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.
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.
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.
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.