Florida’s Statute Of Repose – Elimination Of Stale Claims

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Anthony S. Wong and Lee H Jeansonne | Wood, Smith, Henning & Berman

Big changes may be on the horizon for Florida statute of repose for construction claims. Florida SB 2022-736 proposes to amend Fla. Stat. §95.11(3)(c) to eliminate the distinction between patent and latent claims and apply a uniform four year statute of repose to protect the construction industry from stale claims and prolong litigation many years after control of the project has been turned over by the developer or contractors.

SB 2022-736 proposes to eliminate an often litigated issue: whether a defect is patent or latent, and apply a uniform statute of repose for construction claims. Additionally, as discussed below, SB 2022-736 seeks to give teeth to the right to repair with the intention to help the parties settle and resolve construction defect claims without having to engage in drawn out litigation.

The Current State of Florida’s Statute of Repose

Florida’s statute of repose is intended to provide finality and certainty to builders and other construction professionals by ensuring that claims are brought in a timely manner, and they are not subject to liability indefinitely. Different jurisdictions have established differing statutes of repose, but the goal is finality. Ten year statutes of repose are considered on the longer end of the spectrum, as defects in the as-built conditions would assuredly manifest well before that time. Distinguishing between true construction defects and maintenance/wear and tear issues is almost always a battle and more so as the building ages.

In Florida, a claim based on the design, planning, or construction of an improvement to real property is subject to a four year statute of repose starting from when the owner taking possession, the issuance of a certificate of occupancy, abandonment of the project if not complete or when the contract is completed or terminated, whichever is later. However, if the claim involves a “latent defect”, then the four year statute of repose operates as a statute of limitations and the claim is instead subject to a ten year statute of repose starting from when the owner taking possession, the issuance of a certificate of occupancy, abandonment of the project if not complete or when the contract is completed or terminated, whichever is later.

Although not defined by statute, Florida Courts have held that a latent defect is a hidden or concealed defect which is not discoverable by reasonable and customary inspection, and the owner has no knowledge. Significantly, the test for patency is not whether the condition was observable by the owner. Rather, the test for patency is whether the “defective nature” was apparent to the owner. This test results in difficult jury questions regarding when an owner knew or should have known of a defect and whether such a defect would be apparent to the owner. Additionally, the ten year exception for latent defects allow owners to conflate legitimate construction issues with normal wear and tear and lack of maintenance. As a result, developers and contractors are often forced to litigate the old claims and are denied the finality that the Legislature intended to provide when the statute of repose was first adopted.

What is the Difference Between a Statute of Limitations and a Statute of Repose

Both a statute of limitation and a statute of repose bar lawsuits from being filed after a certain amount of time has passed. However, the major difference in the two come in the way they are triggered. The more common statute of limitations typically being to run when the injury occurs and could be subject to the discovery rule if the injury is hidden. In contrast, a statute of repose is triggered by specific events and can being to run even before an injury occurs. For example, in a personal injury case, a person may be injured by a latent defect 11 years after the completion of the building; however, while the person would ordinarily have 4 years to bring a personal injury claim under the statute of limitations, the claim, to the extent it relates to the original construction would be barred by the statute of repose under current Florida law.

New Legislation Pending in the Florida Legislature Would Eliminate the Ten Year Exception to the Current Statue of Repose

SB 2022-736 proposes to amend Fla. Stat. § 95.11(3)(c) by eliminating the current latent defect exception to the statute of repose for construction defect claims. If the amendment is adopted, a four year statute of repose will apply to all construction claims regardless of whether the defect is patent or latent. This will ensure that legitimate construction claims are brought in a timely manner, provide finality to the construction industry and reduce the amount of claims related to maintenance and wear and tear.

New Provision for the Rejection of Settlement Offers

The proposed bill requires claimants who reject a valid settlement offer to do so in writing and include the reasons for rejecting the offer. The claimant must include details on any portions of their claim that they feel were not addressed in the settlement offer and must also identify any portions they find unreasonable and clearly state the reasons why the offer is unreasonable from their perspective.

After a written notice of rejection of the settlement offer, the opposing party must be given 15 days to propose a supplemental offer to repair and/or submit payment to cover claimed damages or losses. If the claimant also rejects the supplemental offer, that should also be in writing and include detailed reasons as to why the supplemental offer is not sufficient to cover the claim. Any action filed without following these procedures may be stayed by the court upon a timely motion by the opposing party.

Limitation of Attorney Fees

If a claimant chooses to reject a settlement offer or supplemental settlement offer to remedy a construction defect, under the new law this rejection will limit the claimant’s ability to recover attorney fees from the defendant. In order to overcome this limitation, the claimant will need to show by a preponderance of the evidence (more probable than not that the claim is true) that at the time of the offer, the repairs and payment offered were not sufficient to remedy the construction defects. Attorney fees stemming from a contract between the parties is not impacted by this section of the law.

Acceptance by Claimant of a Supplemental Offer

Under the provisions of the proposed law, claimants who accept the initial or supplemental offer by the contractor or other construction professional will be required to enter into a contract to define the terms by which the construction defect will be remedied. This contract must be in place within 90 days after the acceptance of the offer. In addition, the offeror or insurer must pay the contractor for the work directly and such repairs must be made within 12 months of entry into the contract between the parties, unless the parties agree otherwise.

Use of Experts

Once an action has been filed, the Court is required to appoint a neutral expert to inspect and opine on the validity or extent of the construction defect claimed. However, an expert will not be appointed if all of the parties object, or if the Court finds that the appointment costs will exceed any possible benefits to the successful determination of the case. Any experts appointed by the Court must communicate and coordinate the inspection of the construction defect with all parties as directed by the court. The expert must submit a written report to the Court within 15 days after the inspection defect, unless otherwise indicated by the court. The following is required of the expert and the parties:

  • A description of how the expert conducted the examination of the alleged defect.
  • Identification of the persons present at the site while the expert conducted the inspection.
  • Include photographs or other documentation of the alleged defect including any relevant test results.
  • State whether the damages claimed by a claimant are more likely than not the result of a construction defect, another identified cause, or a construction defect and another identified cause.
  • Address other matters related to the alleged defect as directed by the court.
  • If the expert concludes that the damages are wholly or partially the result of a construction defect, the report must state the actions necessary to repair the defect and any repairs related to the defect, provide an estimate of the reasonable cost of repairs, and state the anticipated time needed for the repairs under the current market conditions for construction services and materials.

The parties are responsible for compensating the expert, but the prevailing party is entitled to reimbursement from the non-prevailing party. The expert appointed by the Court may not be employed to repair the alleged defect or recommend contractors to repair the defect in order to prevent a conflict of interest.

Duty to Repair the Defect

Fla. Stat. §558.0046, imposes a duty to repair the construction defect once the claimant receives compensation to complete the repair. If the claimant fails to use the funds to fully repair the defect, the claimant will be liable to any purchaser of the property for any damages that occur due to the failure to completely repair the defect and not disclosing such defect.

Required Notice to Mortgagee or Assignee

Under the new statute, claimants will be required to provide notice to a mortgagee or assignee if a notice of claim alleging a construction defect is made with respect to real property to which a mortgagee or an assignee has a security interest. The claimant must, within 30 days after service of the notice of claim on the contractor, subcontractor, supplier, or design professional, provide the mortgagee or assignee with a copy of the notice of claim by certified mail, return receipt requested.

If repairs relating to the defect are completed after notice to a mortgagee or assignee is provided, or if any settlement, partial settlement, arbitration award, or judgment is obtained by the claimant, the claimant must provide an additional notice to the mortgagee or assignee, by certified mail, return receipt requested, within 60 days after completion of the repairs or any settlement, partial settlement, arbitration award, or judgement, whichever is later.

Noteworthy Takeaways

  • This law will effectively eliminate the current 10 year latent defect exception to the statute of repose.
  • It will remove the latent construction defect exception and require all construction defect claims to be raised within the standard four (4) year statute of repose that is in place for all other construction defect claims.
  • This reduced time to initiate claims will limit stale claims and reduce the amount of claims related to maintenance and wear and tear.
  • This elimination of the latent defect exception should give more strength to offers to repair alleged defects and reduce the number of claims engaged in drawn out litigation.
  • Plaintiff’s are likely to benefit from these changes as repairs will occur quicker and prevent additional damage while the case is in pending litigation.
  • The law will allow for the contractor to make an offer to repair the defects and if the Claimant rejects the offer, the contractor is permitted to make a supplemental offer.
  • If the claimant rejects the offers, they must explain in detail why they are rejecting the offer and list exact reasons including the fact that additional remedies were required and not satisfied by the offer to repair.
  • If a claimant rejects a supplemental offer they may not be able to collect attorney fees, unless claimant can prove additional repairs were necessary beyond the settlement offer.
  • If a settlement offer is accepted the claimant MUST enter into a contract with the correct, licensed contractors to remedy the defects and the party making the offer must make payments directly to the contractor, and repairs must be completed within 12 months of the agreement.
  • The court will now be required to appoint an expert to inspect the alleged defect and report back to the court as well as the parties.
  • The Plaintiff must provide notice of the defects claimed or repaired, to the mortgagee or assignee.

The previously discussed changes to the construction defect law appear on the surface to be designed to reduce the backlog of claims in the courts and encourage the parties to resolve the claims with repairs rather than litigation. Defect claims must be made in a tighter time frame and therefore, claims that have historically been based on maintenance or normal wear and tear will likely be reduced and the court’s time will be focused on cases where significant issues are at dispute.

The changes also put statutory requirements on homeowners who make claims. Homeowners will now be required to give actual reasoning as to why they are rejecting settlement offers from the contractor with accompanying proof; and if they do actually accept an offer to repair, they are required by statute to contract with an appropriate contractor for the repairs, and the party paying for the repairs pays that contractor directly instead of sending the settlement money to the homeowner.

These changes seem to be designed to strengthen the prelitigation 558 Notice of Claim process and the opportunity to repair, by giving more teeth to offers to repair made by developers and contractors and encourage plaintiffs to resolve claims outside of formal litigation. The removal of the latent defect exception is likely to reduce the large volume of claims that stem from normal wear and tear, along with lack of maintenance.

If one of your cases is in need of a construction expert, estimates, insurance appraisal or umpire services in defect or insurance disputes – please call Advise & Consult, Inc. at 888.684.8305, or email experts@adviseandconsult.net.

Retention on Progress Payments for Oregon Construction Projects is Now…Complicated

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D. Gary Christensen | Miller Nash

Retainage from progress payments is commonplace for most Oregon construction contractors. Traditionally, there have been few laws governing retention; almost all of the “rules” were established in the parties’ construction contract. Beginning in 2000, however, all that changed. Now public and private contractors need to take a fresh look at retainage terms for any project of more than $500,000.

New Oregon statutes now provide strict rules for public and private construction contracts in excess of $500,000. Unfortunately, those statutes do not address some practical realities of typical construction projects and can cause legal troubles and costs for those who don’t comply. The statute for private contracts states:

[T]he owner, contractor or subcontractor shall place amounts withheld as retainage into an interest-bearing escrow account. Interest on the retainage amount accrues from the date the payment request is approved until the date the retainage is paid to the contractor or subcontractor to which it is due. (ORS 701.420(2)(b).)

And for public contracts:

[T]he contracting agency shall place amounts deducted as retainage into an interest-bearing escrow account. Interest on the retainage amount accrues from the date the payment request is approved until the date the retainage is paid to the contractor to which it is due. (ORS 279C.570(2).)

Missing from the statutes are answers to at least the following questions:

  1. What if a contract (or subcontract) initially is less than $500,000 but after change orders exceeds $500,000? Does the statute apply? If so, is retainage already withheld subject to the escrow and interest-bearing requirements? If so, from what point?
  2. If one or more subcontracts exceed $500,000, do separate accounts need to be established for each subcontractor, as well as for the general contractor?
  3. Can the parties waive or modify the application of these statutes in their contract?
  4. Can the parties define an account that is not a true escrow (i.e., opened with a title company or bank with escrow instructions)? Are interest-bearing escrow accounts even available in the marketplace? Do contractors of each tier require their own separate account?
  5. Is the interest to be paid to the contractor or subcontractor the actual interest earned? Or the contract’s interest rate? Or the rate required by the prompt-payment statutes?
  6. Is interest paid to be net of the expenses of the escrow account?
  7. What if an upstream contractor doesn’t receive money to hold as the retention for lower-tier subcontractors? Does the statute require it to pay the subcontractor interest from phantom funds (i.e., the contractor’s own pocket) as if the money had been deposited and earned interest?
  8. How do the existing prompt-payment acts’ requirements for payment and retention apply to these new statutes?

In many private contracting projects, a lender will not distribute money being held as retention to the owner or to any contractor, so no cash can in fact be deposited in the escrow account. These statutes do not apply to lenders, so lenders typically would not agree to deposit the retention amounts in separate escrow accounts. The statute simply does not contemplate this common scenario.

At present, there are no statutory answers to these questions that a contractor may rely on. Several construction attorneys (including myself) are in the early stages of working with legislators on amendments to these laws in the 2023 Legislative Assembly. If you want to participate or have questions about the process, please feel free to contact me.

In the meantime, construction lawyers have developed strategies to manage these risks and the consequences of not complying strictly with the new retention statutes. These strategies require taking a fresh look at owners’ and contractors’ construction contracts—in particular their retention and progress payment terms. In most cases, negotiation between the contracting parties will be needed to come to acceptable terms that minimize the risks inherent in these laws. Owners and contractors should ask competent construction attorneys to review contracts and prepare appropriate terms.

If one of your cases is in need of a construction expert, estimates, insurance appraisal or umpire services in defect or insurance disputes – please call Advise & Consult, Inc. at 888.684.8305, or email experts@adviseandconsult.net.

More Reminders that the Specific Contract Terms Matter

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Christopher G. Hill | Construction Law Musings

If there is a theme I have pounded upon here at Construction Law Musings in the over 13 years of posting, it is that the specific terms of your construction contracts will make a huge difference.  While there have been reminders galore, a case from the Eastern District of Virginia presented another wrinkle on this theme.  The wrinkle? A factoring company.

In CJM Financial, Inc. v. Leebcor Services, LLC et. al., the Court examined this scenario (though it went into more detail than I will here):  Leebcorp hired a subcontractor, Maston Creek Services to provide certain construction services under two separate contracts.  Maston then hired CJM, a factoring company, and assigned CJM its receivables and the right to collect those receivables.  We wouldn’t be discussing this case if all had worked out as planned, so you likely anticipate at least some of what came next.  The short story is that Matson failed to pay some of its suppliers and Leebcorp exercised its termination rights under those contracts when Matson refused to cure.  In the interim, CJM had paid part of certain payment applications to Matson in compliance with the factoring agreement.  When Leebcorp failed to pay CJM for Matson’s work, CJM exercised its assigned rights to collect the receivables and sued Leebcorp for breach of contract.  In response, Leebcorp counterclaimed for, among other counts including civil conspiracy, breach of contract based on Matson’s failure to perform.  CJM moved to dismiss the counterclaims.

While I recommend the discussion of the declaratory judgment and conspiracy claims found in the opinion (linked above), I will focus here on the breach of contract claims.  After analyzing the choice of law on the diversity claim and holding Virginia law applicable and then setting forth the elements of breach of contract, the Court granted CJM’s motion to dismiss reasoning as follows after finding an enforceable contract between CJM and Leebcorp based upon the assignment and proper notice of that assignment by CJM to Leebcorp:

Leebcor has not pled sufficient facts to satisfy the second element showing that CJM breached the contract. Specifically, Leebcor alleges that CJM ”had an affirmative duty to ensure that Maston Creek met the terms of the Hurlburt Field Subcontract.” Yet, Leebcor does not allege any facts which show that CJM knew that it had this duty, agreed to it, or that it was part of its consideration in forming a contract. Rather, Leebcor merely alleges that CJM had the duty to ensure that Maston “performed in accordance with the terms of the Hurlburt Field Subcontract,” which included confirming that Maston obtained the proper “partial waivers and release of liens for all labor, materials, and equipment before it submitted a pay application.”

The Court went on to state that even if CJM knew about Matson’s breach that knowledge did not provide an affirmative duty to assure performance by Matson.  Because CJM had no affirmative contractual duty to assure performance by Matson, it could not breach such a duty, and therefore no breach of contract occurred. In sum, the Court did not find there to be a term in the contract between the parties that required the factoring company to assure compliance of a third party to the contractual duties that would have allowed it to collect in the first place.

The lesson on breach of contract?  Be sure that you have all of the duties that you want to enforce spelled out or you could end up like Leebcorp without a counterclaim to assist in defraying the costs of a non-compliant subcontractor.  I highly recommend that you read the entire opinion to obtain the nuance that is not available in a short post such as this one and that you consult with an experienced Virginia construction lawyer early in the contracting process and beyond when entering into such complex agreements as that involved here.

If one of your cases is in need of a construction expert, estimates, insurance appraisal or umpire services in defect or insurance disputes – please call Advise & Consult, Inc. at 888.684.8305, or email experts@adviseandconsult.net.

ACV And RCV: Are Courts Respecting The Difference?

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Mary Alice Jasperse | Drew Eckl & Farnham

A continual issue that our clients have seen is for contractors and public adjusters to attempt to blur the distinction between ACV and RCV figures in an effort to recover RCV upfront and without incurring the RCV expenses. In appraisal, this circumstance can arise when a policyholder demands appraisal but only includes an RCV figure in their appraisal demand. In litigation, we have seen policyholders attempt to introduce RCV-only figures where the evidence shows that the insured did not perform repairs. The purpose of this article is to provide insurers with a strategic response to these maneuvers in the context of recent federal court rulings.  

Under most standard property insurance policies, a policyholder is entitled to an upfront actual cash value (“ACV”) payment for covered damages. Replacement cost value (“RCV”) is the cost of replacing the property without any deduction for depreciation. “Depreciation” is the decline in value of property due to age, use, wear and tear, etc. Generally, under the terms of a policy, if a policyholder does not incur replacement costs, he or she is not entitled to recoverable depreciation. See Marchman v. Grange Mut. Ins. Co., 232 Ga. App. 481, 483, 500 S.E.2d 659 (1998). As a result, distinguishing between an ACV and RCV calculation is important. Fortunately, it appears that courts are catching on to the difference.  

Appraisal Concerns 

 Appraisal “provides a method by which the insurer and the insured can make a final determination regarding the actual cash value” of property damages. McGowan v. Progressive Preferred Ins. Co., 281 Ga. 169, 171 (2006). Generally, the appraisal clause is invoked after the insurer issues the upfront ACV payment to the policyholder. Recently, we have seen appraisal being invoked by insureds along with an estimate or damages proposal that reflects RCV numbers only, leaving out comparative ACV figures. This presents a perilous situation. If repairs have not been performed when appraisal is demanded and the appraisal demand is based upon an RCV figure, then the insurer agrees to appraisal at the risk of being presented with a faulty appraisal award. This ultimate award could be faulty if repairs remain uncomplete and the award is premised upon RCV figures rather than ACV figures. Most problematically, if the appraisal award does not even specify if the award is an RCV or an ACV figure, the insurer may have no basis to contest its legitimacy after the fact. Bell v. Liberty Mutual Fire Ins. Co., 319 Ga. App. 302, 305, 734 S.E.2d 894 (2012) (finding that an umpire is not required to itemize appraisal awards, absent specific policy language requiring the same). Therefore, in a situation where the repairs have not been performed, insurers should confirm that an ACV estimate is being compared with an ACV estimate before agreeing to appraisal. This confirmation will allow the insurer to clarify the scope of appraisal and to determine if appraisal is appropriate.  

A recent 11th Circuit decision supports this approach. See CMR Construction and Roofing, LLC v. Empire Indemnity Ins. Co.,  843 Fed. Appx. 189 (11th Cir. January 26, 2021). In that case, the insurer issued an upfront payment of $96,763.53 and the policyholder’s contractor sent a replacement cost estimate for close to $5 million. The contractor, CMR, obtained an assignment of benefits from the policyholder. The $5 million estimate was presented to the insurer around 5 months after the loss and no repairs had been performed at that point in time. CMR sued Empire, alleging that Empire breached the insurance policy and “underestimated” the repair costs. During discovery, Empire requested additional information regarding the $5 million estimate, which revealed that this figure was an RCV calculation and that CMR had not calculated the ACV of repairs at all. While litigation was pending, CMR invoked the appraisal clause and sought to stay litigation.  

After the close of discovery, the district court granted summary judgment in favor of Empire on the grounds that the insured did not comply with a condition precedent to receiving replacement cost by failing to complete repairs. Further, the district court found that CMR could not show that Empire breached a duty to pay ACV because CMR never sought ACV – it only estimated and claimed entitlement to RCV damages.  Id. at 191-192. In upholding the lower court’s summary judgment award, the 11th Circuit focused on the specific replacement cost policy language, which provided that RCV would not be paid “until the lost or damaged property is actually repaired or replaced” and “unless the repairs or replacement are made as soon as reasonably possible after the loss or damage.” Id. at 192. The 11th Circuit found these preconditions unambiguous, and therefore, Empire did not breach the policy by relying upon them. The 11th Circuit further agreed that no breach existed where the CMR never requested payment for the actual cash value of the repairs.  Finally, the 11th Circuit found that CMR waived appraisal by not initially invoking appraisal when the estimates differed and instead waiting several months before filing suit. CMR did not identify its desire to invoke appraisal on the case management report and waited months after the advent of litigation before attempting to raise the issue of appraisal.  

Introduction of Damages Evidence at Summary Judgment   

The scope of admissible documentation being offered in support of motions for summary judgment is always a hot button issue. The Northern District of Georgia recently discussed the admissibility of an appraiser’s previously undisclosed estimate in Elder v. State Farm Fire and Cas. Co. where the appraiser’s opinion was being offered in opposition to a motion for summary judgment. 2021 WL 4048789 (N.D.Ga. August 2, 2021). In that case, State Farm initially released its calculation of the ACV of the damages and subsequently released depreciation holdback after it received documentation that appeared to show that repairs were performed. The insured never incurred repair costs in excess of those paid by State Farm but nonetheless sued State Farm to recover for the RCV of the damages. State Farm sought to strike the opinion of the insured’s appraiser, Gary Gelatt, on the grounds that all of his estimates contained RCV-only figures (and no ACV determination) and that Gelatt did not comply with the disclosure requirements of Rule 26(e) of the Federal Rules of Civil Procedure.  Specifically, Gelatt testified during his deposition that he never calculated the ACV for the damages. Then, approximately two months after the close of discovery and in response to State Farm’s motion for summary judgment, Mr. Gelatt provided an ACV calculation that was almost identical to his previous RCV determinations.  The court agreed to strike Mr. Gelatt’s opinion from the record and agreed with State Farm’s argument that the failure to produce this relevant evidence violated Rule 26(e) and found that no justification for the violation existed. Further, the failure to disclose the evidence “prejudice[d] State Farm’s ability to defend itself.” Id. at *5. Ultimately, the court found that the insured’s failure to repair or replace the damage was fatal to its claim for replacement cost. Id. at *6-7. The court also found that the insured did not provide any admissible evidence that disputed State Farm’s assessment of the ACV of the damages and awarded summary judgment in favor of State Farm. Because Mr. Gelatt’s opinion was stricken from the record, it could not be used to dispute State Farm’s assessment of the ACV of the damages.  

Best Practices and Takeaways   

When faced with an appraisal demand, insurers can better prepare themselves for the appraisal process by: (1) making sure to receive clarification as early as possible regarding whether an estimate represents ACV or RCV; (2) request constant updates regarding the status of repairs; and (3) targeting written discovery toward the questions of whether estimates are RCV or ACV estimates and whether the damages are premised upon RCV or ACV figures. Additionally, asking appraisers whether ACV calculations have been made and taking a deep dive into the basis for the appraiser’s estimate is key. These inquiries and best practices allow insurers to determine if the estimates compare “apples to apples” and whether appraisal is truly appropriate.  

If one of your cases is in need of a construction expert, estimates, insurance appraisal or umpire services in defect or insurance disputes – please call Advise & Consult, Inc. at 888.684.8305, or email experts@adviseandconsult.net.

Federal Circuit Weighs in on Prejudice in Bid Protests

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Aron C. Beezley and Patrick R. Quigley | Buildsmart

Ringing out 2021, the U.S. Court of Appeals for the Federal Circuit, in Systems Studies & Simulation, Inc. v. United States, recently held that there generally is no presumption that a protester has suffered competitive prejudice, even where the protester has successfully demonstrated that an agency’s evaluation was irrational. This article provides a brief overview of this noteworthy case, as well as key takeaways.

The Facts

System Studies & Simulation, Inc. (S3), an unsuccessful bidder for a government contract, filed a bid protest in the U.S. Court of Federal Claims (COFC). The COFC found that the government had acted irrationally in one respect during its evaluation of S3’s proposal, but nevertheless denied S3 relief on the ground that S3 did not suffer competitive prejudice as a result of this irrational evaluation.

On appeal to the Federal Circuit, S3 argued that there is, as a matter of law, a presumption of prejudice to the protester whenever the COFC determines that the procuring agency acted irrationally in evaluating proposals or making an award decision. Specifically, relying on the Federal Circuit’s decision in Impresa Construzioni Geom. Domenico Garufi v. United States, 238 F.3d 1324 (Fed. Cir. 2001), S3 argued that there exists an implicit presumption of prejudice where agency irrationality has been established.

The Federal Circuit, however, rejected S3’s argument and held that “there is no presumption of prejudice when a protestor demonstrates irrationality in an agency decision.” Instead, “[t]he protestor must show prejudice under the usual standard.” The Federal Circuit also rejected the protester’s challenge to the COFC’s “particular finding of no demonstrated prejudice in this case,” concluding that there was no clear error in the COFC’s decision.

The Takeaway

Coming on the last federal workday of 2021, the Federal Circuit’s decision affirms the principle that competitive prejudice is an essential element of a viable bid protest. That principle now, without doubt, applies both when a disappointed offeror challenges a contract award before the COFC based on a lack of rationality and when the award violates statutes or regulations. Thus, the Federal Circuit’s decision removes some confusion that had existed in prior COFC cases and provides clarity on bid protest pleading standards to the government contracting bar.

If one of your cases is in need of a construction expert, estimates, insurance appraisal or umpire services in defect or insurance disputes – please call Advise & Consult, Inc. at 888.684.8305, or email experts@adviseandconsult.net.