THE LAW IS THE LAW, AND SOMETIMES IT ISN’T “FAIR”
People sometimes assume the law is a certain way because they believe it would be “unfair” for it to be any other way. Well, the law is not always “fair.”
To make sure you do not make an incorrect assumption regarding the recoverability of home office overhead damages from a government entity, you should be aware of Martin County v. Polivka Paving. In that case, Polivka constructed soccer fields for Martin County. Because of undisclosed soil conditions, the project took much longer and cost much more than expected. Polivka was successful at the trial court level, with the jury awarding Polivka its contract balance, its additional costs incurred as a result of the challenging soil conditions and a portion of its home office overhead for the amount of time the project took to complete beyond what was expected.
The appeals court held firm to the letter of the law, however, and struck the jury’s award of home office overhead damages. The appeals court held that the law says a contractor may not recover home office overhead costs from the government unless the government fully suspends the contractor, the government required the contractor to stand by during the suspension and the contractor was unable to take on additional work that would have absorbed the home office overhead otherwise paid for by the suspended project. Despite Polivka’s damages expert explaining how he determined the amount of Polivka’s unabsorbed home office overhead attributable to the impact of the undisclosed soil conditions, the appeals court said the damages are not recoverable because Polivka was not completely idle during the extended period. Given the court’s ruling, Polivka (and contractors like it in the future) will not be allowed to recover any of its home office overhead, no matter how great the impact was or how high of a percentage the project was of its overall business.
The moral of the story is, never assume what the law is. It might not always be what you think would be “fair” and sometimes the courts are unwilling to be swayed from the letter of the law by arguments about what would be equitable in a given situation.