Customers will frequently want you to complete performance sooner than may be required by the contract.  When presented with such a dilemma, contractors face the challenge of keeping the customer happy while performing the work in a manner that will meet specifications and the contractor’s business expectations.  To navigate this process effectively, it is important for contractors to have a working knowledge of the circumstances in which an acceleration claim may arise and what to do when such an event does arise in order to manage the project in a smooth and efficient manner that protects the contractor.  As this post discusses, while there are different types of acceleration, a common situation encountered by contractors on federal jobs is constructive acceleration.  This occurs where, because of an intervening event that creates an excusable delay in the project, a contractor has a justified claim for an extension of time, the contracting officer knows about the contractor’s claim and the circumstances causing the delay, but the contractor is forced to incur additional costs due to the customer’s refusal or failure to grant an extension, thus requiring the contractor to complete the work as originally agreed upon prior to the rise of the delay.  Of course, if the customer grants an extension, the contractor is not required to accelerate and, thus, any costs incurred to accelerate the project will be deemed voluntary and not compensable.

The Constructive Acceleration Claim:

Constructive acceleration has its origins as a common law claim—meaning it was developed by the courts/boards of contract appeal, rather than being created by regulations such as the Federal Acquisition Regulation.  The doctrine allows a contractor to recover additional compensation when, despite some intervening excusable delay in the project that has arisen through no fault of their own, the contractor is nevertheless required by the customer to accelerate its work by being required to comply with the contract schedule, despite an excusable delay.  To prevail on a constructive acceleration claim, the contractor needs to prove four elements: (1) the existence of an excusable delay; (2) knowledge of the contracting officer of the excusable delay; (3) order to accelerate; and (4) the contractor, based on the order to accelerate, accelerated the work and incurred additional costs.

  1. Existence of an Excusable Delay

In order to recover for a constructive delay, the first thing a contractor must show is that there is an excusable delay—if there is no excusable delay, there can be no constructive acceleration.  This first element is arguably the most important, as it goes to the heart of a constructive acceleration claim.  There are many factors, even unintended ones, which arise during the course of any project but most are not excusable delays which may give rise to additional compensation if the customer decides to hold the contractor to the original schedule.  However, if an excusable delay does arise – typically some act of God, war, embargo or strike — and even if the contract is silent as to the contractor’s entitlement to a time extension, the contractor will be entitled to recover its costs for constructive acceleration if it is shown that the contractor was forced to accelerate to overcome an excusable delay (and the other elements of constructive acceleration are satisfied).

  1. Contracting Officer’s Knowledge of the Excusable Delay

Second, the contractor must show that the contracting officer had knowledge of the excusable delay.  While this second element is frequently thought of as a requirement that the contractor make a timely claim for extension due to an excusable delay, you may have a constructive acceleration claim even where no claim is made to the contracting officer so long as the contracting officer has actual notice of the delay and your actions to address it.  However, in order to recover for constructive acceleration absent a formal request for an extension, the contractor must show that (1) the contracting officer has clearly indicated that no time extensions will be granted, and (2) the contracting officer has actual knowledge of the excusable delay.

  1. Order to Accelerate

Third, the contractor must show that the contracting officer has given some order that could reasonably be construed as a demand to accelerate the work.  Typically, this takes the form of the contracting officer either demanding work be completed pursuant to the schedule in the face of a clear excusable delay, or the contracting officer rejecting a request for an extension of time due to an excusable delay and subsequently demanding that the work be completed on schedule.  While a direct order is the most common situation leading to a constructive delay, contracting officers have been found to have ordered acceleration in the following circumstances: (1) failing to review and grant an extension (with nothing more, including no direct order to meet the schedule), which took away the contractor’s ability to perform at a normal pace, and (2) delaying granting a time extension where the contractor was forced to modify/accelerate its schedule by the time the time extension was eventually granted.

  1. Causation and Damages

The final element of constructive acceleration is evidence that the contractor accelerated its work in response to the contracting officer’s order, and that the contractor incurred additional costs as a result.  In most cases, particularly cases in which the contractor requested an extension that was denied, it will be fairly obvious if the contractor accelerated the work in response to the contracting officer’s order.  In addition to proving causation, the contractor must be able to show that it incurred additional costs in accelerating the work.

Other Notes for Constructive Acceleration:

  • A contracting officer is able to cut off liability for constructive acceleration by granting a time extension, even if the contractor was originally forced to accelerate
  • Courts have typically refused to award damages for acceleration where there is a concurrent, inexcusable delay by the contractor and the contract allows the government to order acceleration for contractor-caused delays.

Conclusion:

While constructive acceleration claims provide contractors with a safeguard against incurring costs due to an excusable delay, there are several milestones, sometimes hurdles, that a contractor must check off or overcome in order to prevail.  Accordingly, while there is some flexibility in the standards which the contractor must meet, the safest approach, whenever possible and which should always be carefully documented, for a contractor experiencing an excusable delay is to: (1) make a request for a time extension as soon as possible, and include the facts and circumstances giving rise to the delay and your efforts to date in addressing the matter, regardless of the likelihood that the contracting officer grant an extension, and (2) if the contracting officer does ultimately deny the extension, carefully document that denial as well as the contractor’s acceleration efforts and resultant costs.  Performing these steps, and documenting them, will help ensure that there is sufficient evidence that the contracting officer was aware of the excusable delay and evidence of causation and damages.

Many politically charged issues are likely to steal the headlines during the confirmation hearings for President Trump’s nominee for the U.S. Supreme Court, D.C. Circuit Court of Appeals Judge Brett Kavanaugh.  However, one issue unlikely to make headlines is the impact that Judge Kavanaugh’s confirmation may have on the doctrine that gives “controlling weight” to the way government agencies interpret their own regulations — known as the Auer Deference doctrine.

Given the composition of the Supreme Court, recent Judicial attempts to re-examine the doctrine, and Judge Kavanaugh’s previous statements, Judge Kavanaugh’s confirmation signals the probability of the Supreme Court’s eventual overturning of the Auer Doctrine  — which would be good news for government contractors.

What is Auer Deference?

Auer deference (also referred to as Seminole Rock deference) is a principle of administrative law that requires courts to give “controlling weight” to the way government agencies interpret their own regulations, even where the agency’s interpretation is not “the best” reading of the text in question. Developed from the U.S. Supreme Court’s holdings in Auer v. Robbins, 519 U. S. 452 (1997) and Bowles v. Seminole Rock & Sand Co., 325 U.S. 410 (1945), the doctrine mandates that courts credit the agency’s interpretation as controlling as long as it is not “plainly erroneous or inconsistent with the regulation.”

This obviously puts a thumb on the scale for agencies in the context of contract disputes or bid protests tied to certain regulatory interpretations. It can be particularly harmful to contractors when the agency has altered its interpretation during the performance or procurement of a contract, or worse, during the course of litigation. Unlike agencies whose procurements rely on interpretation of the FAR, agencies that draft and enforce their own regulations (such as the Small Business Administration) are sometimes empowered under Aeur to alter their interpretation to suit the agencies’ needs on a case-to-case basis. Continue Reading Why Judge Kavanaugh’s Confirmation Could be Good News for Government Contractors

Contractors frequently claim that owners have breached the implied duty of good faith and fair dealing, largely as an alternative to more specific claims for constructive change or breach. These good faith and fair dealing claims are difficult to recover on, largely because courts and the boards have required a breach of the implied duty to be tied to an express contract term. However, recently in Relyant, LLC, the Armed Services Board of Contract Appeals (the “Board”) awarded a contractor damages based upon its finding that the government breached the duty of good faith and fair dealing by failing to respond to the contractor’s request to amend its scope of work in a timely manner—notwithstanding the fact that the contract did not contain an express term prescribing a time frame for such responses. The Board found that the government had breached the duty of good faith and fair dealing by “allowing Relyant to, figuratively, ‘twist in the wind’ from late April to early August 2009 as the government considered the change to the [scope of work].”

Implied Duty of Good Faith and Fair Dealing

As explained by the Federal Circuit, the implied duty of good faith and fair dealing exists because “it is rarely possible to anticipate in contract language every possible action or omission by a party that undermines the bargain.” The general rule is that the implied duty of good faith and fair dealing “prevents a party’s acts or omissions that, though not proscribed by the contract expressly, are inconsistent with the contract’s purpose and deprive the other party of the contemplated value.” The “good faith” standard is often judged from the perspective of a contractor’s reasonable expectations. The Restatement (Second) of Contracts § 205 provides that “good faith” excludes conduct that “violate[s] community standards of decency, fairness, or reasonableness,” and cites judicial decisions which have held that “evasion of the spirit of the bargain, lack of diligence and slacking off, willful rendering of imperfect performance, abuse of a power to specify terms, and interference with or failure to cooperate in the other party’s performance” may all violate the implied duty. A party that violates the implied duty may be liable for all damages incurred as a result of the breach.

Unreasonable Government Delay in Responding to Contractor Can Implicate Implied Duty of Good Faith and Fair Dealing

Relyant involved a contract to supply pre-fabricated relocatable buildings (“RLBs”) to two sites in Afghanistan. The dispute focused on the RLBs interior finishes: the Scope of Work (“SOW”) accompanying the solicitation required a gypsum drywall interior over three-inch thick fiberglass insulation. Relyant proposed a sandwich panel using a polystyrene insulation. The government awarded the contract to Relyant but the contract did not incorporate a revision to the SOW for Relyant’s proposed sandwich panel.

The first order issued under the contract required Relyant to deliver six RLBs to Forward Operating Base Sharana, Afghanistan, the first being required for First Article Testing (“FAT”) within 180 days. Subsequent delivery orders required Relyant to deliver additional RLBs to Bagram Airfield, Afghanistan. Due to tight scheduling concerns, Relyant could not wait for its first delivery to Sharana to pass FAT testing before it began manufacturing the remainder of the RLBs for the Bagram deliveries. The government accepted the RLB’s delivered to Sharana (with knowledge of the noncompliant sandwich panels), but then rejected the sandwich panels during FAT for the deliveries to Bagram.

As Relyant had already delivered a number of the RLBs to Bagram, it requested a modification to the SOW first in November 2008 and then again in April 2009, both times requesting that the government permit its “as-bid” sandwich panel construction. The government, despite knowing that Relyant was incurring costs while waiting for its response, did not finally reject the proposed modification until August 2009. While the contract did not specify how long the government could review a request for a modification to the scope of work, the government was actually able to review the request and obtain the contracting officer’s concurrence in less than a week—which the Board found would have been a reasonable time for a response.

The Board ultimately held that the implied duty imposes “certain obligations with regard to timeliness of government responses to Relyant’s request to amend the SOW, for which Relyant is entitled to certain relief.” The Board held that the Government had breached the duty of good faith and fair dealing by failing to respond to Relyant’s request in a timely manner.  The Board clarified that “the proper inquiry regarding the duty often boils down to questions of “reasonableness” of the government’s actions. In Relyant, the government’s delay was unreasonable when the request could be evaluated and responded to within a week, but the government took over three months to respond despite being aware that the contractor was incurring extra costs as a result of the delay.

Take Away

The decision serves as a reminder to contractors that the duty of good faith and fair dealing is a valuable claim when a contractor is damaged as a direct result of the government’s failure to respond in a reasonable amount of time to a contractor’s request during contract performance. As the government’s knowledge that the contractor was incurring additional costs was a key factor in allowing Relyant to recover its damages, contractors should remember to notify the government in writing of the type and estimate of any damages that it is incurring as a result of the government’s delayed decision-making.

 

Image courtesy of Flickr (licensed) by Dave Bleasdale.  

Liquidated damages are useful tools for parties to allocate risk at the beginning of a contract.  A liquidated damages clause allocates the risk of a contract being completed late.  For a liquidated damages clause to apply, the damages must be approximately the damages likely to be incurred by the assessing party and the damages must be reasonably uncertain at the time of contracting.  While a liquidated damages clause could be used on any type of contract with a deliverable, it is most commonly seen in construction contracts.  In that case, for every day the contractor is late in finishing the project, the owner can assess liquidated damages rather than calculating the actual damages on a day-by-day basis.

While the concept seems straightforward (1 day late = $X in damages), assessing liquidated damages can escalate in complexity.  In the recent case of American International Contractors, assessing liquidated damages required not one but three project aspects that would impact the project’s completion date.  ASBCA Nos. 60948, 61166.  In this case, the Army Corps of Engineers contracted with American International Contractors, Inc. (“AICI”) to contract for the “United Kingdom Maritime Component Command (UKMCC) Development, Mina Salman Port, NSA II, Kingdom of Bahrain.”  The project provided for the construction of two facilities among other items.  The two facilities had to be completed by Mar 7, 2015 and April 6, 2015.  Both facilities were completed late with eight days and 28 days of liquidated damages assessed, respectively.  After AICI had demobilized from the site, the Army Corps requested a proposal from AICI to perform various work in one of the new facilities.  Rather than issuing a new contract, the contracting officer issued a unilateral modification to the construction contract line item for the new facility whereby AICI would perform the new scope in the new facility.  In the modification, the contract stated “[t]he Period of Performance has increased … for a period of two-hundred-thirty-two (232) days from the effective date of this modification of March 11, 2016. … This Period of Performance covers work under this modification only, not for the overall contract.”  Continue Reading Assessment of Liquidated Damages: Careful What You Bargain For

While FAR 52.242-14 (the “Suspension of Work Clause”) and FAR 52.242-15 (the “Stop-Work Order Clause”) both allow a contracting officer to require a contractor to stop all, or any part, of the work at the Government’s convenience, they contain some key differences that prudent contractors should know to protect their interests when contracting with the Government.  The two clauses contain differences in relation to allowable damages, when claims must be presented, the time of suspension or work interruption, and what must be proved to recover damages.

A contractor not aware of which of these clauses is in play could unknowingly submit an untimely or invalid claim.

The Suspension of Work Clause:

The FAR requires that the Suspension of Work Clause be inserted in fixed-price construction and architect-engineer contracts.  The Suspension of Work Clause allows the Contracting Officer to order the Contractor “to suspend, delay, or interrupt all of any part of the work…for the period of time that the Contracting Officer determines appropriate for the convenience of the Government.”  Even if a Suspension Order is not given, if the conduct of the government forces the Contractor to interrupt or cease its work, that conduct may be treated as a “constructive suspension,” affording the Contractor the same rights under the Clause.  The four-part test for recovery under the Suspension of Work Clause is as follows: (1) the resulting delay was for an unreasonable period of time, (2) the delay was proximately caused by the Government’s actions, (3) the delay resulted in some injury to the Contractor, and (4) there is no delay concurrent with the suspension that is the fault of the Contractor.

For directed suspensions, a claim, in an amount stated, must be asserted in writing as soon as practicable after the suspension, delay, or interruption, but not later than the date of final payment under the Contract.  In the case of a constructive suspension under the Suspension of Work Clause, the Contractor may submit a written claim for added costs, exclusive of profit, incurred within 20 days of notice that the work is suspended, delayed, or interrupted for an unreasonable period of time by (1) an act of the Contracting Officer, or (2) by the Contracting Officer’s failure to act within the time specified in the contract.  However, courts have indicated that this notice requirements may be liberally construed.  See Hoel-Steffen Const. Co. v. U.S., 197 Ct.Cl. 561, 570-571 (1972); K-Con Bldg. Sys., Inc. v. U.S., 115 Fed. Cl. 558, 573 (2014). In addition, no allowance for delay is permitted to the extent performance would have been delayed by any other cause.  Continue Reading FAR Suspension of Work v. Stop-Work Order: What Contractors Need to Know

Often times the most difficult part of the government contract claims process is checking all the procedural “boxes” of a certified claim.  Failure to file a claim within six years of accrual, request a contracting officer’s final decision, or include a wet ink signature are just a few of the procedural technicalities required by the Contract Disputes Act (“CDA”) that can get a claim kicked out before the Board ever has a chance to get to the merits.  Another significant procedural requirement under the CDA is that, for claims of more than $100,000, the claimant must provide a certification that certifies (among other things) that the claim is supported by accurate and complete data and the amount requested accurately reflects the contract adjustment for which the claimant believes the government is liable.

In Mayberry Enterprises, LLC v. Department of Energy, CBCA 5961 (March 13, 2018), the contractor appealed the denial of its uncertified claim seeking costs and excusable delay related to late payments, contract modifications and government-caused delays for a total of $529,895.59.  The contractor submitted three invoices to the government, each requesting a “category” of damages:

  • $87,990 – for suspension of work and late payment issues.
  • $41,000 – retained funds.
  • $400,905 – mobilization, prepatory, surfacing, design and other miscellaneous costs for extra work.

Continue Reading Contractor Escapes Total Dismissal For Failure To Certify $500,000 “Severable” Claim

When do agency Boards of Contract Appeals have jurisdiction to hear a federal contract dispute under the Contract Disputes Act (CDA) when the dispute is with a surety that issued a bond on the project?  Answering this question is key to avoiding a government motion to dismiss for lack of jurisdiction.

Typically, if a surety is forced to step in to take over for a contractor, both the terms of the bond and principles of equity allow the surety subrogation rights, which entitle the surety to the contract rights of the obligor (contractor). This includes the right to pursue payment from the government for work performed, and for overpayments to the contractor. Continue Reading When is a Surety a “Contractor” with the Government at the Boards Of Contract Appeals?

On May 1, 2018, Oles Morrison partner Adam Lasky will be on a panel discussing “Tips for Avoiding Litigation on Federal Construction Projects,” together with Paul Varela (Varela, Lee, Metz & Guarino), Neil O’Donnell (Rogers, Joseph O’Donnell, PC), and Jennifer Fiore (Dunlap Fiore, LLC), at the AGC Federal Contractors Conference 2018.  Adam and the panel will be discussing a number of topics relevant to construction contractors doing business with the federal governent, including false claims act liability, pass-through claims, and releases.

Click here for registration information.

In a recent decision, NOAA Maryland, LLC v. General Services Administration, the Civilian Board of Contract Appeals (“CBCA”) looked to “extrinsic” evidence outside the contract to interpret whether the government was required to pay real estate taxes.  This case provides a reminder to contractors that while the CBCA is reluctant to look beyond the four corners of a contract and prudent contractors should make their contract terms explicit, the CBCA will look beyond the contract if it is necessary to determine the objective intent of the parties.  NOAA Maryland appealed the denial of its claim under a lease with the General Services Administration (“GSA”).  The contractor moved for summary relief arguing certain charges were reimbursable under its lease with GSA as “real estate taxes.”  The Parties’ both agreed on the facts of the case, but asserted different interpretations of the contract.

In 2005, GSA executed a lease with NOAA Maryland.  As an element of the lease, the Government agreed to pay real estate taxes according to the lease’s Tax Adjustment Clause.  During the course of the lease, the contractor sought reimbursement for certain charges under the Tax Adjustment Clause. Following the contracting officer’s denial of two certified claims relating to disputed charges and the Tax Adjustment Clause, NOAA Maryland filed an appeal with the CBCA.

In order to resolve the dispute, the CBCA was forced to turn to its rules of contract interpretation.  The CBCA looked to (1) parties’ course of dealing; (2) contemporaneous intent of parties; and (3) whether the contract was “ambiguous.”

Contract Interpretation Using Extrinsic Evidence

The general rule is that the Board may not look to extrinsic evidence when interpreting the provisions of a contract absent an ambiguity in the contract.  However, extrinsic evidence may be used for the limited purpose of clarifying the parties’ objective intent when entering into the contract.  In this appeal, the Board used the following extrinsic evidence to determine the parties’ objective intent:

1. Parties’ Course of Dealing

Here, the Board found NOAA Maryland failed to show that GSA paid the specific charges at issue in the past, thus failing to establish that the Parties’ course of dealing mandated the charges be paid.

2. Contemporaneous Intent of Parties

This aspect refers to an examination of the Parties’ expectations and intent at the time the lease was entered into.  However, the contractor failed to show evidence that the disputed charges were a substitute or successor for the tax scheme at the time the lease was executed.  Because of this, the Board was unable to determine whether GSA’s payment of the disputed charges would uphold the Parties’ original bargain under the lease.

3. Contract’s Tax Clause “Carve-Out” Provision

The contractor’s final argument was that the carve-provision of the tax clause is ambiguous; as such, it should be entitled to recover damages for the disputed charges.  The Board rejected this argument by first finding that the clause is not ambiguous, but second, even if it was, the contractor must show it relied on its asserted interpretation of the ambiguous provision in submitting its bid, and NOAA Maryland failed to prove this here.

Conclusion

Ultimately, NOAA Maryland’s motion was denied after the CBCA found it failed to show the disputed charges were real estate taxes GSA agreed to pay in the lease.  This decision provides a strong example of contract interpretation principles that every contractor should know and understand when bidding a contract.

Image Courtesy of Flickr (licensed) by Blogtrepreneur.

At times, a prime contractor can effectively be the middle man between the government and a subcontractor. The FAR directs that the prime contractor should always provide value to the overall procurement; however, many prime contractors require the assistance of subcontractors to fulfill this contract requirement. The recent CBCA case VSE Corporation v. Department of Justice spotlights that, even in fixed-price contracting, the prime contractor may or may not have bid with locked in subcontract rates.  If the government accepts the prime contractor’s offer and the subcontractor raises their rates, the prime contractor is liable for the additional costs, not the government.  In VSE, this led to fireworks for the prime contractor, literally.

VSE provided storage services to the Bureau of Alcohol, Tobacco, Firearms and Explosives (ATF) to store seized property. The initial contract was a cost-reimbursement contract for which VSE was paid on a per pound basis.  ATF stored seized fireworks with VSE at a facility owned by VSE’s subcontractor Heritage Disposal & Storage and Heritage charged VSE $0.10 per pound to store the fireworks. Subsequently, the government asked VSE to reconfigure the fireworks for safety reasons. Despite VSE’s contract with Heritage, Heritage increased its storage billing rate from $0.10 per pound to $0.195 per pound based on the reconfiguration.

The government then issued a new solicitation for nationwide seized property to include fireworks. Rather than a cost-reimbursement contract, this contract was fixed-price. VSE submitted a bid where it identified the fireworks and proposed a base year price of $1.95 per square foot. However, this price would not be sufficient to cover the expenses for the fireworks storage as Heritage had been charging VSE approximately $170,000 per month to store the fireworks while the government had only been paying VSE approximately $77,000 per month for storage.   Continue Reading Boom: Fireworks between Subcontractor, Prime Contractor, and Government (Literally)