Contractor scores $4M in bid dispute

A small government contractor was awarded almost $4 million in damages by a Chesapeake jury in a tortious interference suit heard in mid-August. The award comes as result of the defen­dant contractor’s not disclosing a pending merger when the plaintiff protested that the defendant was a small business.

The plaintiff government contractor, Heard Construction, took part in a in­vitation for sealed bidding to replace a pier on the Little Creek Naval Base in Norfolk. In the sealed process, the low­est bid would get the contract.

The defendant contractor, Waterfront Marine Construction, was ultimately awarded the contract, but not before Heard Construction filed a protest with the Small Business Administration.

Designation

Heard Construction was classified as a Historically Underutilized Business Zone, or HUBZone, by the SBA. Accord­ing to the SBA, a HUBZone “is in line with the efforts of both the Administra­tion and Congress to promote economic development and employment growth in distressed areas by providing access to more federal contracting opportuni­ties.”

To be eligible, the SBA says a busi­ness must meet the following criteria:

• It must be a small business by SBA standards
• It must be owned and controlled at least 51 percent by U.S. citizens, or a Community Development Corporation, an agricultural cooperative, or an Indi­an tribe
• Its principal office must be located within a “Historically Underutilized Business Zone,” which includes lands considered “Indian Country” and mil­itary facilities closed by the Base Re­alignment and Closure Act
• At least 35 percent of its employees must reside in a HUBZone.

The program was enacted as part of the Small Business Reauthorization Act of 1997.

But Chesapeake attorney Christo­pher D. Davis, who was part of Heard’s legal team, noted that being and main­taining status as a HUBZone business is not just a matter of being in a certain location.

“It’s expensive and difficult” to main­tain their status as a HUBZone busi ness, he said. “There are a lot of factors at play when going through the process.”

Because Heard was designated as a HUBZone business, they were entitled to a 10 percent discount on their bid but only if there were large businesses taking part in the bidding process.

“My client depended completely on the fact that there was a large business bid­ding,” he said.

Investigation

An investigation into Waterfront en­sued, and the SBA wanted the defendant to verify they were in fact a small busi­ness.

But Waterfront got themselves in trou­ble over disclosing any pending mergers.

According to Davis, the same day Wa­terfront Marine submitted its bid, the contractor was also in negotiations to be bought out and merge with Infrastruc­ture and Industrial Construction USA, a Colorado-based contractor.

“Because the merger was even pending, that made the difference, and they could be considered a large business,” Davis said. “They were asked in present tense if they had any mergers pending, and they checked no.”

That information was left off Water­front Marine’s initial bid, and because of that, the SBA determined they were not a small business.

Waterfront Marine, which eventual­ly became i+iconSOUTHEAST, was still able to complete the work on the pier.

Experience lost

Heard Construction filed suit in Ches­apeake Circuit Court. Davis and McLean attorney J. Andrew Baxter sought to re­cover damages for the work Heard Con­struction lost out on.

Part of the case Davis and Baxter laid out to the jury included the fact that their client was missing out on important expe­rience that could help the contractor land future work.

“We had a pretty daunting set of ele­ments to prove in trial,” Baxter said. “Es­pecially in a situation that can be as com­plex as a government contract issue.”

Davis added, “This was a unique con­tract, because it was sealed and it was a large contract. This was my client’s golden ticket to future opportunities, and if they had gotten this job they could have gotten other work.”

After two hours of deliberations, the jury found in favor of Heard Construction. They awarded $887,158 in direct damages, $2,458,385 in consequential damages, and $500,000 in punitive damages, totaling $3,845,543.

“It’s a win for HUBZones,” Davis said. “This shows that if you’re a HUBZone busi­ness and a large company tries to take ad­vantage, there’s a way to remedy that. The jury understood that if you lie and cheat to obtain a government contract, it’s going to hurt.”

Added Baxter: “The main thing that a large contractor needs to take away from a case like this is that a jury is perfectly ca­pable of understanding the ins and outs of these small business issues, and when they see a large contractor act improperly, they know that large contractor’s intent is to de­lay to where the smaller contractor has to give up because of litigation. It’s their way to look out for a small business enterprise.”

Waterfront Marine/i+icon was represent­ed by Washington, D.C. attorneys, Jessica Haire and Ronnie Two. They could not be reached for comment.