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SPM Secures Major Victory for Bechtel National, Inc. in Virginia State Court Litigation with Parsons Government Services, Inc.

 

On behalf of Bechtel National, Inc. (“Bechtel”), Smith Pachter McWhorter, PLC, prevailed in an $80 million dollar lawsuit brought by Parsons Government Services (“Parsons”).  In its complaint, Parsons alleged: (1) breach of contract; (2) breach of the implied duty of good faith and fair dealing; and (3) sought a declaratory judgment against Bechtel. 

Bechtel subcontracted certain design services to Parsons as part of Bechtel’s overall contract with the U.S. Army for the design, construction, and operation of a chemical demilitarization plant, the Pueblo Chemical Agent Destruction Pilot Plant.  Bechtel’s subcontract with Parsons included a fee-sharing provision, requiring Bechtel to share 1/3 of all incentive fees and/or completion bonuses, but also specifically stated that such sharing was “exclusive of fixed fee, award fee, and/or combination of award and fixed fee that is authorized  and released by the Government.” Several years after the commencement of the subcontract, the United States sought to modify the fee structure in the prime contract to an award fee structure.  Specifically, the United States determined that it valued safety and environmental consciousness over efficiency, and wanted to replace the incentive fee structure with an award fee structure.  Pursuant to the subcontract, Bechtel did not share any award fees with Parsons, which lead Parsons to commence this litigation.   

The Honorable Daniel E. Ortiz, the presiding judge, narrowed to the issues in dispute to three (3) central questions:

  1. Whether the subcontract requires Bechtel to share one third (1/3) of award fees paid by the United States, or otherwise renegotiate its fee sharing provisions upon modification of the prime contract’s fee structure?
  2. Whether or not modifications in the prime contract, without comparable modifications in the subcontract, constitute a breach of the implied duty of good faith and fair dealing under Federal common law?
  3. Whether or not overpayment for incentive fees, resulting in the withholding of award fees after modification of the prime contract s fee structure, creates a claim for unjust enrichment against those with whom incentive fees were shared?

Following a seven (7) day bench trial, the Court found that the failure to share award fees when the contract only provides for sharing incentive fees does not constitute a breach, and that modifications in the prime contract altering the fee structure do not constitute a violation of the implied duty of good faith and fair dealing under the Federal common law.  Furthermore, given the Court’s interpretation of the contract, the Court found that there was not any actual controversy regarding the incentive fees and completion bonuses, therefore the Court declined to grant relief on Parsons’ Declaratory Judgment action.  Accordingly, the Court found in favor of Bechtel on all three counts of Parsons’ complaint.

Bechtel’s trial team consisted of John M. Cook, Owen S. Walker, Daniel D. Rounds, Dorothy E. Terrell and Kelsey L. Wilbanks.

The Decision is available here