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.

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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)

The Armed Services Board of Contract Appeals (the “Board”) recently issued another reminder in [Redacted], ASBCA No. 61065, that government contractors need to specifically reserve their rights to Contract Disputes Act claims in modifications and releases for final payment. While its name doesn’t quite rival the best of those associated with civil forfeiture cases (for example, United States of America v. An Article Consisting of 50,000 Cardboard Boxes More or Less, Each Containing One Pair of Clacker Balls), [Redacted] does serve as a useful reminder to keep an eye out for any waiver language in payment requests, modifications, or (as here) an invoice for final payment.  Continue Reading Contractor Waives its Right to Pursue Claim Through its Invoice for Final Payment

It is a common principle of contract interpretation that a court will not set aside the clear intent of the parties particularly when it comes to assignments or releases of claims. However, the unique legislative history of the Contract Disputes Act (“CDA”) grants the agency boards of contract appeals the power to set aside an assignment of a claim, if that assignment would waive the contractor’s right to appeal a Contracting Officer’s decision to the boards. A recent Armed Services Board of Contract Appeals (ASBCA) decision highlights this power, which is of great importance to contractors because they keep their right to file affirmative monetary contractor claims against the government and appeal government claims, such as a termination for default.

In Ikhana, LLC, the Armed Services Board of Contract Appeals held that an assignment of all claims to a surety in an indemnity agreement for a performance and payment bond in the event of a default did not prevent the contractor from bringing claims and an appeal of that default to the Board.  ASBCA No. 60462.  Ikhana entered into a contract with the Army Corps of Engineers to provide secured access lanes and remote screening facilities at the Pentagon.  In October 2015, Ikhana filed four claims with the Contracting Officer.  In December 2015, the Contracting Officer terminated the contract for default.  On February 25, 2016, Ikhana appealed the termination for default as well as its four affirmative claims.  The government then made a claim against Ikhana’s performance bond. Continue Reading Assignment of Claims to a Surety Cannot Waive A Contractor’s CDA Appeal Rights

In Appeal of American West Construction, LLC, the Armed Services Board of Contract Appeals considered whether the U.S. Army Corps of Engineers (Government) lost its right to claim a credit under the Changes Clause by waiving its right to insist on compliance with the contract specifications prior to insisting on such compensation.  Finding the Government was fully aware of the Contractor’s use of a less expensive construction method than in the specifications, the Board found the right to claim there was a change to the contract was “dead” and no credit was owed for the work not performed.

American West was awarded a MATOC contract for design-build construction services.  In August 2015, the Government awarded Delivery Order 02 (DO2) under the MATOC contract for construction of bridges over irrigation canals in El Paso, Texas.  The DO2 specifications provided that the work would be performed by first building two temporary bridges over the canals so the Contractor could access the site.  The Contractor, however, sought access to the construction site via a levee owned by the local water district.  However, because negotiations with the water district over access to the levee were pending and the Contractor could not be sure that access would be granted, the Contractor proceeded under the assumption the temporary bridges would still be necessary. Continue Reading You Don’t Always Get What You Pay For: Government Waives a Credit for Work Not Performed