RELEASE LANGUAGE IN GOVERNMENT-ISSUED MODIFICATION COSTS CONTRACTOR MILLIONS ON APPEAL

By: Reese J. Henderson, Jr., Esq.

Contracting with a government entity for construction or other services is a process fraught with challenges for any government contractor. Errors or omissions in the bid package, ambiguities in the plans, cumbersome security clearance procedures and other factors can make contracting with the government – and, in particular, the federal government – a risky and costly exercise in frustration.

A recent decision from the Armed Services Board of Contract Appeals serves to underscore this point.  In the case of Appeals of Odyssey International, Inc., ASBCA Nos. 62062, 62279, the government issued an invitation for bids (“ITB”) for the construction of a Component Rebuild Facility at a U.S. Army depot.  The ITB called for the building’s foundation to be supported by a series of “micropiles”, which is a foundation system erected by drilling holes into bedrock, inserting grout into any voids and then inserting a metal pole and casing.  Odyssey was the successful bidder and proceeded to submit a design incorporating 80 micropiles, allegedly 20 more than Odyssey had accounted for in its bid.  The ITB had language indicated the micropile work was to be bid as a lump sum, but also contained language suggesting the work would be paid based on a unit price.

The government initially indicated it would pay for 20 additional micropiles, but then reversed course and agreed to pay for only eight additional micropiles (contending the bid documents contemplated at least 72 micropiles would be required).  Odyssey then submitted a request for equitable adjustment (REA) seeking additional costs it alleged it had incurred in constructing an additional 20 micropiles.  The REA sought over $400,000 in monetary compensation and 77 additional contract days due to alleged delays associated with the additional micropile costs.  The government issued a unilateral modification granting just over $141,000 in compensation and 43 additional contract days.  This unilateral modification was then converted (along with other modifications) into a bilateral modification signed by the government and Odyssey.  The bilateral modification incorporated language which Odyssey apparently overlooked to its detriment:

It is understood and agreed that this adjustment constitutes compensation in full for all costs, directly and indirectly attributable to the changes ordered herein, for all delays related thereto, and for performance of the changes within the time frame stated.  In addition, the Contractor hereby releases the Government from any and all liability under this contract for further equitable adjustments attributable to such facts or circumstances giving rise to the changes ordered herein.

(Emphasis added.) After signing the modification with the above release language, Odyssey then proceeded to submit another REA for an adjustment in the contract value and contract time related to the micropiles.  It subsequently submitted a certified claim seeking an equitable adjustment for over $650,000 and 357 additional contract days for alleged delays.  The certified claim – like the original REA – sought costs for 20 additional micropiles.  The government’s contracting officer denied the certified claim, finding the claim covered the same subject matter as the earlier REA and that the subsequent bilateral modification precluded any further liability by the government for the alleged micropile overage.

Odyssey appealed the contracting officer’s decision, and on appeal alleged that it had not intended to release its claims relating to the micropiles, notwithstanding the clear release language in the bilateral modification.  Odyssey argued that the bilateral modification was not intended to address the entirety of its micropiles claim and that the inclusion of language in the modification which apparently did release those claims was “a trick, trap or typo.”  Odyssey also claimed that the government’s rejection of its claim cost it millions of dollars in profits from lost bonding capacity.  The ASBCA rejected Odyssey’s claim, stating “[w]e find the release language to be unambiguous[.]”

The Odyssey decision is a reminder that the language included in modifications to government contracts – as with change orders on a private project – must be read carefully before the modification is signed.  The following principles should be kept in mind when submitting any claim or request for a change to a government contract (though this list is far from exhaustive):

  • Review the contract and the applicable FAR regulations for the type of documentation required and the timeframe and format for submitting an REA or certified claim.
  • Assume that the government will include in any modification language designed to bar future claims and, if you have other claims pending, negotiate to add language to the modification preserving those claims.
  • If the claim is large enough that you would file an appeal if it were denied, you should have your construction attorney assist at the outset with the preparation of the claim and review any bilateral modification document before it is signed.

It pays to remember these principles so that, if you are unable to negotiate a claim settlement with the government, you will have preserved your rights to seek compensation from the Armed Services Board of Contract Appeals or other appropriate forum.

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