Be Careful What you Agree To –Even Permits May Create Problems

We see it all the time. Boilerplate language in a contract that becomes a major issue down the line. A recent case revealed the problems a contractor had with permits when the contractor’s estimate contemplated an easy permitting process and compliance, but in actuality it was much, much more difficult.

The case Bell/Heery v. United States, involved Bell/Heery’s request for additional compensation under a federal contract. Bell/Heery submitted a bid for a prison project. As explained in the bid, Bell/Heery anticipated that the New Hampshire Department of Environmental Services (NHDES) would issue a permit allowing Bell/Heery to “cut-to-fill” the site, which involved excavating materials from one area and moving it to another area to level the entire site. NHDES did not agree with Bell/Heery’s proposed construction method and refused to issue the permit. Instead, NHDES required a multi-step construction process through which only 40 acres of land were disturbed at a time. Complying with NHDES permitting requirement was a much more expensive and time consuming process than Bell/Heery had anticipated, to the tune of $7,000,000.00.

Due to the increased cost created by NHDES, Bell/Heery asked for more money from the government contracting officer. The contracting officer rejected the request, finding that Bell/Heery had assumed the risk of the permitting process and it was liable for any costs associated with the permitting process and construction methods required by the permitting process. Bell/Heery appealed to the Court of Claims, which found:

The Permits and Responsibilities clause clearly and unambiguously placed the burden of obtaining and complying with state and local permits for the construction project solely on BH without additional expense to the government.

So, Bell/Heery was stuck absorbing the $7 million costs to comply with the NHDES permits.

Take Away: What do your contracts say about permits? Do you just assume that permits are going to be easy? Should you incorporate some language that will allow you to charge the owner any additional costs associated with obtaining or complying with permits?