Sarro & Associates, Inc. v. United States ( 2021 )

In the United States Court of Federal Claims
No. 19-691C
(Filed: January 15, 2021)
)
SARRO & ASSOCIATES, INC., )
)
Plaintiff, )
)
v. )
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THE UNITED STATES, )
)
Defendant. )
)
Patrick R. Quigley, Bradley Arant Boult Cummings LLP, Washington, D.C., for Plaintiff.
Igor Helman, United States Department of Justice, Civil Division, Washington, DC, for
Defendant. With him on the briefs were Joseph H. Hunt, Assistant Attorney General,
Civil Division, Robert E. Kirschman, Jr., Director, and Claudia Burke, Assistant Director,
Commercial Litigation Branch, Civil Division, United States Department of Justice,
Washington, DC.
OPINION AND ORDER
SOLOMSON, Judge.
This case arises under a contract between Plaintiff, Sarro & Associates, Inc.
(“Sarro”), and Defendant, the United States, acting by and through the United States
Geological Survey (“USGS” or the “Agency”), for the installation of a generator at the
USGS facility in Flagstaff, Arizona (the “City”). During the performance of that
contract, Sarro incurred unanticipated, increased costs complying with the City’s
permitting requirements, which necessitated Sarro having to reperform substantial
parts of the contract. Sarro submitted a claim to the USGS contracting officer (“CO”) for
an equitable adjustment pursuant to the Contract Disputes Act (“CDA”), 41 U.S.C.
§ 7103, which the CO denied. Sarro now brings claims in this Court against the United
States for damages arising from an alleged breach of the implied duty to disclose
superior knowledge, breach of contract, cardinal change, and breach of the implied
duty of good faith and fair dealing. The government moved to dismiss Sarro’s
amended complaint pursuant to Rules 12(b)(1) and 12(b)(6) of the Rules of the Court of
Federal Claims (“RCFC”) for, respectively, lack of jurisdiction and failure to state a
claim upon which relief may be granted. For the reasons explained below, the Court
grants the government’s motion to dismiss Plaintiff’s amended complaint – the first
count for lack of jurisdiction and the three remaining counts for failure to state a claim –
in its entirety.
I. Factual And Legal Background1
A. The Contract
On September 12, 2016, USGS2 awarded a firm-fixed-price contract, No.
G16PX01471, to Sarro, a Colorado-based small business that specializes in installing
electrical and mechanical systems. ECF No. 16 (“Am. Compl.”) ¶¶ 1–3, 13; see ECF No.
23-1 (“Def. App.”) at 24–25. The contract required Sarro to install a permanent 130Kw
diesel generator at USGS’s astrogeology facility in Flagstaff, Arizona and provide all
essential electrical connections. Am. Compl. ¶¶ 6, 14; Def. App. at 2. The statement of
work (“SOW”) delineated technical specifications for the generator, installation and
construction requirements, and various work instructions. Def. App. at 13–16. The
SOW expressly provided that the City “as owner of land and building requires review
and approval of all drawings/specs” and that “[u]pon completion of the work, the
Contractor shall deliver an original marked set of As-Built Drawings.” Id. at 15–16.
The contract also contained numerous standard clauses and provisions, id. at 3–
13, including Federal Acquisition Regulation (“FAR”) 52.236-7, Permits and
Responsibilities (“P&R clause”), which provides, in relevant part:
The Contractor shall, without additional expense to the
Government, be responsible for obtaining any necessary
1For the purpose of resolving the pending motion to dismiss, the facts alleged in Plaintiff’s
amended complaint are assumed to be true, and do not constitute factual findings by the Court.
See, infra, Section II. The Court also relies upon exhibits appended to Defendant’s motion to
dismiss and Plaintiff’s response brief, which contain documents that are referenced to in the
amended complaint. See Dimare Fresh, Inc. v. United States, 808 F.3d 1301, 1306 (Fed. Cir. 2015)
(holding that courts may consider “matters incorporated by reference or integral to the claim”).
RCFC 9(k) requires that, in contract dispute cases, a party must either describe the relevant
contract provisions or annex a copy of the contract to the pleading. See Terry v. United States,
103 Fed. Cl. 645, 647 n.1 (2012) (relying on “an exhibit appended to defendant’s motion
containing plaintiff’s concession contract”).
2 USGS is a federal agency within the Department of the Interior whose mission is to “develop
new methods and tools to supply timely, relevant, and useful information about the Earth and
its processes.” https://www.usgs.gov/ (last visited Dec. 31, 2020); see 43 U.S.C. §§ 31 et seq.
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licenses and permits, and for complying with any Federal,
State, and municipal laws, codes, and regulations applicable
to the performance of the work. . . . The Contractor shall also
be responsible for all materials delivered and work performed
until completion and acceptance of the entire work . . . .
Def. App. at 5. The contract also incorporated by reference FAR 52.236-11, Use and
Possession Prior to Completion, which provides, in relevant part, that “the Contracting
Officer shall furnish the Contractor a list of items of work remaining to be performed or
corrected on those portions of the work that the Government intends to take possession
of or use [, but t]he Government’s possession or use shall not be deemed an acceptance
of any work under the contract.” Def. App. at 5. Additionally, the contract
incorporated by reference FAR 52.243-5, Changes and Changed Conditions (“Changes
clause”), which requires the contracting officer to make an equitable adjustment to the
contract when the contracting officer “in writing, orders changes in the drawings and
specifications within the general scope of the contract.” Def. App. at 5.
B. Sarro’s Performance Of The Contract
In December 2016, the CO directed Sarro to obtain a permit from the City before
installing the generator. Am. Compl. ¶ 21. On December 2, 2016, Sarro, through its
local subcontractor, Kirby Electric, LLC, applied for an “over the counter” permit. Id.
¶ 33; see ECF No. 27-1 (“Pl. Resp. App.”) at 6. The permit application included a
disclaimer that “[t]he granting of a permit does not presume to give authority to violate
or cancel the provisions of any other state or local law regulating construction or the
performance of construction.” Pl. Resp. Br. at 6.
Three days later, on December 5, 2016, the City issued Permit No. BP-16-02063
(the “2016 Permit”). Am. Compl. ¶ 34. The 2016 Permit provided that it was “over the
counter” and included an acknowledgment that the contractor “agree[s] to comply with
all applicable codes of the City of Flagstaff and the State of Arizona . . . [and allows] all
pertinent City personnel access [to the] property at any time deemed necessary to
inspect work being done relating to this permit.” Pl. Resp. App. at 9 (capitalization
removed). The City never requested “any engineering drawings or specifications
relating to the generator installation” during the permitting process; nor did the Agency
make any such demands. Am. Compl. ¶ 34.
For the type of electrical work that Sarro needed to perform, however, it should
have applied for a different permit. Def. App. at 25–27. The City requires a
“commercial” permit for significant electrical projects, including, as relevant here, the
permanent installation of a generator. Id. As part of the application process for a
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commercial permit, the City mandates the submission of certain electrical drawings. Id.
at 27. However, this error went unnoticed by Sarro and the City and, unfortunately,
was discovered only much later, as described below. Id. at 25; see Pl. Resp. App. at 35–
36. There is no allegation that the Agency had any control over the City’s permitting
process.
On December 19, 2016, Sarro began performing the contract. Am. Compl. ¶ 39.
On January 20, 2017, Sarro completed installing the generator and all necessary
electrical connections. Am. Compl. ¶ 42. Throughout this time, the City inspected
Sarro’s work on five separate occasions but did not identify any problems with Sarro’s
permit or installation. Id. ¶¶ 43–44. On January 25, 2017, a representative from the
generator manufacturer commissioned the generator and, six days later, on January 31,
the City approved Sarro’s work and closed the 2016 Permit. Id. ¶¶ 47–48; Pl. Resp. App.
at 10.
Following the commissioning of the generator, USGS paid Sarro nearly the entire
contract price but withheld $2,000 until Sarro completed certain “punch list” items.
Am. Compl. ¶ 50. On March 17 and 27, 2017, the CO sent Sarro various punch list items
for completion. Id. ¶¶ 51–52; Pl. Resp. App. at 20–22. On March 30, 2017, the CO sent
Sarro a third punch list that included, among other things, a requirement that Sarro
“provide AutoCAD As-built Construction Drawings showing details of layout, trench
depth and path, location of Generator, wire and conduit specifications.” Am. Compl.
¶¶ 54, 56; Pl. Resp. App. at 24–25. That same day, the CO forwarded to Sarro an email
from the City, which provided the following notice:
The city will be on site Tuesday, April 3rd at lpm with the
inspection team to determine the extent of the incomplete
work performed. Per IBC and NEC, the work must be
completed and we are going to revoke the building permit if
necessary based on the findings. The requirements in code
require a fire barrier that is breached to [sic] re-established by
the contractor. Other issues may include the supporting of
conduit, cable installation, labeling of electrical components
and panelboards schedule updates.
Id. at 23. On April 3, 2017, Sarro, the USGS Technical Liaison, and a City inspector
visited the USGS facility and viewed the work that Sarro had performed. Am. Compl.
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¶¶ 58–59. Following the inspection, the City inspector informed Sarro “that a
significant portion of the work would have to be done all over again.” Id. ¶ 58.
On April 27, 2017, Sarro, the CO, the USGS Technical Liaison, and certain
unnamed City officials met to discuss Sarro’s work. Id. ¶ 60. During the meeting, Sarro
noticed that the “City officials had electrical engineering drawings in their possession,
which they refused to share with [Sarro].” Id. ¶ 61. The CO told Sarro that the
government should have included the drawings in the Solicitation, but they had “not
made it in.” Id. ¶ 62. That same day, the City revoked the 2016 Permit. Id. ¶ 63. On
May 3, 2017, the City informed the CO, through a correction notice, that the generator
installation was in violation of numerous state and local ordinances and instructed that
“no more work shall be done upon these premises until the above corrections have been
made.” Id. ¶¶ 65–66; Pl. Resp. App. at 28–29. The correction notice further required
Sarro to hire an electrical engineer “to design and check all requirements, calculations,
and installations” and that plans would need to be submitted to the City “prior to any
work commencing related to fixes, repairs of modifications” to the project. Id. The CO
emailed the correction notice to Sarro. Id. at 31. This required Sarro:
(a) paying a much higher permit fee than Kirby had already
paid; (b) complying with 2011 [National Electrical Code
(“NEC”)] wiring standards instead of the 2017 NEC standards
that Sarro had followed and, as a result swapping the already
installed 4/0 gauge wiring for thinner 3/0 gauge wiring; (c)
obtaining expensive engineering drawings; and (d) paying
similar, related additional expenses for work that had already
been completed and accepted by the City months earlier.
Am. Compl. ¶ 68. On December 13, 2017, the City issued Sarro, through its new local
subcontractor, Nitro Electric, a commercial permit, Permit No. BP-17-02039. Def. App.
at 25. On January 19, 2018, Sarro completed the project. Id.C. Sarro’s CDA Claim
On April 13, 2018, Sarro submitted a certified claim to the CO, seeking an
equitable adjustment in accordance with the contract’s Changes clause, FAR 552.243-71,
and the CDA, 41 U.S.C. § 7103, in the amount of $33,557.08.3 Am. Compl. ¶ 74; Def.
3The parties refer to Sarro’s CDA claim as “certified.” Am. Compl. ¶ 74; Def. Mot at 2. Indeed,
Sarro noted in its CDA claim that the “FAR states that we must certify this claim.” Def. App. at
19 (emphasis added). The CDA and implementing FAR provision, however, only require
certification for claims over $100,000. 41 U.S.C. § 7103(b)(1); FAR 52.233-1(c), (d)(2). Because
Sarro only seeks $33,557.08, it was not required to certify its claim.
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App. at 19–23. Sarro sought “[r]eimbursement for costs associated with unilateral
errors made by the City of Flagstaff and omissions, errors, discrepancies, and
ambiguous drawing and specs which were not contemplated in the original contract
price/bid.” Id. at 19. On May 10, 2018, the CO issued his final decision, denying Sarro’s
certified claim. Am. Compl. ¶ 75; Def. App. at 24–28.
D. Procedural History
On May 6, 2019, Sarro, acting pro se, filed a complaint in this Court. ECF No. 1.4
On July 18, 2019, the case was stayed so Sarro could seek counsel. ECF No. 9. After
obtaining counsel, on October 14, 2019, Sarro filed an amended complaint. Am. Compl.
at 1, 12. Sarro’s amended complaint contains four claims. Id. at 12–16. Sarro alleges
that USGS: (1) failed to disclose its superior knowledge regarding “the difficulties with
obtaining permits from the City or the difficulties experienced by prior Agency
contractors in obtaining permits from the City”; (2) breached the contract’s Changes
clause by requiring compliance with the City’s “unreasonable” permitting
requirements, which increased the costs, without making an equitable adjustment; (3)
breached the contract by requiring compliance with the City’s permitting requirements,
which “drastically alter[ed] the quality, character, nature or type of work contemplated
by the original Purchase Order,” thus resulting in a cardinal change; and (4) breached
the implied duty of good faith and fair dealing by not providing Sarro with “drawings
and specifications [that] were required” to complete the project and not “disclos[ing]
the prior difficulties encountered by other USGS contractors in obtaining permits from
the City.” Id. Accordingly, Sarro seeks $33,557.08 for additional costs incurred while
completing the project. Id. at 17.
On January 3, 2020, the government moved to dismiss the amended complaint
pursuant to RCFC 12(b)(1) and 12(b)(6) for, respectively, lack of jurisdiction and failure
to state a claim. ECF No. 23 (“Def. Mot.”). On February 7, 2020, Sarro filed its response
to the government’s motion to dismiss. ECF No. 27 (“Pl. Resp.”). On March 6, 2020, the
government filed its reply in support of its motion to dismiss. ECF No. 29 (“Def.
Reply”). On June 9, 2020, the Court heard oral argument. ECF No. 31.
II. Jurisdiction And Standard Of Review
The Tucker Act, as amended by the CDA, Pub. L. No. 95-563, 92 Stat. 2383 (1978),
provides this Court “jurisdiction to render judgment upon any claim by or against, or
dispute with, a contractor arising under section 7104(b)(1) of title 41 . . . on which a
4 This case originally was assigned to Judge Bruggink, ECF No. 2, but, on February 5, 2020, was
transferred to the undersigned Judge. ECF No. 25.
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decision of the contracting officer has been issued under section 6 of that Act.” 28
U.S.C. § 1491(a)(2). “[J]urisdiction thus requires both a valid claim and a contracting
officer’s final decision on that claim.” M. Maropakis Carpentry, Inc. v. United States, 609
F.3d 1323, 1327 (Fed. Cir. 2010); see England v. Swanson Grp. v. United States, 353 F.3d
1375, 1379 (Fed. Cir. 2004). The plaintiff “has the burden of establishing jurisdiction by
a preponderance of the evidence.” Fid. & Guar. Ins. Underwriters, Inc. v. United States,
805 F.3d 1082, 1087 (Fed. Cir. 2015). Furthermore, as with any claim before the Court of
Federal Claims, only the federal government is a proper defendant and “if the relief
sought is against others than the United States the suit as to them must be ignored as
beyond the jurisdiction of the court.” Double Lion Uchet Express Trust v. United States,
149 Fed. Cl. 415, 420 (2020) (alteration omitted) (quoting United States v. Sherwood, 312
U.S. 584, 588 (1941)). In the absence of subject-matter jurisdiction, the Court must
dismiss the claim. Lindsay v. United States, 295 F.3d 1252, 1257 (Fed. Cir. 2002); RCFC
12(h)(3).
To survive a motion to dismiss for failure to state a claim, the Court views the
facts in the light most favorable to the plaintiff and accepts as true all factual allegations
— but not conclusory legal assertions — contained in the complaint. Bell Atl. Corp. v.
Twombly, 550 U.S. 544, 555 (2007); see Am. Bankers Ass’n v. United States, 932 F.3d 1375,
1380 (Fed. Cir. 2019). Those facts must yield a “reasonable inference that the defendant
is liable for the misconduct alleged.” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009).
III. The Court Lacks Jurisdiction Over Sarro’s Implied Duty To Disclose Superior
Knowledge Claim But Possesses Jurisdiction Over The Remaining Claims
The government, in its motion to dismiss, argues that, pursuant to RCFC 12(b)(1),
this Court lacks jurisdiction to resolve the following claims because Sarro failed to
present them as part of its certified claim to the CO: (1) the government’s alleged
breach of an implied duty to disclose superior knowledge; (2) the government’s alleged
breach of contract via a unilateral cardinal change; and (3) the government’s alleged
breach of the implied duty of good faith and fair dealing. Def. Mot. at 8–14. The Court
notes that, to the extent Sarro seeks to hold the City responsible for the increased costs
of the project, this Court has no jurisdiction to adjudicate such claims. See, e.g., Anderson
v. United States, 117 Fed. Cl. 330, 331 (2014) (“This court does not have jurisdiction over
any claims alleged against states, localities, [or] state and local government
entities . . . .”).5 Although the Court has jurisdiction over the cardinal change and good
5Nor, for that matter, does Sarro cite any legal authority that would require the government to
pay for the City’s wrongful acts. Accordingly, to the extent Sarro’s pending amended
complaint seeks to hold the City liable – or the government liable for the City’s acts – Sarro’s
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faith and fair dealing claims, the Court agrees with the government that Sarro’s CDA
claim did not assert a breach of the government’s implied duty to disclose superior
knowledge.
Pursuant to the CDA, “[e]ach claim by a contractor against the Federal
Government relating to a contract shall be submitted to the contracting officer for a
decision.” 41 U.S.C. § 7103(a)(1). “A claim need not be submitted in any particular
form or use any particular wording . . . , but it must provide a clear and unequivocal
statement that gives the contracting officer adequate notice of the basis and amount of
the claim.” K-Con Bldg. Sys., Inc. v. United States, 778 F.3d 1000, 1005 (Fed. Cir. 2015)
(internal brackets and quotation marks omitted). “This approach, which has been
applied in a practical way, serves the objective of giving the contracting officer an
ample pre-suit opportunity to rule on a request, knowing at least the relief sought and
what substantive issues are raised by the request.” Id. at 1006.
In turn, as a prerequisite for this Court’s jurisdiction, a plaintiff in this Court
must assert in its operative complaint “the same claim previously presented to and
denied by the contracting officer.” Scott Timber Co. v. United States, 333 F.3d 1358, 1365
(Fed. Cir. 2003) (quotation marks omitted). “This standard, however, does not require
ridged adherence to the exact language or structure of the original administrative CDA
claim.” Id. All that is required is that the complaint arises from the “same operative
facts” and seeks “essentially the same relief” as the claim presented to the contracting
officer. Id. When the complaint, however, presents “a materially different factual or
legal theory,” then the complaint is different from the CDA claim. Lee’s Ford Dock, Inc.
v. Sec’y of the Army, 865 F.3d 1361, 1369 (Fed. Cir. 2017) (emphasis added) (quotation
marks omitted); see also K-Con, 778 F.3d at 1005 (“Our longstanding demand that a claim
adequately specify both the amount sought and the basis for the request implies that, at
least for present purposes, we should treat requests as involving separate claims if they
either request different remedies (whether monetary or non-monetary) or assert grounds
that are materially different from each other factually or legally.” (emphasis in
original)). In sum, “the claim before the court [in the complaint] cannot be said to arise
from the same operative facts [in the CDA claim] unless it is clear that the claim
presented to the contracting officer was specific enough to give the officer notice of the
basis of the claim and allow him to make an informed judgment about it.” Affiliated
Constr. Grp., Inc. v. United States, 115 Fed. Cl. 607, 612 (2014).
In its certified claim, Sarro asserted, among other things, that “[n]one of the specs
identified an NEC version . . . [,but t]he City of Flagstaff then required us to pay a
amended complaint is dismissed under RCFC 12(b)(1) and 12(b)(6), respectively, for lack of
jurisdiction or failure to state a claim upon which relief may be granted.
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much higher permitting fee well after the project had been completed and required
[Sarro] to change out the gauge of wire to meet the 2011 NEC standards instead of the
2017 NEC standards.” Def. App. at 20. Sarro further claimed that “[t]here were no
specific references in the original SOWs identifying which version of the NEC applied
to this work or any other Code requirement, again leading to confusion and the added
costs.” Id. at 21. Sarro sought $33,557.08 for its uncompensated costs arising from the
unforeseen changes to the project that Sarro alleges were caused by the government. Id.
at 23. Sarro also claimed that “[c]lear and precise drawing and specs were not disclosed
in the specifications or general conditions provided in bid documents.” Id. at 20. These
claims are almost identical to factual allegations contained in Sarro’s amended
complaint filed in this Court, seeking damages for a cardinal change and for the breach
of the implied duty of good faith and fair dealing. See Am. Compl. ¶¶ 101–10.
The CO, in his final decision, acknowledged that Sarro sought reimbursement
because “the scope of work did not identify the version of NEC or any other Code
requirements that applied to the work” and for costs associated with “draw[ing] the
necessary engineered drawings.” Def. App. at 26. The CO also clearly understood
Sarro’s claim as holding the federal government – and not just the City – responsible for
Sarro’s additional costs. This is evident from the CO’s conclusion that “USGS disagrees
the Federal Government should be responsible for any costs the Contractor may have
incurred for complying with the City’s building permit or of complying with any code
applicable to the work required under the Contract.” Id. (emphasis added).
The government urges dismissal because Sarro’s certified claim sought an
equitable adjustment as the remedy for unforeseen additional costs caused by the
government but now proceeds under various breach-of-contract theories. See Def. Mot.
at 11–13. But such a legal distinction, standing alone, is not dispositive. While Sarro
“augments the legal theories underlying its claim[s] . . . it does not change the essence of
[those] claim[s].” Cerebonics, Inc. v. United States, 13 Cl. Ct. 415, 419 (1987); see M.A.
DeAtley Const., Inc. v. United States, 75 Fed. Cl. 575, 578–80 (2007) (holding that plaintiff
could assert breach of contract and breach of good faith claims in complaint based on
same operative facts presented in claim to contracting officer although the latter did not
identify specific legal arguments). In essence, the Court holds here – in the language of
the United States Court of Appeals for the Federal Circuit’s K-Con decision – that the
legal theory distinction the government highlights is not material in light of the
operative facts. The operative factual bases that give rise to Sarro’s claims in the
amended complaint are – with one notable exception discussed below – the same as
those contained in the CDA claim. Sarro’s requested monetary award of $33,557.08,
representing its alleged additional costs, is also identical to what Sarro sought in its
CDA claim submitted to, and denied by, the CO.
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Because the breach of contract and implied duty of good faith and fair dealing
claims in Sarro’s amended complaint arise from the same facts and request the same
relief contained in Sarro’s certified claim to the CO, they are properly before this Court.
See Scott Timber Co., 333 F.3d at 1365; see also Kansas City Power & Light Co. v. United
States, 124 Fed. Cl. 620, 630 (2016) (holding that “it is clear that irrespective of the way in
which the counts are captioned . . . both plaintiff’s certified claim and . . . the complaint
are based on the same underlying theory”).6
In contrast, Sarro’s claim that the government failed to disclose superior
knowledge falls outside this Court’s jurisdiction. As the Federal Circuit has explained,
“[t]he superior knowledge doctrine imposes upon a contracting agency an implied duty
to disclose to a contractor otherwise unavailable information regarding some novel
matter affecting the contract that is vital to performance.” Giesler v. United States, 232
F.3d 864, 876 (Fed. Cir. 2000). The nature of a superior knowledge claim naturally
focuses on “what the government [knew] . . . and when they knew it.” Laidlaw Envtl.
Servs. (GS), Inc. v. United States, 43 Fed. Cl. 44, 50 (1999) (emphasis in original). In that
regard, Sarro’s amended complaint does just that, alleging as follows:
• Sarro was not aware of the difficulties in obtaining permits
from the City[;]
• USGS knew that Sarro was not aware of the difficulties it
could face in obtaining a permit from the City[;]
• [N]either the [CO] nor anyone else working for the
Agency provided information regarding the permit
difficulties to Sarro at any time before the generator was
installed[;]
• Sarro was misled to its detriment by the nondisclosure.
Am. Compl. ¶¶ 83–88. The fatal jurisdictional flaw inherent in Sarro’s superior
knowledge claim before this Court, however, is that such allegations are entirely absent
from the CDA claim submitted to the CO. See Laidlaw, 43 Fed. Cl. at 50; see also Manuel
Bros., Inc, v. United States, 55 Fed. Cl. 8, 33–34 (2002) (finding jurisdiction over superior
knowledge claim where plaintiff in the certified claim “did discuss the defendant’s
knowledge of the conditions of the soil and wrote about how the defendant allegedly
withheld that knowledge”).
6This represents only a determination that these counts do not suffer from a jurisdictional
defect, but that does not mean that the claims survive the government’s motion to dismiss
pursuant to RCFC 12(b)(6) for failure to state a claim, which is discussed infra, Section IV.
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In Sarro’s claim submitted to the CO, Sarro focuses almost entirely upon the
behavior of the City, arguing at length that “[t]he City of Flagstaff failed to properly
handle its own permit process.” Def. App. at 19–20. Sarro repeatedly alleged that the
City failed to inform Sarro about the wiring requirements during construction and only
raised the permitting issue after Sarro’s completion of the project. Id. Only in the last
line of the four-paragraph claim does Sarro make a bare mention of the government’s
knowledge, alleging that, as “[the CO] well know[s] . . . . you have encountered many
problems with the City of Flagstaff on most of your contracts. This case is not an
exception.” Id. at 20 (ellipses in original). Sarro agrees that this lone reference served as
the basis for its superior knowledge claim in its amended complaint. Pl. Resp. at 10.
The Court, however, cannot discern how any “reasonable person could have inferred”
that Sarro was alleging that USGS violated its duty to disclose superior knowledge
about its alleged history of permitting issues with the City based on that lone reference.
See Laidlaw, 43 Fed. Cl. at 51; Affiliated Constr. Grp., 115 Fed. Cl. at 613–14 (noting that
“the claim as presented failed to provide a clear and unequivocal statement that
disclosed the basis . . . of the claim” (alteration in original and internal quotation marks
omitted)).
Nowhere in the certified CDA claim did Sarro allege that USGS knew, prior to
Sarro bidding on the contract, that the City had a history of being uncooperative in
permitting matters; nor did Sarro even allude to USGS’s alleged failure to disclose such
information or how such a failure damaged Sarro. See Canpro Inv. Ltd. v. United States,
130 Fed. Cl. 320, 336 (2017) (“Nowhere in its certified claim did [plaintiff] contend that
the [government] knew, during lease negotiations, [the information], nor did [plaintiff]
allude to any failure of the [government] to disclose that information during lease
negotiations.”). Likewise, the CO’s final decision denying Sarro’s claim does not make
any reference to USGS’s alleged “many problems with the City of Flagstaff on most of
[its] contracts.” Def. App. at 20. This is further evidence that Sarro did not “clearly”
place the CO on notice as to the relevant operative facts upon which Sarro, for the first
time before this Court, frames a superior knowledge claim against the government.
Sarro further asserts that the CO was on notice as to the superior knowledge
claim because Sarro’s transmittal email to the CO provided as follows: “I believe you
have had other problems dealing with the City of Flagstaff and can possibly understand
how the City’s mishandling of the process increased the costs.” Pl. Resp. App. at 1
(emphasis added). This excerpt is not from the claim itself, however, and Sarro has not
referred to any caselaw in which a court or board of contract appeals has assumed
jurisdiction over a complaint based on materials presented to a contracting officer
outside of the certified claim. Moreover, this statement also fails to put the CO on
notice of the critical point that USGS allegedly withheld such knowledge from Sarro
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prior to its bidding on the contract. Sarro’s assertion that a government official might
understand how or why the City (allegedly) mishandled its permitting process is not
the same thing as claiming that the government is responsible for the City’s action due
to a failure to disclose specific information. In sum, Sarro’s superior knowledge claim
currently before this Court in the amended complaint was not presented to the CO for
decision in Sarro’s certified claim and, thus, dismissal of the superior knowledge count,
for lack of jurisdiction, is warranted.
For these same reasons, the Court also must dismiss Sarro’s similarly worded
allegation contained in its amended complaint that the government breached its duty of
good faith and failing dealing by failing “to disclose the prior difficulties encountered
by other USGS contractors in obtaining permits from the City.” Am. Compl. ¶ 111.
This assertion is simply a restatement of Sarro’s superior knowledge claim under a
different heading. See Planate Mgmt. Grp., LLC v. United States, 139 Fed. Cl. 61, 73 (2018)
(“Two or more counts in a complaint may be merged when they contain the same
factual allegations and request the same relief.”); Aptus Co. v. United States, 61 Fed. Cl.
638, 646 (2004) (holding that asserting “duplicative and redundant statement[s]” under
different legal claims “does not alter [their] nature”).
IV. The Court Dismisses Sarro’s Three Remaining Claims For Failure State A
Claim
The government, in its motion to dismiss, further contends that all of Sarro’s
claims fail to state a claim as a matter of law and, thus, should be dismissed pursuant to
RCFC 12(b)(6). Def. Mot. at 17–27. Because this Court already has concluded that
Sarro’s superior knowledge claim must be dismissed for lack of subject-matter
jurisdiction, this Court will not consider the government’s arguments as to that claim.
See Laidlaw, 43 Fed. Cl. at 51. Regarding the remaining claims, each of which is
addressed below, the Court agrees with the government that pursuant to RCFC
12(b)(6), Sarro has failed to allege claims as a matter of law.
A. Sarro’s Breach Of Contract And Cardinal Change Claims
At the motion to dismiss stage of a proceeding, a complaint’s claim for breach of
contract “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.” Call Henry, Inc. v. United States, 855 F.3d
1348, 1354 (Fed. Cir. 2017) (quotation omitted). “In making this assessment, the court
must interpret the contract’s provisions to ascertain whether the facts plaintiff alleges
would, if true, establish a breach of contract.” Bell/Heery v. United States, 739 F.3d 1324,
1330 (Fed. Cir. 2014). “Contract interpretation begins with the language of the written
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agreement,” Coast Fed. Bank, FSB v. United States, 323 F.3d 1035, 1038 (Fed. Cir. 2003),
which, when unambiguous, “must be given [its] plain and ordinary meaning.” McAbee
Const., Inc. v. United States, 97 F.3d 1431, 1435 (Fed. Cir. 1996) (quotation omitted); see
ACLR, LLC v. United States, 147 Fed. Cl. 548, 557 (2020).
“A cardinal change is a breach that occurs when the Government effects a change
in the work so drastic that it effectively requires the contractor to perform duties
materially different from those in the original bargain.” Int’l Data Prods. Corp. v. United
States, 492 F.3d 1317, 1325 (Fed. Cir. 2007). Because each “contractual relationship is
unique, . . . the contractor must [allege and] prove specific facts in support of its
allegation of a cardinal change.” Keeter Trading Co., Inc. v. United States, 79 Fed. Cl. 243,
260 (2007); see Becho, Inc. v. United States, 47 Fed. Cl. 595, 601 (2000) (identifying relevant
factors).
Sarro’s amended complaint alleges that USGS breached the contract’s Changes
clause by ordering compliance with the City’s permitting and subsequent new
installation requirements without providing an equitable adjustment. Am. Compl.
¶¶ 89–100. Sarro also claims that USGS breached its contract with Sarro by ordering
compliance with the City’s permitting and subsequent new installation requirements,
which, in Sarro’s view, constituted a drastic alteration from the originally contemplated
work in the purchase order, resulting in a cardinal change. Id. ¶¶ 101–06. Under either
claim, Sarro is seeking the same $33,557.08 for the additional project costs; no more. Id.
at 17. Accordingly, although styled as two separate claims, both raise the identical
question – did the Agency order a change from the originally contemplated, contractual
SOW for which Sarro must be compensated?7
Generally, a firm-fixed-price contract “places upon the contractor maximum risk
and full responsibility for all costs and resulting profit or loss.” FAR 16.202-1; RCF Info.
Sys., Inc. v. United States, 139 Fed. Cl. 729, 735 (2018). The language of the contract, on
its face, appears all but dispositive: pursuant to the P&R clause, Sarro clearly assumed
“responsibl[ity] 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” all “without additional expense to the Government.” FAR
52.236-7; Def. App. at 5. The Federal Circuit, the decisions of which are binding on this
Court, confronted a similar issue in Bell/Heery v. United States, 739 F.3d 1324 (Fed. Cir.
2014). In Bell/Heery, the contractor alleged that the government had violated the
contract’s Changes clause by not authorizing an equitable adjustment for the increased
costs related to “the onerous, unreasonable and overzealous [state permitting] official.”
7During oral argument, the Court raised this issue and counsel for Sarro essentially conceded
that these two counts merge into one claim. ECF No. 33 at 5–6, 63.
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Id. at 1334. The Federal Circuit affirmed the dismissal of the breach of contract claim for
failure to state a claim on the grounds that the P&R Clause “unequivocally assigns all of
the risk for complying with the permitting requirements to [the contractor] ‘without
additional expense to the Government.’” Id. (quoting FAR 52.236-7) (emphasis in
original); see also L.W. Matteson, Inc. v. United States, 61 Fed. Cl. 296, 308–14, (2004)
(broadly interpreting a contractor’s liability under a contract’s P&R clause).
While the Federal Circuit acknowledged that the literal terms of the P&R clause
are not always dispositive of a contractor’s responsibility, that clause’s effect may be
mitigated only where there are “other contractual provisions that specifically limit the
scope of the contractor’s obligations for permitting requirements.” Bell/Heery, 739 F.3d
at 1331 (emphasis added); see, e.g., Hometown Fin., Inc. v. United States, 409 F.3d 1360,
1369 (Fed. Cir. 2005) (“Our precedent establishes as a principle of contract interpretation
that a specific contract provision will control over a general contract provision.”). For
example, a different clause may shift financial responsibility to the government for
federal regulations promulgated after the award of the contract, see Hills Materials Co. v.
Rice, 982 F.2d 514, 516–17 (Fed. Cir. 1992) (construing FAR 52.236-13(b)(2)), or may
impose a duty on the government to intercede with local permitting authorities on
behalf of the contractor during the construction process. See Bell/Heery, 739 F.3d at
1331–33. In its amended complaint, however, Sarro fails to identify any specific
contractual provision that limits the scope of Sarro’s responsibilities and related liability
under the P&R clause. See Am. Compl. ¶¶ 89–100.
Indeed, Sarro only asserts that the contract “gave Sarro the discretion on how to
perform the work.” Id. ¶ 91; see Pl. Resp. at 16. First, Sarro does not direct the Court to
any language in the contract that purportedly provides this “discretion.” Second, and
more critically, notwithstanding any generalized discretion that the contract may have
afforded Sarro in determining how to perform the work, the P&R clause specifically
placed on Sarro the burden to comply with state and local permitting laws. Sarro
nowhere explains how generalized discretion to perform work may be invoked to avoid
its responsibilities under the P&R clause. Moreover, Sarro does not allege that it
originally obtained the correct permit; nor does Sarro claim that its work complied with
the state and local regulations. Sarro only argues that “the City [did] not follow[] its
own commercial permit requirements in issuing [the 2016 Permit].” Am. Compl. ¶ 64.
But regardless of whether any alleged error in the issuance of the “over the counter”
permit – instead of the “commercial” permit – was the City’s or Sarro’s, the contract
clearly and unambiguously allocated the risk of failing to comply with permitting
requirements to Sarro “without additional expense to the Government.” FAR 52.236-7.
More significantly still, nothing makes the putative error – if there was one – the
government’s responsibility.
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There is one point that gives this Court pause. “When, as here, a contract is silent
on the time limit of its term, it is established that the term is ordinarily effective for ‘a
reasonable time.’” Sanchez v. Dep’t of Veterans Affairs, 949 F.3d 734, 736 (Fed. Cir. 2020)
(quoting M & G Polymers USA, LLC v. Tackett, 574 U.S. 427, 441 (2015)). Reasonableness
“is determined based on the circumstances” surrounding a particular contract. Id. A
reasonable approach to the P&R clause suggests that there must be some endpoint
following the completion of the contract at which time a contractor is no longer
responsible for issues that arise with a permit and, at such point, the burden of any
additional costs shifts to the government. For example, the Court does not believe that
the government could hold Sarro responsible in a case where the City revokes the
permit ten years after the completion of the project and after the government’s
acceptance of the work. Bell/Heery is uninstructive on this point (as applied to the facts
alleged in Sarro’s amended complaint), as that case concerned additional costs incurred
by the contractor based on permitting issues in the pre-construction stage and during
construction, well before the government accepted the work. 739 F.3d at 1328–29.
In this case, Sarro largely had completed the installation of the generator and the
government paid Sarro the entire balance minus $2,000. Am. Compl. ¶¶ 47–50. Sarro
never alleges, however, that the government engaged in final acceptance of the project
at issue.8 See FAR 52.236-11 (“The Government’s possession or use shall not be deemed
an acceptance of any work under the contract.”). Moreover, Sarro admittedly was still
working on the project in the form of the punch list. See Am. Compl. ¶¶ 50–56.
Accordingly, the Court finds that, given the facts alleged in the amended complaint, the
P&R clause should be read as allocating the permit (and associated cost) risks here to
Sarro, according to that clause’s plain meaning.9
The government makes much of the fact that Sarro “fails to allege that the [CO]
ordered any changes, let alone ordered them in writing.” Def. Mot. at 20. But that is
beside the point. Even had the CO ordered in writing that Sarro correct every violation
in the City’s correction notice, such an order would not have triggered the Changes
8Plaintiff does allege that the “work . . . had already been completed and accepted by the City
months earlier,” Am. Compl. ¶ 68 (emphasis added), but never alleges that the Agency engaged
in final acceptance under FAR 52.236-11.
9 The Court notes that only in the P&R clause’s last sentence is there an explicit mention of a
temporal limitation on liability: “The Contractor shall also be responsible for all materials
delivered and work performed until completion and acceptance of the entire work . . . .” FAR 52.236-
7 (emphasis added). Whether the term “work performed” covers the P&R clause’s earlier
reference to permitting requirements, so as to impose a specific durational limitation, is a
question that the Court need not answer today because, in either event, Sarro does not allege
that the government engaged in final acceptance of the work at issue.
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clause. Rather, any such direction would have merely been an order to comply with the
terms of the P&R Clause, which squarely required Sarro’s compliance with all state and
local permitting laws. See Agility Def. & Gov’t Servs., Inc. v. United States, 115 Fed. Cl.
247, 251 (2014) (“[W]hen the Government merely insists on performance in compliance
with the contract specifications, no adjustment is warranted.”). While the Court
sympathizes with Sarro’s situation generally, Sarro, simply put, has not stated a claim
for breach of contract against the government. The contract assigned to Sarro the duty
and risk of local permitting compliance, and it has not identified any specific
contractual provision that limited that duty or otherwise shifted the risk of non-
compliance to the government.
Having concluded that Sarro has failed to allege sufficient facts which, if true,
demonstrate that the government ordered a change beyond what Sarro was required to
perform under the contract, the Court also must dismiss Sarro’s cardinal change claim
for failure to state a claim. USGS did not order a change or modification to the contract;
nor did the government otherwise order Sarro to perform work that was not
contemplated by the parties. Indeed, at most, USGS ordered only that Sarro comply
with the contract’s P&R Clause. Absent factual allegations that, if true, would
demonstrate that USGS forced Sarro to incur any costs for work beyond its contractual
obligations, the Court a fortiori cannot conclude that USGS so drastically altered the
terms of the contract that a cardinal change resulted. Put differently, in the absence of
any change, there cannot be a cardinal one. See Bell/Heery, 739 F.3d at 1335.
B. Sarro’s Claim For Breach Of The Implied Duty Of Good Faith And Fair
Dealing
“Every contract, including one with the federal government, imposes upon each
party an implied duty of good faith and fair dealing in its performance and
enforcement.” Dobyns v. United States, 915 F.3d 733, 739 (Fed. Cir. 2019), cert. denied, 140
S. Ct. 1106 (2020). This includes “the duty not to interfere with the other party’s
performance and not to act so as to destroy the reasonable expectations of the other
party regarding the fruits of the contract.” Id. (quoting Centex Corp. v. United States, 395
F.3d 1283, 1304 (Fed. Cir. 2005)); see Dotcom Assocs. I, LLC v. United States, 112 Fed. Cl.
594, 596 (2013) (“[A] party generally must allege some kind of subterfuge or
evasion . . . or interference with or failure to cooperate in the other party’s
performance.” (brackets and internal quotation marks omitted)). “[A]n act will not be
found to violate the duty (which is implicit in the contract) if such a finding would be at
odds with the terms of the original bargain, whether by altering the contract's
discernible allocation of risks and benefits or by conflicting with a contract provision.”
Metcalf Constr. Co., Inc. v. United States, 742 F.3d 984, 991 (Fed. Cir. 2014).
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Sarro alleges that “the Agency knew that drawings and specifications were
required but never provided them to Sarro or any other offeror as part of the
Solicitation process.” Am. Compl. ¶ 110. 10 This single sentence, however, fails to state
a claim for breach of the implied duty of good faith and fair dealing.
First, the single sentence fails to contain sufficient facts to state a plausible claim
for relief. See Iqbal, 556 U.S. at 678. Because Sarro has not included any factual
allegations explaining this conclusory statement, the Court is unable to determine how
the “drawings and specifications” that Sarro believes the Agency failed to provide
impacted the eventual performance of the contract. See Scogin v. United States, 33 Fed.
Cl. 285, 293 (1995) (“[T]here is no duty [on the part] of the trial court . . . to create a claim
which [plaintiff] has not spelled out in his pleading[.]” (quotations omitted)). Sarro
never explains the connection between the drawings and specifications and the
damages Sarro allegedly incurred and, thus, entirely omits facts demonstrating either
breach or a causal link to the alleged increased costs incurred. This is a classic
Twombly/Iqbal problem. Indeed, in responding to the government’s motion to dismiss,
Sarro appears to have all but abandoned this particular claim contained in the amended
complaint. See Pl. Resp. at 23–24 (containing single reference to “drawings and
specifications”). A party’s failure to raise an argument in an opening or responsive
brief constitutes waiver. Novosteel SA v. United States, 284 F.3d 1261, 1273–74 (Fed. Cir.
2002) (argument raised for first time in reply is waived); see also Cap Exp., LLC v. Zinus,
Inc., 722 F. App'x 1004, 1009 (Fed. Cir. 2018) (quoting Stichting Pensioenfonds ABP v.
Countrywide Fin. Corp., 802 F.Supp.2d 1125, 1132 (C.D. Cal. 2011), for the proposition
that “in most circumstances, failure to respond in an opposition brief to an argument
put forward in an opening brief constitutes waiver or abandonment in regard to the
uncontested issue”).
Second, to the extent that Sarro argues that “nothing in the Purchase Order said
that the review and approval were conditions precedent to the issuance of a permit,” Pl.
Resp. at 24, the contract demonstrates Sarro is wrong. The contract, in the SOW,
expressly provided that the City “requires review and approval of all drawings/specs.”
Def. App. at 15. Moreover, as already explained, the P&R clause required Sarro to
10Sarro’s amended complaint also alleges that USGS violated this implied duty by “fail[ing] to
disclose the prior difficulties encountered by other USGS contractors in obtaining permits from
the City.” Am. Compl. ¶ 111. But this claim fails for the same reason as Sarro’s superior
knowledge claim, which Sarro did not include in its certified CDA claim to the CO, and, as
such, is dismissed for lack of jurisdiction. See, supra, Section III. Simply put, Sarro never placed
the CO on notice that Sarro was seeking damages due the government’s alleged failure to
disclose certain information.
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comply with any and all of the City’s permitting requirements “without additional
expense to the Government.” FAR 52.236-7.11
In sum, given the facts Sarro alleges in the amended complaint, and in light of
the contractual requirements, Sarro lacks any viable claim as a matter of law.
*****
The Court acknowledges that Sarro may view this result as harsh, given that it
may have been forced to incur additional costs as a result of the City’s actions that Sarro
did not and perhaps could not have easily anticipated. The Court further observes that
the government may come to regret its position here, should contractors get the
message that they should price into their services the risk of overly onerous or even
unreasonable local permitting requirements. That said, this Court cannot rewrite the
P&R clause to reallocate risk to the government merely because it has deeper pockets.
CONCLUSION
For all the above reasons, the Court GRANTS the government’s motion to
dismiss Plaintiff’s amended complaint in its entirety. The first count is dismissed for
lack of jurisdiction pursuant to RCFC 12(b)(1), while the three remaining counts are
dismissed pursuant to RCFC 12(b)(6) for failure to state a claim upon which relief may
be granted. Accordingly, the Clerk shall enter JUDGMENT for Defendant.
IT IS SO ORDERED.
s/Matthew H. Solomson
Matthew H. Solomson
Judge
11To the extent that Sarro complains about its difficulties with the City’s review process, that is
not a claim against the government. As explained, supra, any claim against the City is beyond
this Court’s jurisdiction and is subject to dismissal pursuant to RCFC 12(b)(1). To the extent
Sarro claims that the government should be held liable for the City’s actions, Sarro does not cite
any contractual provision supporting the imposition of such liability, and such a claim is
dismissed pursuant to RCFC 12(b)(6).
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