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Subcontractor can be sued for breach claim

Where the prime contractor on an Army construction project alleged it was required to assume the subcontractor’s work in an effort to mitigate its current and future subcontract breaches, and that it was required to make over $9 million in concessions to the customer as a result of the subcontractor’s failure to complete the project by its specified date, its breach of contract claim survived a motion to dismiss.


This case concerns a subcontract between BAE Systems Ordnance Systems Inc. and Fluor Federal Solutions LLC for the construction of a nitrocellulose facility at the Radford Army Ammunition Plant. BAE filed suit on Sept. 30, 2020, asserting a claim in Count One for breach of contract. Flour filed a counterclaim for breach of contract (Count One), quantum meruit (Count Two) and unjust enrichment (Count Three). Both parties filed motions to dismiss and BAE filed a motion to strike.

BAE’s breach of contract claim

Fluor argues that BAE fails to adequately plead that Fluor violated or breached an obligation of the subcontract that would entitle BAE to recover excess procurement costs related to descoped work. Fluor also argues BAE fails to sufficiently plead any injury or damage caused by Fluor’s alleged breach of the subcontract. Alternatively, Fluor argues that BAE’s damages were consequential damages barred from recovery under the subcontract.

Fluor argues that BAE’s decision to voluntarily remove certain work from Fluor released Fluor from its original obligation to perform the removed work. BAE’s complaint specifically alleges that Fluor was not released from its obligation to perform descoped work. In response to pressure from the Army to meet BAE’s scheduled deadline, BAE alleges that it was required to assume the work from Fluor in an effort to mitigate Fluor’s current and future subcontract breaches. Support for BAE’s belief that it needed to assume work subcontracted to Fluor to meet the deadline is found throughout the complaint.

Next, BAE sufficiently pleads Fluor breached its obligations under the subcontract regarding the descoped work because it alleges in its complaint that Fluor was unsuccessful in following the project’s schedule and Fluor did not fulfill all of its construction obligations under the subcontract.

Fluor believes that if liable for a breach of contract, it is only responsible for paying BAE the costs Fluor would have incurred to complete the project. The subcontract, however, provides that “[Fluor] agrees to reimburse BAE SYSTEMS all damages and expenses incurred by BAE SYSTEMS due to CONTRACTOR’s failure to complete the Work by such time.” Since recovery under this clause does not require a deductive change, BAE plausibly pleads it can recover all its costs for descoped work.

Further, BAE adequately pleads that it was required to make concessions to the Army as a result of Flour’s failure to complete the project by its specified date, and that the $9 million in concessions incurred are direct damages related to Fluor’s alleged breach of the subcontract. Whether these concessions turn out to be direct or consequential damages will ­depend on further factual development.

Fluor’s counterclaim

BAE moves to strike Flour’s counterclaim to the extent that it seeks damages exceeding $30 million as capped in the subcontract. The court grants this motion to strike because three clauses in the contract limit BAE’s and Flour’s ability to claim damages in this lawsuit exceeding $30 million.

Fluor argues that the absence of the specific “including all changes” language in §46 renders the subcontract ambiguous. Second, Fluor contends that the “[e]xcept as otherwise provided in this Subcontract” language prefacing the limitation of damages clauses opens the door to its recovery of costs for changes beyond $30 million. Each argument contravenes established canons of contract construction.

Fluor argues that the limitation of damages provisions of the subcontract are unenforceable under Virginia law. Virginia Code § 11-4.1:1 has no application here, however, because Fluor provided labor, services and materials to BAE on the NC project before executing the subcontract. Nor does equitable estoppel apply to prevent enforcement of the damages limitation agreed to by BAE and Fluor.

BAE moves to dismiss Fluor’s counterclaim. The court finds that Fluor’s counterclaim adequately pleads a breach of the implied warranty of design adequacy. The court additionally finds that Fluor’s second breach of contact theory–claiming an equitable adjustment to the subcontract price–states a plausible claim as to changes ordered by BAE and that Fluor adequately pleads a breach of the good faith covenant. However Fluor’s quantum meruit and unjust enrichment claims are not actionable under Virginia law given the enforceable subcontract.

Defendant’s motion to dismiss denied. Plaintiff’s motion to dismiss counterclaim granted in part, denied in part. Plaintiff’s motion to strike granted.

BAE Systems Ordnance Systems Inc. v. Fluor Federal Solutions LLC, Case No. 7:20-cv-587, March 30, 2022. WDVA at Roanoke (Urbanski). VLW 022-3-146. 42 pp.