A judge has ruled that CH2M Hill Plateau Remediation Co. breached a nonsolicitation agreement with Babcock Services, a small Kennewick business.
Babcock sued CH2M Hill after it announced a new subcontracting strategy in early 2013. CH2M Hill had subcontracted with several preselected companies, including Babcock, when it started work under a Department of Energy contract to perform central Hanford cleanup.
But CH2M Hill announced in 2013 that for the second five years of its 10-year contract, it would end agreements with most of its preselected subcontractors. At the same time it moved to hire many of the subcontractor employees to continue their jobs at Hanford, but as employees of CH2M Hill, according to court documents.
The ruling by Judge Robert Swisher of Benton County Superior Court leaves only the issue of whether CH2M Hill improperly terminated Babcock's subcontract for a jury trial. Babcock also will present evidence showing how it has been harmed by CH2M Hill's solicitation of its employees to allow a jury to decide damages it should receive on that claim.
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"Babcock Services is pleased that the judge has found that (CH2M Hill) solicited employees from us in violation of the subcontract agreement," said Phil Gallagher, Babcock senior vice president, in a statement. "We believe that the role of small businesses in government contracting is important, and the retention of our employees is vital if we are to continue to be an added value contractor."
CH2M Hill had a strategy to employ at least 90 Babcock employees, and succeed in hiring 80 percent of Babcock's employees, Swisher found.
"This massive transition of workers had a devastating impact," Babcock said in court documents.
When CH2M Hill announced its new subcontracting strategy, it sent out an all-employee message saying "we hope that sucontractor personnel will be interested in joining our employee-owned company," according to court documents. It encouraged its managers to communicate "early, openly and often" about the hiring process.
CH2M Hill stood to lose the most employees of all the original subcontractors, except Fluor Federal Services, which later settled with CH2M Hill on undisclosed terms, according to a court document.
Babcock, founded in Richland and operated in the Tri-Cities since 2001, invested approximately $320,000 to help CH2M Hill prepare its bid to work as a prime contractor to DOE, according to court documents.
DOE awarded CH2M Hill a contract at Hanford in 2008, and Babcock agreed to freeze salaries during the first five years to help CH2M Hill reduce its costs, Babcock said.
Babcock agreed to invest money as well as reduce its price because CH2M Hill promised in a written agreement that it would continue to subcontract with Babcock for the duration of its contract with DOE, Babcock said in court documents. Babcock employees were responsible for project controls, scheduling and work planning support.
On the day that CH2M Hill announced its new subcontracting strategy it told the Herald that it "consistently looked for ways to identify savings that can be put back into the cleanup mission." The new subcontracting strategy had the potential to generate savings up to $9 million a year, it said.
But in court documents it makes a case for having no choice but to terminate the subcontract.
It said that DOE had notified it that performing its work through the substantial use of pre-selected subcontractors would not be permitted in the second five years of it contract. The subcontractor employees were being used for staff augmentation.
"Instead, (CH2M Hill) needed to increase the portion of the work that it self-performed in order to meet DOE contracting requirements and efficiency objectives," the company said in court documents.
DOE had told CH2M Hill in 2012 that the persistent use of certain preselected subcontracts resulted in higher costs that may not be considered reasonable. DOE later told CH2M Hill that pre-selected subcontracts were for the most part not bid competitively.
Trial has been set for March 2015.
-- Annette Cary: 509-582-1533; firstname.lastname@example.org; Twitter: @HanfordNews