Contractors often sign modifications and change orders without being fully aware of the rights they may be waiving under the modifications’ terms. While the federal government’s standard modification form (Standard Form 30) does not contain waiver language, government agencies generally add such language to ensure that the modification forecloses future claims by the contractor for work associated with the modification. Unwitting contractors who later return to recover costs they had not previously requested are often surprised when they find out the extent of what they have forfeited under previous modifications (e.g., claims for overhead, cumulative impact, etc.). While the government enjoys such finality in costs, a recent Armed Services Board of Contract Appeals (ASBCA) decision highlights the fact that these waivers cut both ways.
In Appeal of Supply & Service Team GmbH, ASBCA No. 59631 (March 1, 2017) the ASBCA held that the Army lost its right to recoup overpayments to a contractor through broad waiver language it included in a modification. The case involved a contract that Supply & Service Team GmbH (“SST”) executed with the United States Army in Germany to provide role-playing actors during exercises “for the purpose of helping to train soldiers for interactions with civilians on the battlefield” (COBs). However, the Army’s contract immediately fell flat on any aspiration for realistic training, as it only required SST to provide pricing for English and German-speaking actors – neither language commonly spoken among civilians in Iraq or Afghanistan. In late 2006, the Army decided it would be “helpful” to obtain actors that spoke “Arabic and other Middle-Eastern languages” for an early-2007 exercise, and requested pricing from SST to comply with the new requirement. On March 2, 2007, the Army issued a Task Order (“TO 2”) requiring SST to provide “several hundred Arabic and Afghan language-speaking COBs for an exercise to begin on 6 March 2007 to last through 4 April 2007.”
SST soon encountered a roadblock in its provision of such actors: apparently, neither party anticipated that it may be difficult to quickly find several hundred Arabic and Afghan-language speaking actors in Germany that would be eligible for entry onto a U.S. military installation. Not only could SST not find adequate numbers, but SST also claimed that it incurred additional expenses for paying potential COBs to await security clearances that were later rejected. Due to the high rejection rates for security clearances, the contracting officer agreed to allow SST to replace one-third of required Arabic and Afghan-speaking COBs with German-speakers during the exercise.
SST invoiced the Army following the exercise, and billed the German-speaking COBs at the same rate as the Arabic and Afghan-language speaking COBs. Along with its invoice, SST also submitted a Request for Equitable Adjustment (REA) for the costs it incurred from delays in the security screening process, as well as the expenses it incurred paying potential COBs that were eventually rejected. In response to the REA, the Army issued Modification 4 to the task order for the price of the REA, which included a clause stating: “This modification finalizes all actions under this contract.”
SST and the Army executed the Modification, and the Army paid SST’s invoice.
The Army Audit Agency subsequently audited the task order and concluded that SST had overbilled the Army (and the Army had overpayed) € 688,531 because SST had not properly documented its payments to potential COBs that were eventually rejected, and because SST had billed German-speaking COBs at the same rate as Arabic and Afghan-speakers. The Army sought to recoup the overpayment, and the appeal to the ASBCA followed.
The ASBCA held that the Army’s “extremely broad statement (drafted by the Army)” that it finalized “all actions under this contract” acted as a waiver and prevented the Army from challenging the task order’s costs because Mod 4 was a binding bilateral contract modification:
Had SST come to the Army in the months after being paid upon its REA, seeking to file a new claim for work performed on TO 2, the Army would have been well within its rights to assert that SST had waived the ability to bring future claims. The obverse is true as well…. The Army had agreed that all actions under TO 2 were final and, under the terms of Mod 4, waived its rights to make future challenges upon the money paid to SST.
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In Mod 4, the government resolved the REA and foreclosed the possibility of any further claims upon TO 2 and, in return, SST received payment of its REA and reaped its own benefits of finality.
Even though the waiver language at issue here worked against the government, overly broad waiver language is more likely to hurt contractors. This decision serves as an important reminder to contractors negotiating modifications to read any waiver language carefully. Contractor need to make sure they know the full scope of the rights or claims they may be waiving. If appropriate under the circumstances, contractors should specifically note in the modification cost items they are reserving at that time.