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Adjustment Denied for Failure to Include Employee Benefits in Bid

The Armed Services Board of Contract Appeals denied a contractor's request to reform a contract to account for its unilateral mistake, because the contractor failed to prove the government knew or should have known about the mistake prior to the award. The contractor won the award for grounds maintenance services in part due to its low bid. However, after the award, the parties discovered the contractor had mistakenly failed to include employee health and welfare benefits in its bid price. To account for this mistake, the contractor sought reformation of the contract price pursuant to FAR 14.407-4(a) and (b)(2), arguing reformation of the pricing error would be favorable to the government would not change essential specification requirements, and the corrected price would not exceed that of the next lowest acceptable bid under the original invitation for bids. In McClure Elec. Constructors, Inc. v. Dalton, 42 CCF 77,246, the Court of Appeals for the Federal Circuit held that to prove entitlement to reformation, a contractor must show: "(1) a mistake in fact occurred prior to contract award; (2) the mistake was a clear-cut, clerical or mathematical error or a misreading of the specifications and not a judgmental error; (3) prior to award the [g]overnment knew, or should have known, that a mistake had been made, and, therefore, should have requested bid verification; (4) the [g]overnment did not request bid verification or its request for bid verification was inadequate; and (5) proof of the intended bid is established."
No Government Knowledge

Here, the contractor failed to prove the third element. The board rejected the contractor's calculations showing a 38-percent disparity between its original, flawed bid price and the independent government estimate. The board found more persuasive an analysis showing the government's estimate to be approximately 20-percent higher than the contractor's bid price. Furthermore, the next lowest bid was only 2.5 percent higher than the contractor's, and there was no evidence of a mistake in the next lowest bidder's price. Under these circumstances, the board was not convinced the government knew or should have known of the mistake in the contractor's bid price, and therefore the contractor's request for reformation was denied. This result was consistent with FAR 14.407-4(c), which provides that in cases of a unilateral mistake by the contractor, reformation under FAR 14.407-4(b)(2) will be granted only if there is clear and convincing evidence the error was "so apparent as to have charged the contracting officer with notice of the probability of the mistake." (Beyley Construction Group Corp. , ASBCA, 92,433)


(The news featured above is a selection from the news covered in the Government Contracts Report Letter, which is published weekly and distributed to subscribers of the Government Contracts Reporter. )


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