The government may provide design specifications to the contractor for the performance of a government contract, directing work and implying a warranty that the supplied specifications are free of defects. Under the Spearin doctrine, if the government’s design specifications are then found defective or result in unsatisfactory performance, the contractor is permitted to recover its increased costs of performance attributable to the defective specifications. To obtain such recovery, the contractor must prove a causal connection between the defective specifications and the additional costs incurred to resolve the issue. Significantly, however, to recover under the Spearin doctrine, a contractor must demonstrate that it substantially complied with the government-furnished plans and specifications and that, despite its compliance, the end result was unsatisfactory. On the other hand, if the contractor does not comply with the government’s specifications, it may not recover its increased costs of performance under the Spearin doctrine, even if the government's design specifications are ultimately found defective.

In Armed Services Board of Contract Appeals (ASBCA) No. 62627, a decision issued on February 13, 2024, the Board determined that the contractor could not recover under the Spearin doctrine because it had failed to demonstrate compliance with the government-supplied specifications. The Naval Facilities Engineering Systems Command (NAVFAC) Southwest (SW) awarded a task order for roughly $4.3 million under a previously issued indefinite delivery, indefinite quantity (IDIQ) contract for the renovation of Building 53423 at the Marine Corps Base Camp Pendleton in California. Among other things, the project required the contractor to remove and dispose of all existing hazardous materials, including asbestos, and to perform abatement and cleanup services as necessary. The project also required the removal and replacement of non-load-bearing partition walls to support potential space reconfiguration. The order noted that the removal of any additional walls during construction would be handled as a modification. As relevant to the interior walls, the government stated in RFI 20, a pre-award request for information (RFI), that there may be small amounts of asbestos tiles under the wall framing where interior walls were being demolished.

The Small Business Administration (SBA) Mentor-Protégé Program (MPP) allows small businesses to pair with large contractors to form joint venture (JV) entities that can pursue any small business set-aside contract for which the protégé firm individually qualifies as small. The program is designed to be mutually beneficial for participating firms, allowing the protégé to take advantage of the mentor firm’s business development assistance while simultaneously enabling the mentor firm to perform on certain contracts it would not otherwise have access to. Once the JV has an SBA-approved mentor-protégé agreement, it is not considered affiliated with its mentor or protégé firm. The member firms enter into a joint venture agreement (JVA) that must comply with various SBA regulations to benefit from the exception afforded to the usual requirements regarding affiliations. Under the regulations, the small business protégé firm must be designated as the managing venturer responsible for controlling the day-to-day management and administration of the JV. Additionally, a named employee of the protégé firm must serve as the Responsible Manager and be accountable for contract performance.

Meanwhile, the mentor firm is permitted to participate in all corporate governance activities and decisions of the JV as is commercially customary. However, as the holder of the minority ownership interest in the JV, the mentor firm may not exercise negative control over the JV’s activities unless the provisions of the JVA granting such control are also commercially customary. Negative control is defined as the ability, granted by the JV’s organizing instruments, of a party with a minority interest in the JV to block an action by the JV’s board of directors or shareholders. Notably, the SBA Office of Hearings and Appeals (OHA) has previously held that when a firm with a minority ownership interest in a JV has the ability to exercise negative control over a JV’s activities, the JV does not qualify as an eligible small business for set-aside procurements. In such situations, an interested party may initiate a size protest with the contracting officer (CO), who forwards the protest to the appropriate SBA Area Office (AO) for a formal size determination. The SBA OHA then hears any appeals that follow from the AO’s size determination and issues the final decision of the SBA. As long as the SBA determination is made in connection with a procurement, the Court of Federal Claims (COFC) possesses jurisdiction to conduct judicial review of the OHA decision under the Tucker Act by applying the Administrative Procedure Act (APA) arbitrary and capricious standard.

Government agencies often establish Blanket Purchase Agreements (BPAs) with General Services Administration (GSA) Federal Supply Schedule (FSS) contractors to meet their repetitive procurement needs in a flexible and streamlined manner. Such BPAs may be single or multiple award and may be utilized by one or more agencies with a period of performance of up to five years. The Federal Acquisition Regulation (FAR) 8.405-3, which contains ordering procedures for BPAs established under FSS contracts, states that a single award BPA may not exceed one year, although it may have up to four one-year options. Contractors should be mindful that such BPAs are not contracts in and of themselves and are awarded against and tied to a contractor’s underlying GSA FSS contract. In this regard, FAR 8.405-3(d)(3) provides that schedule contractors may be awarded BPAs that extend beyond the term of their FSS contract only if there are option periods remaining in their FSS contract that, if exercised, will cover the BPA’s period of performance. Consequently, if an FSS contractor’s schedule contract, including its options, is set to expire before the end of the BPA’s period of performance, then that contractor is ineligible to receive a BPA award.

Under the Spearin doctrine, when the government furnishes design specifications directing the contractor on how to undertake performance on a contract, it provides an implied warranty that the contractor will be able to perform the contract satisfactorily if it adheres to the government’s specifications. The doctrine allows contractors to transfer to the government the risk of increased costs resulting from defective specifications. Notably, however, the Spearin doctrine only applies when the defective specifications are design specifications as opposed to performance specifications. Design specifications expressly describe how contract performance must be undertaken and do not permit the contractor to make any deviations. Meanwhile, performance specifications state the overall objectives that must be achieved but leave the decisions on how to achieve those objectives at the discretion of the contractor. Since design specifications do not allow deviations or grant the contractor discretion in achieving contractual objectives, the government implicitly warrants that design specifications are free from defects. Consequently, when the government’s design specifications are defective or result in unsatisfactory performance the government is deemed to have breached its implied warranty of specifications under the Spearin doctrine. In such cases, the contractor may recover all proximate costs stemming from the government’s breach.