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Mactec, Inc. v. Bechtel Jacobs Co.

August 16, 2007

MACTEC, INC., PLAINTIFF
v.
BECHTEL JACOBS COMPANY, LLC, DEFENDANT
AND DEMCO, INC., PLAINTIFF
v.
MACTEC, INC., DEFENDANT



The opinion of the court was delivered by: Thomas W. Phillips United States District Judge

MEMORANDUM OPINION

These two consolidated diversity actions arise out of contracts for the demolition and disposal of several radioactively contaminated buildings at the K-25 Gaseous Diffusion Plant operated by the Department of Energy in Oak Ridge, Tennessee. The following motions are currently pending:

(1) Bechtel Jacobs' motion for judgment on the pleadings [Court File #25 in No. 3:05-cv-255];

(2) Bechtel Jacobs' motion for partial summary judgment, or in the alternative, to exclude evidence on contract issues [Court File #42 in No. 3:05-cv-255];

(3) MACTEC's motion for leave to file a supplemental brief [Court File #50 in No. 3:05-cv-255];

(4) Bechtel Jacobs' motion for partial summary judgment on MACTEC's fraud claim [Court File #53 in No. 3:05-cv-255];

(5) MACTEC's motion to file a third-party complaint [Court File #14 in No. 3:06-cv-265];

(6) Bechtel Jacobs' motion for partial summary judgment [Court File #26 in No. 3:06-cv-265];

(7) MACTEC's motion for leave to file a supplemental brief [Court File #35 in No. 3:06-cv-265];

(8) MACTEC's motion to strike Bechtel Jacobs' motion for summary judgment on plaintiff's fraud claim [Court File #41 in No. 3:06-cv-265]; and

(9) Bechtel Jacobs motion for partial summary judgment on MACTEC's claims for breach of duty to verify bid and fraud [Court File #59 in No. 3:05-cv-255].

I.

For good cause shown, the following actions are hereby taken: MACTEC's motion for leave to file a supplemental brief [Court File #50 in No. 3:05-cv-255] will be granted; MACTEC's motion for leave to file a third-party complaint [Court File #14 in No. 3:06-cv-265] will be granted; MACTEC's motion to file a supplemental brief [Court File #35 in No. 3:06-cv-265] will be granted; and MACTEC's motion to strike Bechtel Jacobs' motion for summary judgment on MACTEC's fraud claim [Court File #41 in No. 3:06-cv-265] will be denied.

II. Factual Background

The following factual allegations are considered in the light most favorable to the plaintiff.

The United States Department of Energy's Oak Ridge Operations (ORO) operated a uranium enrichment facility known as the K-25 Gaseous Diffusion Plant, which produced enriched uranium for, among other applications, nuclear weapons. In December 1997, ORO awarded a five-year, $2.5 billion Management and Integration contract to Bechtel Jacobs whereby ORO and Bechtel Jacobs would engineer a transition away from operations towards closure of the Oak Ridge facility. Following a three-month phase-in period, Bechtel Jacobs assumed responsibility for the work on April 1, 1998.

ORO awarded Bechtel Jacobs a subsequent contract that is known as a "Closure Contract." As part of that contract, Bechtel Jacobs was to demolish and dispose of several radioactively contaminated buildings in the Main Plant area. On April 17, 2000, Bechtel Jacobs issued a Request for Proposal No. 23900-RFPET081 (RFP), inviting proposals from subcontractors to demolish and dispose of the several radioactively contaminated buildings from the Main Plant. In response to the RFP, plaintiff MACTEC submitted a proposal for the Main Plant Demolition Project in the amount of $3.99 million, which was later adjusted to the final contract price of $5.36 million.

Bechtel Jacobs' internal estimate for the cost of the project was $8.20 million. The next lowest proposal for the project was $8.44 million. However, Bechtel Jacobs had not informed MACTEC that its proposal was significantly lower than Bechtel Jacobs' own internal estimate and significantly lower than the next lowest offeror.

Plaintiff claims that Bechtel Jacobs knew or should have known that the significant disparity in MACTEC's proposed price from all the other proposals was reason for a potential error in MACTEC's offer. It further contends that Bechtel Jacobs did not adequately verify MACTEC's proposal and failed to alert MACTEC that its offer price was significantly lower than the other estimates for the work.

Bechtel Jacobs nevertheless awarded the subcontract to MACTEC for the price of $2.9 million lower than Bechtel Jacobs' own internal estimates and $3.1 million lower than the next offeror's price. This approximately $3 million disparity existed on a contract with MACTEC for only $5.36 million. MACTEC asserts that Bechtel Jacobs failed and refused to disclose this significant bid disparity and potential error to MACTEC, and that MACTEC reasonably relied on the absence of this disclosure in entering into the subcontract.

Plaintiff claims that Bechtel Jacobs failed to make the disclosure in bad faith for its own self-interest and economic benefit and failed to make the disclosure in order to mislead MACTEC into believing that there were no significant discrepancies in their bid for the sole purpose of obtaining an unfair and undue advantage. It was only after MACTEC filed its initial complaint in this case and initiated discovery that MACTEC discovered this substantial discrepancy in the pricing.

MACTEC contends that it has incurred actual costs of approximately $8.43 million, which is substantially in excess of its contract award in the amount of $5.36 million. Bechtel Jacobs has failed and refused to pay MACTEC for any of its additionally incurred costs.

Plaintiff further contends that the parties' Subcontract incorporates federal procurement law and that the Federal Acquisition Regulations (FARs), as part of federal procurement law, require that a contractor such as Bechtel Jacobs verify and notify a bidder, such as MACTEC, when the contractor has reason to know of a significant disparity or potential error in the bidder's bid.

MACTEC contends that Bechtel Jacobs also required MACTEC to use the Multi-Agency Radiation Surveys and Site Investigation Manual (MARSSIM), which is a cost-effective method designed to require fewer measurements than other methods used to evaluate radiological facilities in preparation for their demolition and disposal. Plaintiff claims Bechtel Jacobs misapplied MARSSIM by forcing MACTEC to adhere to a rigid, expensive, prescripted methodology of evaluating these facilities.

Further, the Environmental Management Waste Management Facility (EMWMF) is a local mixed waste disposal facility located at the Y-12 Facility. The subcontract required MACTEC to satisfy EMWMF's Waste Acceptance Criteria (WAC) when disposing of waste at that facility. MACTEC relied upon the WAC issued by Bechtel Jacobs for the planning and scheduling of the performance of its work on the Project. The subcontract's technical specifications also required that MACTEC properly manage all waste and materials until such time as the EMWMF was open to accept all waste. Notably, the technical specifications did not describe the operational constraints associated with the disposal of waste at the EMWMF.

Bechtel Jacobs' Request for Proposal (RFP) indicated that the debris would include trace amounts of Tc-99 (a radioactive contaminant). Plaintiff contends that Bechtel Jacobs made the following representations to MACTEC regarding disposal of the waste at EMWMF:

1. Cell hours are anticipated to be 8:00 a.m. to 5:00 p.m. Monday through Friday;

2. Turnaround time would be 45 minutes for direct dump waste delivery (dump trucks or roll-offs that dump directly);

3. The schedule for the type of waste and the rate at which the waste will be shipped to the cell will be ...


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