On May 4, 2024, the Armed Services Board of Contract Appeals (“ASBCA”) awarded nearly $4.9 million in damages plus Contract Disputes Act interest to Konecranes Nuclear Equipment Services, LLC (“Konecranes”) due to a breach of contract by the Navy. The breach of contract stems from the Navy’s unjust refusal of a delivery of cranes that met contractual requirements.
Konecranes was contracted to deliver four portal cranes for use at Naval facilities in Washington. Upon inspection, it was discovered that one of the cranes had a damaged luffing drum. Konecranes identified multiple root causes to this issue and proposed solutions to mitigate the associated damages. The Navy rejected the proposed solutions as they did not agree with the root causes, stating that the solutions did not meet “key technical requirements” of the contract. Ultimately, Konecranes still repaired the drum.
Despite completing the repairs in what the ASBCA later determined to be a reasonable time, the Navy still refused to accept delivery of the repaired crane and requested that the drums be replaced with flame-hardened drums. In response, Konecranes offered to replace the luffing drums with flame-hardened drums on all four cranes for $6.3 million. However, the Navy counter-offered at a discounted price, stating the price Konecranes proposed was “much higher than anticipated.” Unable to accept the lower price, Konecranes commenced litigation.
The ASBCA determined that the Navy’s request for an alternative solution was unjust and caused an unnecessary delivery delay. This caused Konecranes to incur additional costs.
The extensive entitlement assessment revealed several elements of damage. The ASBCA accepted the following claims related to the additional costs incurred due to the Navy’s delay.
Accepted Damages:
- Transportation Delay: Konecranes had contracted a third-party to load the cranes onto the barges and incurred substantial standby costs including daily barge rental charges. Konecranes was awarded almost $850,000 in transportation delay damages.
- Yard Costs: Konecranes incurred costs to relocate several cranes and had to pay increased insurance. Konecranes’ original plan was to build one crane, ship it to the Navy, and then build the next one. Due to the delay, Konecranes paid increased rent to store the finished cranes. They were awarded just over $1 million in yard cost damages.
- Crane Maintenance: Konecranes was awarded just under $600,000 in maintenance damages. This includes labor and material cost to clean, lubricate, and run the completed cranes to ensure they worked properly.
- Long Term Storage Preparation Costs: Konecranes incurred about $400,000 in mitigation costs. This included site preparation, protection measures, maintenance, and environmental controls to ensure the crane remains in good condition and is ready for future use.
- Indirect Costs: Konecranes was awarded general and administrative costs and overhead costs as well as a profit markup of 16%.
- Contract Disputes Act Interest: The interest accrued on the delayed payments, as stipulated under the Contract Disputes Act.
Rejected Damages:
- Speculative Future Losses: Konecranes sought to claim future damages for material, maintenance, and transportation. As established in the Court of Federal claims, a claimant may not recover prospective damages due to “its highly speculative nature”. Konecranes may submit new claims once these costs are actually incurred.
The ruling highlights the importance of well-supported requests for equitable adjustment (“REA”) or claims. Chess Consulting is ready to assist in pricing these claims. Our team of experts regularly assist clients and their counsel in reviewing and preparing REAs and claims for costs incurred due to impacts caused by the government. We strive to ensure that contractors are adequately compensated for any unforeseen additional costs they incur.