP.” RFP § C.4(d)(1).
Second, it advised that “[i]n preparing construction docu-
ments, the Contractor is to consult with appropriate
officials of the State or a political subdivision of a State, or
both, in which the project will be located, who would have
jurisdiction if it were not constructed by a federal agency.”
RFP § C.4(e). Third, it indicated that “[i]n no case are the
comments or recommendations of these officials to be
implemented into the developmental documents without
the approval of the FBOP.” RFP § C.4(e)(3).
In addition to the foregoing explicitly recited obliga-
tions, the RFP further advised that “[t]he FBOP Technical
Design Guidelines shall be referenced by the Contractor
for additional requirements.” RFP § C.4(d)(3). These
requirements included a Technical Design Guideline
(“TDG”) entitled “Codes, Regulations, Laws, Permits and
Variances.” TDG 01415. The stated purpose of these
guidelines was to “provide[] guidance to ensure that the
Contractor obtains, reads, and complies with the terms
and conditions of applicable permits . . . .” TDG
01415(A)(1). The “Regulations” section of these guidelines
further states that a prospective “contractor should . . .
become familiar with of [sic] all Federal Acquisition
Regulation (FAR) clauses incorporated into this project.”
TDG 01415(C)(1). The Regulations section of the TDG
expressly advises contractors that the FAR’s “Permits and
Responsibilities clause,” set forth in 48 C.F.R. § 52.236-7,
was incorporated into the contract and that it allocates all
costs associated with obtaining permits to the Contractor
“without additional expense to the Government”:
4 BELL/HEERY v. US
The requirements for permits on projects are reg-
ulated by FAR clause 52.236-7: “The Contractor
shall, without additional expense to the Govern-
ment, be responsible for obtaining any necessary
licenses and permits, and for complying with any
Federal, State, and municipal laws, codes, and
regulations applicable to the performance of the
work. . . .”
TDG 01415(C)(1)(a) (emphasis added).
The TDG also reiterates many of the obligations spe-
cifically set forth in the RFP solicitation documents. For
instance, the TDG provision entitled “Permits,” places the
duty of obtaining, paying for, and complying with permits
on the contractor. TDG 01415(F). The TDG section
concerning “State and Local Government Consultation,
Review and Inspection” (the “Consultation, Review, and
Inspection” provision) imposes obligations on the contrac-
tor to: consult with state officials when “preparing the
design for the project”; “submit plans and specifications
for the project in a timely manner for review” by state
officials; “allow inspections by [state] officials during
construction of the project”; and, in conjunction with the
Government, “give due consideration to [state official’s]
recommendations and ensure that a written response is
made to them.” TDG 01415(D)(1)(a), (d), (e), (f). The
TDG’s Consultation, Review, and Inspection provision
also states that “[t]he Contractor shall perform the [obli-
gations regarding state official consultation, review, and
inspection] in conjunction with the FBOP Project Man-
agement Team.” TDG01415(D)(1); TDG01415(D)(1)(f).
Based on the criteria and obligations set forth in the
solicitation documents, BH submitted its bid with a
construction plan that assumed it would be granted a
permit for cut-to-fill operations that would occur in a
single step. Under BH’s one-step-cut-to-fill plan, the cut
materials would be directly transported to their final fill
BELL/HEERY v. US 5
locations without interruption. According to BH, the one-
step-cut-to-fill plan was adopted because it was the most
efficient process for completing the required cut-to-fill
operations. Based on information provided in the Gov-
ernment’s solicitation documents and its prior experience,
BH believed the NHDES would approve an AOT permit
for the one-step-cut-to-fill construction plan. As such,
BH’s bid price for the construction contract was calculated
based on the assumption that the cut-to-fill work would
occur in one step.
In May 2007, the Government selected BH’s bid for
the construction contract for a base sum of $238,175,000.
The contract included a scheduled completion date of
June 10, 2010, and provided liquidated damages in the
amount of $8,000 for each day completion was overdue.
The contract also included a number of express provisions
and incorporated several Federal Acquisition Regulation
(“FAR”) provisions. In addition to the Permits and Re-
sponsibilities clause, the contract also incorporated the
FAR’s “Changes” clause, which describes the procedure by
which the Contracting Officer can “make changes in the
work within the general scope of the contract.” 48 C.F.R.
§ 52.243-4(a). The Changes clause further states that, for
any such ordered change that “causes an increase or
decrease in the Contractor’s cost of, or the time required
for, the performance of any part of the work under [the]
contract,” the Contracting Officer “shall make an equita-
ble adjustment and modify the contract in writing.” Id. §
52.243-4(d).
After BH was awarded the contract, it applied for
state permits to begin cut-to-fill operations under the one-
step-cut-to-fill plan. The NHDES rejected the application
because it would not authorize BH to proceed under the
proposed one-step-cut-to-fill plan. Instead, the NHDES
informed BH that it would only authorize cut-to-fill
operations that were limited to a forty-acre disturbance
area, meaning that BH could only disturb a maximum of
6 BELL/HEERY v. US
forty-acres of land at any given time. This restricted the
cut-to-fill work to an area substantially less than BH
anticipated under its one-step-cut-to-fill plan. To comply
with the forty-acre restriction, BH revised its plans for
the initial phases of the cut-to-fill operations and submit-
ted those plans to the NHDES for approval. The NHDES
authorized BH to proceed with the plans for the initial
phases of operations, but further required BH to submit
plans for the subsequent phases for review and approval
before BH could proceed with those additional phases.
BH advised the FBOP of the restrictions placed on the
cut-to-fill operations by the NHDES and the potential
ramifications of those restrictions on BH’s performance
under the contract. In a letter from BH to the Contract-
ing Officer, BH indicated that the NHDES’s requirements
would “restrict our contractor’s ability to complete the
work based on the means, methods and durations antici-
pated in their [sic] bid.” Additionally, BH advised that it
had additional risk of being unable to meet the contract’s
performance deadlines since “the requirements for future
phasing plan limitations are yet to be determined.” With
these considerations in mind, BH advised the government
of the “potential exposure for addition[al] cost and sched-
ule impact based on the requirements of the NHDES
through the [AOT permit] and we are reserving our rights
for additional compensation resulting from the require-
ment of amendment A of the [AOT permit] as well as
future requirements of the permit.” BH did not, however,
refuse to proceed with construction under the restrictions
imposed by the NHDES, nor did BH press the Govern-
ment to directly intervene with the NHDES on BH’s
behalf.
After BH commenced work on the cut-to-fill activities,
the NHDES imposed at least ten additional limitations on
the cut-to-fill activities beyond the 40 acre disturbance
limitation. Compl. ¶ 50. Under these additional limita-
tions, the NHDES regularly prevented BH from directly
BELL/HEERY v. US 7
transporting cut materials to final fill locations and forced
BH’s earth-moving operations to involve several steps.
BH alleges that these multi-step requirements “caused
excessive re-handling and handling of materials, in-
creased equipment and manpower needs, caused prob-
lematic stockpile management, required additional import
materials, increased costs for erosion control measures,
added temporary stabilization areas, required temporary
stockpile stabilization, required additional areas of resto-
ration and rework and necessitated work during unantic-
ipated winter weather conditions.” Compl. ¶ 55. Overall,
the requirements imposed by the NHDES caused BH’s
cut-to-fill activities to proceed at a much slower pace and
with greater costs than BH anticipated under the pro-
posed one-step-cut-to-fill plan.
Throughout the duration of the cut-to-fill operations,
BH repeatedly informed the Government of the re-
strictions imposed by the NHDES and their detrimental
impact on BH’s performance of the cut-to-fill activities
under the contract. This occurred through several letters
BH sent to the Contracting Officer and during progress
meetings with various Governmental officials. Compl. ¶¶
57-59. BH asserts that the Government never provided
any written response to the notices it sent regarding the
impacts caused by the NHDES’s allegedly “unreasonable
administration of the AOT Permit.” Compl. ¶ 60. Addi-
tionally, BH alleges that during the partnering meetings,
the Government, through two individuals associated with
the FBOP, advised “that it would be treated fairly with
respect to the extra work caused by the NHDES’s admin-
istration of the AOT permit.” Compl. ¶¶ 61, 75.
According to BH, the NHDES’s restrictions went be-
yond the usual requirements of a standard AOT permit
and were contrary to generally accepted industry practice.
BH therefore, upon completion of the cut-to-fill opera-
tions, submitted a Request for Equitable Adjustment
(“REA”) to the Contracting Officer in the amount of
8 BELL/HEERY v. US
$7,724,885 for the excess costs it incurred relative to what
it expected to incur under the original one-step-cut-to-fill
plan. The Contracting Officer rejected BH’s REA. 1 BH
then filed suit in the Court of Federal Claims (“CFC”).
BH’s complaint alleged several theories of relief, including
breach of contract, breach of the implied covenant of good
faith and fair dealing, and relief under the doctrines of
constructive or cardinal change. In response, the Gov-
ernment moved to dismiss the complaint for failure to
state a claim upon which relief could be granted pursuant
to RCFC 12(b)(6). The CFC agreed and granted the
motion to dismiss as to each of BH’s claims.
The CFC acknowledged that the central issue raised
by the motion to dismiss was how the contract allocated
between the two parties the risk of increased costs for
compliance with environmental permits, like the
NHDES’s AOT permit. It then determined that the
Permits and Responsibilities clause “clearly and unam-
biguously” placed the burden of obtaining and complying
with state and local permits for the construction project
solely on BH “without additional expense to the Govern-
ment.” CFC Decision, 106 Fed. Cl. at 312 (citations and
internal quotations omitted). The CFC also rejected BH’s
arguments that the TDG created an obligation on the
Government to engage the NHDES on BH’s behalf regard-
ing the restrictions imposed on the cut-to-fill activities.
Accordingly, the CFC found that BH had not alleged a
viable breach of contract claim or any violation of the
implied duty of good faith and fair dealing. Additionally,
because the Government did not control the actions of the
NHDES, the CFC found there was no basis for imposing
liability for constructive or cardinal change on the Gov-
1 The parties do not dispute that the REA was, in
effect, a certified claim under the Contract Disputes Act.
See 41 U.S.C. §§ 7103-04.
BELL/HEERY v. US 9
ernment. Based on these findings, the CFC concluded
that BH had failed to plead facts sufficient to state a
claim upon which relief could be granted and dismissed
the complaint.
BH now appeals the CFC’s dismissal of the complaint.
We have jurisdiction pursuant to 28 U.S.C. § 1295(a)(3).
STANDARD OF REVIEW
“To survive a motion to dismiss, a complaint must
contain sufficient factual matter, accepted as true, to
‘state a claim to relief that is plausible on its face.’” Ash-
croft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting Bell Atl.
Corp. v. Twombly, 550 U.S. 544, 570 (2007)). “In deciding
a motion to dismiss, the court must accept well-pleaded
factual allegations as true and must draw all reasonable
inferences in favor of the claimant.” Kellogg Brown &
Root Servs., Inc. v. United States, 728 F.3d 1348,
1365 (Fed. Cir. 2013). This rule does not apply, however,
to legal conclusions. Rack Room Shoes v. United
States, 718 F.3d 1370, 1376 (Fed. Cir. 2013). We review
the grant of a motion to dismiss a complaint de novo.
Kam-Almaz v. United States, 682 F.3d 1364, 1368 (Fed.
Cir. 2012).
DISCUSSION
This appeal asks us to determine whether the CFC
erred by dismissing BH’s complaint for failure to state a
claim upon which relief can be granted because, under the
terms of the contract, the Government cannot be liable for
any of the costs BH incurred by complying with the
NHDES’s permitting requirements. BH contends that the
CFC erred because the Complaint alleges three viable
claims for relief: (1) breach of contract; (2) breach of the
implied covenant of good faith and fair dealing; and (3)
constructive or cardinal change. We take each of these in
turn.
10 BELL/HEERY v. US
1. Breach of Contract
A breach of contract claim requires two components:
(1) an obligation or duty arising out of the contract and (2)
factual allegations sufficient to support the conclusion
that there has been a breach of the identified contractual
duty. See Hercules, Inc. v. United States, 24 F.3d 188, 198
(Fed. Cir. 1994); San Carlos Irrigation & Drainage Dist. v.
United States, 877 F.2d 957, 959 (Fed. Cir. 1989). In
making this assessment, the court must interpret the
contract’s provisions to ascertain whether the facts plain-
tiff alleges would, if true, establish a breach of contract.
See S. Cal. Edison v. United States, 58 Fed. Cl. 313, 321
(2003) (“Contract interpretation is a matter of law and
thus may be addressed by the Court in resolving a motion
to dismiss.”) (citing Kennedy Heights Apartments, Ltd., I
v. United States, 48 Fed. Cl. 574, 578 (2001)).
“Contract interpretation begins with the language of
the written agreement.” Coast Fed. Bank, FSB v. United
States, 323 F.3d 1035, 1038 (Fed. Cir. 2003) (citing Foley
Co. v. United States, 11 F.3d 1032, 1034 (Fed. Cir. 1993)).
When interpreting a contract, “if the ‘provisions are clear
and unambiguous, they must be given their plain and
ordinary meaning.’” McAbee Const., Inc. v. United States,
97 F.3d 1431, 1435 (Fed. Cir. 1996) (quoting Alaska
Lumber & Pulp Co. v. Madigan, 2 F.3d 389, 392 (Fed. Cir.
1993)). A contract must also be construed as a whole and
“in a manner that gives meaning to all of its provisions
and makes sense.” Id. (citing Hughes Commc’ns Galaxy,
Inc. v. United States, 998 F.2d 953, 958 (Fed. Cir. 1993)).
The CFC rejected BH’s breach of contract claims be-
cause it did not find that the Government was obligated
under the terms of the contract to undertake any actions
with respect to permits during the project’s construction.
To the contrary, the CFC determined that the Permits
and Responsibilities clause clearly and unambiguously
allocated the costs for complying with all permit require-
BELL/HEERY v. US 11
ments solely to BH because that clause expressly states
that “[t]he Contractor shall, without additional expense to
the Government, be responsible for obtaining any neces-
sary licenses and permits, and for complying with any
Federal, State, and municipal laws, codes, and regula-
tions applicable to the performance of the work. . . .” TDG
01415(C)(1)(a)) (emphases added).
On appeal, BH alleges that the Permits and Respon-
sibilities clause does not create an absolute bar to an
equitable adjustment for breach of contract under the
alleged facts. Rather, BH contends that the terms of the
TDG’s Consultation, Review, and Inspection provision,
RFP § C.4(e), and the contract’s “Changes” clause (FAR
§ 52.243-4) impose limits on the extent of the obligations
BH assumed under the Permits and Responsibilities
clause. BH contends that the Government “completely
disregarded its duty to work and cooperate with
BELL/HEERY involving Phasing Plan design changes
and site work changes dictated by NHDES,” leaving BH
with “no choice but to concede to the NHDES’s arbitrary
and unreasonable determinations” on its own. As such,
BH asserts that the Government breached the contract
because it “never made any effort to engage NHDES, or to
otherwise resolve the problems caused by NHDES’s
multiple changes” to the cut-to-fill plans. Compl. ¶ 63.
We disagree. While the Permits and Responsibilities
clause can be constrained by other contractual provisions
that specifically limit the scope of the contractor’s obliga-
tions for permitting requirements, see Hills Materials Co.
v. Rice, 982 F.2d 514, 516-17 (Fed. Cir. 1992), none of the
identified contractual provisions limit the plain allocation
of responsibility to BH for complying with permits under
the Permits and Responsibilities clause.
First, BH argues that the Government’s failure to en-
gage the NHDES regarding the limitations imposed on
the cut-to-fill operations breached the TDG’s Consulta-
12 BELL/HEERY v. US
tion, Review, and Inspection provision. In relevant part,
this provision states:
1. The Contractor shall perform the following in
conjunction with the FBOP Project Management
Team:
a. In preparing for the design for the pro-
ject, consult with appropriate officials of
the State or a political subdivision of a
State, or both, in which the project is lo-
cated and who would have jurisdiction
over the project if it were not a project
constructed or altered by a federal agency.
* * *
e. Allow inspections by such officials dur-
ing construction of the project, in accord-
ance with the customary schedule of
inspections for construction or alteration
of projects in the locality. Scheduled in-
spections may take place if such officials
provide to the Bureau a copy of the sched-
ule before construction of the project has
begun and provide reasonable notice of
their intention to conduct any inspection
before conducting such inspection.
f. These appropriate officials may make
recommendations to the Bureau concern-
ing measures necessary to meet these re-
quirements. Such officials may also make
recommendations concerning measures
necessary which should be taken in the
construction or alteration of the project to
account for local conditions. Contractors,
in conjunction with the [FBOP’s] Project
Management Team, are to give due con-
sideration to such recommendations to en-
BELL/HEERY v. US 13
sure that a written response is made to
them.
TDG 01415(D) (emphasis added). BH argues that the
phrase “in conjunction with” used in various places in this
provision imposed a duty on the Government to meet and
consult with the NHDES concerning the AOT permitting
requirements. BH contends that the Government
breached that duty by failing to intercede in the negotia-
tions between BH and the NHDES during the cut-to-fill
operations. Consequently, BH contends that the Gov-
ernment is liable for all of the increased costs BH in-
curred under the NHDES’s permit requirements in excess
of those that it expected to incur under the proposed
one-step-cut-to-fill plan.
Although the parties dispute whether the phrase “in
conjunction with” imposes any duty on the Government,
we need not address this question. Even if we assume
that the TDG’s Consultation, Review, and Inspection
provision imposes an obligation on the Government, BH
has not stated a claim for relief under the subject matter
covered by this provision. Subparagraphs (a) and (e) of
this provision involve only consultations and inspections
by State officials. Subparagraph (a) is further confined
only to activities undertaken in “preparing for the design
for the project.” BH’s complaint, however, does not make
any allegations that the Government refused to consult
with state officials during the design phase of the project
under subparagraph (a) or that the Government disal-
lowed an inspection by State officials under subparagraph
(e). Rather, BH’s complaint alleges that the Government,
“did not, during the construction phase of the project . . .
meet or consult with” the NHDES. (Compl. ¶ 48 (empha-
sis added).) This alleged failure to meet and consult with
the NHDES during the construction phase of the project
does not implicate the subject matter of subsections (a) or
(e) of the TDG’s Consultation, Review, and Inspection
provision.
14 BELL/HEERY v. US
Nor does BH plead facts sufficient to state a claim
against the Government under subparagraph (f) of the
TDG’s Consultation, Review, and Inspection provision.
This subsection covers only “recommendations concerning
measures which should be taken in the construction or
alteration of the project to account for local conditions.” It
further indicates that “Contractors, in conjunction with
the [FBOP’s] Project Management Team, are to give due
consideration to such recommendations to ensure that a
written response is made to them.” On its face, this
subsection only deals with the obligation to “give due
consideration” and “ensure that a written response is
made” to “recommendations.” BH’s complaint does not
mention any failure by the Government to consider or
provide a written response to any recommendations made
by the NHDES in order to comply with the permitting
requirements; it complains about the actual requirements
themselves. Thus, even if this subparagraph created an
obligation on the Government, BH’s complaint does not
allege any breach of this duty by the Government in
connection with the limitations placed on the cut-to-fill
operations by the NHDES under the AOT permit.
Furthermore, BH’s arguments regarding the obliga-
tions imposed on the Government under TDG’s Consulta-
tion, Review, and Inspection provision are contrary to the
express language of the TDG’s Permits provision. See
TDG Section 01415(F)(1). That TDG provision specifically
assigns responsibility for complying with all terms and
conditions of permits for the project to “[t]he Contractor.”
It does not mention any obligation on the Government
regarding permits and does not use the “in conjunction
with” language found in the TDG’s Consultation, Review,
and Inspection provision. Thus, when read in the context
of all relevant provisions of the TDG as we must, see
McAbee Const., Inc., 97 F.3d at 1435, it is apparent that
the consultations, reviews, and inspections are to be
performed “in conjunction with” the Government, whereas
BELL/HEERY v. US 15
all obligations regarding permits were placed solely on
BH.
BH also argues that RFP § C.4(e) created a contractu-
al duty on behalf of the Government to interact with
NHDES during design and construction of the project.
This assertion is without merit. In relevant part, RFP
§ C.4(e) states:
In preparing construction documents, the Con-
tractor is to consult with appropriate officials of
the State or a political subdivision of a State, or
both, in which the Project will be located, who
would have jurisdiction if it were not constructed
by a federal agency . . . . These appropriate offi-
cials may make recommendations to the FBOP
concerning measures which should be taken in the
construction of the Project to account for local
conditions . . . . In no case are the comments or
recommendations of these officials to be imple-
mented into the development documents without
approval of the FBOP.
RFP § C.4(e).
Contrary to BH’s assertions, there is nothing in RFP
§ C.4(e) that imposes a contractual obligation on the
Government. On its face, it only creates contractual
duties for “the Contractor.” Those duties require BH to
consult with state officials in preparing construction
documents and mandate that BH cannot incorporate any
comments or recommendations of the state officials into
the construction documents without first obtaining the
Government’s consent. Accordingly, this provision does
not limit the relevant scope of the obligations assumed by
BH under the Permits and Responsibilities clause.
Finally, BH argues that its complaint supports a
claim that the Government breached the “Changes”
clause of FAR § 52.243-4, which was incorporated into the
16 BELL/HEERY v. US
contract by reference. 2 Specifically, BH asserts that the
Government breached this clause “by not issuing a change
2 In relevant part, the Changes clause states:
(a) The Contracting Officer may, at any time,
without notice to the sureties, if any, by
written order designated or indicated to be
a change order, make changes in the work
within the general scope of the contract, in-
cluding changes—
(1) In the specifications (including drawings
and designs);
(2) In the method or manner of performance
of the work;
(3) In the Government-furnished facilities,
equipment, materials, services, or site;
or
(4) Directing acceleration in the perfor-
mance of the work.
(b) Any other written or oral order (which, as
used in this paragraph (b), includes direc-
tion, instruction, interpretation, or deter-
mination) from the Contracting Officer that
causes a change shall be treated as a
change order under this clause; provided,
that the Contractor gives the Contracting
Officer written notice stating (1) the date,
circumstances, and source of the order and
(2) that the Contractor regards the order as
a change order.
(c) Except as provided in this clause, no order,
statement, or conduct of the Contracting
BELL/HEERY v. US 17
order or equitable adjustment to cover the excess costs
necessitated by the onerous, unreasonable and overzeal-
ous NHDES official, and by the FBOP’s directive under
Section (b) [of the Changes clause] to comply with the
permitting authority’s directives.” We find BH’s argu-
ment that the Government breached the Changes clause
to be without merit.
In order for the Changes clause to apply, there must
have been a change in the form of a “written or oral order
. . . from the Contracting Officer that causes a change.”
48 C.F.R. § 52.243-4(b); see also 48 C.F.R. § 52.243-4(c).
BH’s complaint, however, fails to allege that the Contract-
ing Officer ever ordered BH to perform any specific work
in conjunction with the cut-to-fill operations. BH only
alleges that the Government ratified the changes by its
silence in response to BH’s various complaints. BH
cannot rely on mere silence to support its allegations
because any such contractual “ratification must . . . be
based on a demonstrated acceptance of the contract.”
Harbert/Lummus Agrifuels Projects v. United States, 142
F.3d 1429, 1434 (Fed. Cir. 1998). “Silence in and of itself
is not sufficient to establish a demonstrated acceptance”
Officer shall be treated as a change under
this clause or entitle the Contractor to an
equitable adjustment.
(d) If any change under this clause causes an
increase or decrease in the Contractor’s cost
of, or the time required for, the performance
of any part of the work under this contract,
whether or not changed by any such order,
the Contracting Officer shall make an equi-
table adjustment and modify the contract in
writing.
48 C.F.R. § 52.243-4(a)-(d).
18 BELL/HEERY v. US
of a contractual change by the Contracting Officer. Id. In
the absence of any change accepted by the Contracting
Officer, there can be no claim for a breach of the Changes
clause and, accordingly, it does not limit the obligations
assumed by BH under the Privileges and Responsibilities
clause.
In sum, BH has not stated a claim that the Govern-
ment breached the contract because the costs for comply-
ing with the NHDES’s AOT permit were allocated to BH.
BH appears to accept this conclusion, at least in part, by
conceding that it knowingly “accept[ed] the allocation of
risk for certain costs of performing the Contract in com-
pliance with New Hampshire law.” 3 The plain language
of the Permits and Responsibilities clause also unequivo-
cally assigns all of the risk for complying with the permit-
ting requirements to BH “without additional expense to
the Government.” Since BH’s complaint does not identify
any countervailing contractual duty on the Government
that contradicts or renders ambiguous the express alloca-
tion of risk to BH for compliance with the NHDES’s AOT
permit, it has not demonstrated a cognizable claim for
breach of contract.
2. Breach of the Implied Covenant of Good Faith
and Fair Dealing
Implied in every contract is a duty of good faith and
fair dealing that requires a party to refrain from interfer-
3 Presumably, BH’s bid price accounted for the risk
it knowingly assumed for these costs under the contract.
While BH apparently underestimated the risk associated
with the costs for complying with the NHDES’s AOT
permit under the contract, the mere fact that BH under-
estimated the risk of those costs is not a sufficient basis to
interpret the contract so as to reallocate those costs to the
Government under the present contract.
BELL/HEERY v. US 19
ing with another party’s performance or from acting to
destroy another party’s reasonable expectations regarding
the fruits of the contract. Centex Corp. v. United States,
395 F.3d 1283, 1304 (Fed. Cir. 2005). For example, this
implied covenant guarantees that the government will not
eliminate or rescind contractual benefits through ac-
tion that is specifically designed to reappropriate the
benefits and thereby abrogate the government’s obliga-
tions under the contract. Precision Pine & Timber, Inc. v.
United States, 596 F.3d 817, 829 (Fed. Cir. 2010). An
implied covenant, however, cannot “create duties incon-
sistent with the contract’s provisions.” Id. at 831. As we
have recently explained, “[a]lthough the implied duty of
good faith and fair dealing attaches to every contract,
what that duty entails depends in part on what that
contract promises (or disclaims).” Id. at 830 (emphasis
omitted).
BH alleges that the Government breached its obliga-
tion of good faith and fair dealing by advising BH it would
be treated fairly with respect to extra work caused by
NHDES’s administration of the AOT permit and subse-
quently refusing to compensate BH for the costs, delays,
and inefficiencies associated with the NHDES’s unrea-
sonable administration of the AOT permit. Compl. ¶104.
BH has not, however, presented any allegations that the
Government engaged in conduct that reappropriated
benefits promised to BH under the contract. As noted
above, the complaint does not allege facts sufficient to
support a breach of contract claim against the Govern-
ment for failing to engage with the NHDES regarding the
limitations imposed on BH’s cut-to-fill operations under
the state-regulated AOT permit. Under these circum-
stances, the implied duties of good faith and fair dealing
cannot “form the basis for wholly new contract terms,
particularly terms which would be inconsistent with the
express terms of the agreement.” Jarvis v. United States,
43 Fed. Cl. 529, 534 (1999). Because BH’s complaint
20 BELL/HEERY v. US
focuses on the frustrating conduct of the NHDES, an
independent state agency, the allegations do not set forth
a viable claim for breach of the implied covenant of good
faith and fair dealing.
3. Constructive or Cardinal Change
Finally, BH further alleges that the Government
should be made to reimburse BH under the doctrines of
constructive and cardinal change. To demonstrate a
constructive change, a plaintiff must show (1) that it
performed work beyond the contract requirements, and
(2) that the additional work was ordered, expressly or
impliedly, by the government. The Redland Co. v. United
States, 97 Fed. Cl. 736, 755-56 (2011) (citing Miller Eleva-
tor Co. v. United States, 30 Fed. Cl. 662, 678 (1995));
Tecom, Inc. v. United States, 66 Fed. Cl. 736, 774 (2005).
A cardinal change is similar, but has two distinguishing
features: (1) a cardinal change requires work materially
different from that specified in the contract, and (2) a
cardinal change amounts to an actual breach of contract.
See id. at 755 n.9. Here, BH’s complaint alleges that it
was the actions of the NHDES that compelled it to modify
the cut-to-fill operations. There are no allegations that
the Government demanded BH to engage in any work
that went beyond what BH was required to perform under
the contract. Thus, under the contract, the doctrine of
constructive change cannot be invoked against the Gov-
ernment because it did not itself effect an alteration in
the work to be performed, much less an alteration “so
drastic that it effectively” resulted in a cardinal change
“requir[ing] the contractor to perform duties materially
different from those originally bargained for.” Krygoski
Constr. Co. v. United States, 94 F.3d 1537, 1543 (Fed. Cir.
1996) (citations and internal quotations omitted).
BELL/HEERY v. US 21
CONCLUSION
We have considered BH’s remaining arguments and
do not find them persuasive. We therefore affirm the CFC
Decision dismissing BH’s complaint.
AFFIRMED
COSTS
Each party shall bear its own costs for this appeal.
United States Court of Appeals
for the Federal Circuit
______________________
BELL/HEERY, A JOINT VENTURE,
Plaintiff-Appellant,
v.
UNITED STATES,
Defendant-Appellee.
______________________
2013-5002
______________________
Appeal from the United States Court of Federal
Claims in No. 11-CV-0462, Judge Lawrence J. Block.
______________________
MAYER, Circuit Judge, dissenting.
The court improperly tests the complaint filed by
Bell/Heery, a Joint Venture (“Bell/Heery”), “in a crucible
hotter than the plausibility standard demands.” Rodri-
guez-Reyes v. Molina-Rodriguez, 711 F.3d 49, 53 (1st Cir.
2013). Bell/Heery’s complaint contained well-pled allega-
tions that the Federal Bureau of Prisons (the “Bureau”)
breached two express contractual provisions when it
refused to meet or consult with local officials who had
imposed permitting restrictions that were contrary to
accepted industry standards and sound engineering
practices. Because these allegations were more than
sufficient to stake out “a plausible claim for relief,” Ash-
croft v. Iqbal, 556 U.S. 662, 679 (2009), the court errs in
affirming the dismissal of Bell/Heery’s complaint. I
therefore respectfully dissent.
2 BELL/HEERY v. US
I.
In its complaint, Bell/Heery alleged that New Hamp-
shire officials imposed permitting restrictions that were
so arbitrary and unreasonable that they “devastated” its
ability to perform under its contract with the Bureau.
J.A. 26. Bell/Heery claimed that it could not reasonably
have anticipated, at the time of bid, the capricious de-
mands made by local permitting agents given that their
restrictions were contrary to “prudent earthwork engi-
neering practice[s]” and long-established industry stand-
ards. Id. at 26. It asserted, moreover, that the Bureau
breached two express contractual provisions—Technical
Design Guideline 01415(D) (“TDG 01415(D)”) and Section
C.4 of the Request for Proposals (“Section C.4”)—when it
refused to meet or consult with officials from the New
Hampshire Department of Environmental Services
(“NHDES”) regarding their exceedingly onerous permit-
ting demands. * J.A. 21-32. The detailed allegations
contained in Bell/Heery’s twenty-four page complaint
were more than adequate to withstand the government’s
* For example, NHDES officials required Bell/Heery
to revise its design for performing site work on the project
eleven different times, notwithstanding the fact that its
original site-work plan was purportedly fully compliant
with state regulations. J.A. 23-29. According to
Bell/Heery, when excavating a site, a contractor normally
is allowed to cut and clear materials from one area and
then use those same materials as “fill” at another area of
the project. Id. at 26-29. Without any apparent justifica-
tion, however, NHDES officials precluded Bell/Heery from
using the standard “cut-to-fill” method, instead requiring
materials that had been cut from one area to be stockpiled
for extended periods, thereby “caus[ing] excessive re-
handling and handling of materials” and dramatically
increasing costs under the contract. Id. at 29-30.
BELL/HEERY v. US 3
motion to dismiss. See San Carlos Irrigation & Drainage
Dist. v. United States, 877 F.2d 957, 959 (Fed. Cir. 1989)
(explaining that a plaintiff states a claim for breach of
contract by identifying a duty arising out of that contract
and alleging facts sufficient to show a breach of that
duty).
Without question, neither TDG 01415(D) nor Section
C.4 is a model of clarity regarding the scope of the gov-
ernment’s obligations with respect to local permitting
requirements. At the pleading stage, however, we are
constrained to accept as true all well-pled factual allega-
tions and “indulge all reasonable inferences” in a plain-
tiff’s favor, Sommers Oil Co. v. United States, 241 F.3d
1375, 1378 (Fed. Cir. 2001), especially when the govern-
ment drafted the contract. Applying that standard, TDG
01415(D) and Section C.4 can plausibly be read to require
the Bureau to confer with local permitting authorities and
to approve or not any recommendations made by them.
TDG 01415(D)(1)(a) requires the Bureau, together
with Bell/Heery, to “consult” with state officials when
“preparing the design for the project.” Section C.4 man-
dates that “[i]n no case are the comments or recommenda-
tions of [state and local] officials to be implemented into
the developmental documents without the approval of the
[Bureau].” Section C.4(e)(3). Read together, these provi-
sions can reasonably be interpreted, at least for purposes
of assessing the viability of Bell/Heery’s complaint, to
require the Bureau to take an active role in consulting
with state permitting officials and approving their rec-
ommendations.
There is no merit to the court’s assertion that TDG
01415(D) cannot support a breach of contract claim be-
cause it only applies during the “design” phase, and not
during the “construction” phase, of a project. See ante at
13-14. The Bureau’s alleged breach occurred when
Bell/Heery was still clearing and excavating the site for
4 BELL/HEERY v. US
the project, well before any actual construction had be-
gun. It was when Bell/Heery was revising its “Phasing
Plan”—which contained detailed drawings showing its
proposed plan for excavation and clearing on the project—
that the Bureau allegedly failed to fulfill its duty to
consult with New Hampshire officials. The Phasing Plan,
as the Court of Federal Claims correctly noted, consisted
of “a series of documents and drawings setting forth the
design of [the Berlin Correctional Institution] and con-
templating construction in ‘phases.’” See Bell/Heery v.
United States, 106 Fed. Cl. 300, 306 n.2 (2012) (emphasis
added). Because the Bureau’s failure to consult with state
officials occurred during the period when Bell/Heery was
revising its site-work “design,” it can reasonably be in-
ferred that the alleged breach occurred during the design,
rather than the construction, phase of the project. At the
very least, the question of whether the alleged breach
occurred during the design phase is a disputed issue of
material fact, one that must be resolved in Bell/Heery’s
favor when assessing the adequacy of its complaint. See
Sommers, 241 F.3d at 1378.
In any event, Section C.4, unlike TDG 01415(D), is
not limited to the design phase of the project, but instead
applies when “preparing construction documents.” Sec-
tion C.4(e). Section C.4 specifically requires the Bureau
to approve recommendations from New Hampshire offi-
cials before going forward. See id. (“In no case are the
comments or recommendations of [state and local] officials
to be implemented into the developmental documents
without the approval of the [Bureau].”). Bell/Heery’s
allegation that the Bureau repeatedly refused to “meet or
consult” with “NHDES representatives regarding NHDES
comments, recommendations and requirements for the
Project,” J.A. 27, therefore provides an ample predicate
for a breach of contract claim. The Bureau, allegedly,
failed to fulfill its duty to approve or disapprove recom-
mendations from local officials because it simply “ignored”
BELL/HEERY v. US 5
those recommendations, leaving Bell/Heery with “no
choice but to concede to the NHDES’ arbitrary and unrea-
sonable determinations.” Id. at 32.
II.
In affirming the dismissal of Bell/Heery’s complaint,
the court places undue weight on the Permits & Respon-
sibilities clause (“P&R clause”). That clause provides:
“The Contractor shall, without additional expense to the
Government, be responsible for obtaining any necessary
licenses and permits, and for complying with any Federal,
State, and municipal laws, codes, and regulations appli-
cable to the performance of the work.” 48 C.F.R.
§ 52.236–7. While the P&R clause broadly assigns re-
sponsibility for obtaining required permits to Bell/Heery,
it says nothing about whether the Bureau had an inde-
pendent obligation, under TDG 01415(D) and Section C.4,
to meet with state permitting authorities and approve or
disapprove their recommendations.
As we have previously recognized, the scope of a con-
tractor’s liability under the P&R clause is not unbounded,
but can instead be constrained by other contractual
provisions that specifically limit obligations related to
compliance with regulatory and permitting requirements.
Hills Materials Co. v. Rice, 982 F.2d 514, 517 (Fed. Cir.
1992); see also J.E. McAmis, Inc., 2010-2 B.C.A. ¶ 34607,
2010 WL 4822734 (ASBCA 2010) (concluding that the
P&R clause did not bar recovery where a contract identi-
fied certain “haul routes” for transporting materials and
county officials later passed an ordinance restricting use
of such routes); Odebrecht Contractors, Inc., No. 6372,
2000 WL 975128, at *33 (ENGBCA July 6, 2000) (conclud-
ing that “the boiler plate ‘Permits and Responsibilities
clause’” did not preclude an equitable adjustment where a
contract provided for unrestricted access to certain wells
and the local regulatory authority later denied the con-
tractor access to those wells); Dravo Corp., 79-1 B.C.A
6 BELL/HEERY v. US
¶ 13575, 1978 WL 2244 (ENGBCA 1978) (concluding that
the P&R clause did not preclude recovery where a con-
tract specifically designated certain areas as
“work/storage areas” and local officials subsequently
denied a contractor access to those areas). Here, TDG
01415(D) and Section C.4 can be interpreted, at least for
purposes of assessing the viability of Bell/Heery’s breach
of contract claim, as limiting the reach of the P&R clause
and imposing a duty on the government to consult with
local permitting officials and evaluate their recommenda-
tions. In affirming the dismissal of Bell/Heery’s com-
plaint, the court turns a blind eye to these provisions,
effectively reading them out of the contract. See Hills,
982 F.2d at 516-17 (emphasizing that every government
contract must be read as a whole and that the P&R clause
must be applied in a manner that accounts for all provi-
sions of the agreement between the parties); see also
Medlin Constr. Group, Ltd. v. Harvey, 449 F.3d 1195,
1200 (Fed. Cir. 2006) (emphasizing that a government
contract must be interpreted in a manner that “assure[s]
that no contract provision is made inconsistent, superflu-
ous, or redundant” (citations and internal quotation
marks omitted)).
At the pleading stage, the salient inquiry is not
whether Bell/Heery is likely to prevail on the merits, but
instead whether it is entitled to offer evidence in support
of its claims. Chapman Law Firm Co. v. Greenleaf Constr.
Co., 490 F.3d 934, 938 (Fed. Cir. 2007); see also Bell Atl.
Corp. v. Twombly, 550 U.S. 544, 556 (2007) (“[O]f course,
a well-pleaded complaint may proceed even if it strikes a
savvy judge that actual proof of [the facts alleged] is
improbable, and that a recovery is very remote and un-
likely.” (citations and internal quotation marks omitted)).
The court’s decision to affirm the dismissal of Bell/Heery’s
complaint is an unjustified effort to “collapse discovery,
summary judgment and trial into the pleading stages of
BELL/HEERY v. US 7
[the] case.” Petro-Hunt, L.L.C. v. United States, 90 Fed.
Cl. 51, 71 (2009).