Tag Archives: F.A.R. 52.242-14

RULING DEALING WITH CONSTRUCTIVE CHANGES, CONSTRUCTIVE SUSPENSION, AND THE IMPLIED COVENANT OF GOOD FAITH AND FAIR DEALING

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A dispute pending in the Armed Services Board of Contract Appeals (ASBCA) dealt with interesting legal issues on a motion to dismiss. See Appeals of McCarthy Hitt-Next NGA West JV, ASBCA No. 63571, 2023 WL 9179193 (ASBCA 2023). The dispute involves a contractor passing through subcontractor claims due to impacts caused by the COVID-19 pandemic and the government’s response to the pandemic. More particularly, the claim centers on the premise that the government “failed to work with [the contractor] in good faith to develop a collaborative and cooperative approach to manage and mitigate the impacts and delays arising from the COVID-19 pandemic.” See Appeals of McCarthy Hitt.

The contractor (again, submitting pass through claims from subcontractors) claimed: (a) constructive changes to the contract entitling it to an equitable adjustment under the Changes clause of Federal Acquisition Regulation (F.A.R.) 52.243-4; (b) construction suspensions of the contractor’s work entitling it to an equitable adjustment under the Suspensions of Work clause of F.A.R. 52-242-14; and (c)  the government breached the implied covenant of good faith and fair dealing.  Each of these legal issues and theories will be discussed below because they are need-to-know legal issues. Keep these legal issues in mind, and the ASBCA’s ruling on the motion to dismiss as its analysis may demonstrate fruitful in other applications.

(a) Constructive Changes

“To prevail upon a constructive change theory, a contractor must show (1) that it performed work beyond the contract requirements, and (2) that the added work was ordered, expressly or impliedly, by the government.” See Appeals of McCarthy Hit. 

The government moved to dismiss this claim arguing the complaint did not allege sufficient facts to support a constructive change theory.  The ASBCA disagreed and found sufficient facts were pled to allege the government required the contractor (and subcontractors) to perform beyond the contract requirements.

For example, [the contractor] alleges that the [government] required it to comply with government guidance on COVID-19 and implement COVID-19 exposure control procedures; perform additional job safety analyses and task-specific analyses; create new health and safety signage; provide additional training; develop contact tracing, testing, and quarantine programs; impose quarantines and enforce return-to-work protocols; impose tool and shared surface disinfection  and cleaning requirements; comply with social distancing requirements; provide and utilize additional personal protection equipment; add air filtration systems; require temperature checks and daily health checks; permit additional breaks; provide for additional break areas; change office, break, and trailer spaces and configurations; change site logistics; and change crew compositions and work plans.

See Appeals of McCarthy Hit.

(b) Suspension of Work

To recover under the Suspension of Work clause, the contractor must show (1) that the contracting officer suspended the work; and (2) that the resulting delay was unreasonable. A constructive suspension occurs when, absent an express order by the contracting officer, the work is stopped for an unreasonable amount of time and the government is found to be responsible for the work stoppage. “A constructive suspension has the same effect and consequences as an actual suspension, and relief should be granted as if an actual suspension order had been issued.

See Appeals of McCarthy Hit (internal citation omitted).

The government moved to dismiss this claim arguing the complaint did not allege sufficient facts to support a constructive suspension theory.  The ASBCA disagreed and found sufficient facts were pled to support a constructive suspension.  For example, the contractor alleges:

[The government’s] actions and inactions in administering the Contract once the pandemic struck had the effect of unreasonably disrupting, delaying or hindering the work on the Project. For example, the complaint alleges that the government refused to work with [the contractor] to develop a collaborative and cooperative approach to manage the impacts caused by the pandemic, instead simply insisting that the work proceed on schedule, which had the effect of hindering and delaying the work unreasonably. The complaint also alleges that [the contractor] informed [the government] of the impacts of its action and inactions, but that [the government] refused to acknowledge that the work was being delayed.

See Appeals of McCarthy Hit.

(c) Implied Covenant of Good Faith and Fair Dealing

Like every contract, the Contract here contained an implied duty on each party to perform with good faith and fair dealing. The implied duty “prevents a party’s acts or omissions that, though not proscribed by the contract expressly, are inconsistent with the contract’s purpose and deprivethe other party of the contemplated value.” A breach occurs when a party violates its obligation “‘not to interfere with the other party’s performanceand not to act so as to destroy the reasonable expectations of the other party regarding the fruits of the contract.”’ The implied duty “‘cannot expanda party’s contractual duties beyond those in the express contract or create duties inconsistent with the contract’s provisions.”’

See Appeals of McCarthy Hit (internal citations omitted).

The government moved to dismiss this claim arguing the complaint did not allege sufficient facts to support a breach of an implied covenant and good faith and fair dealing claim.  The ASBCA disagreed and found sufficient facts were pled to support this claim. For  example, the complaint alleges:

“[A]fter the pandemic struck, the government declined to cooperate with it in managing or addressing the impacts, which were severe andunexpected. Rather, it is alleged, the government insisted that [the contractor] and the Subcontractors continue to perform as though nothing ofconsequence was occurring, used the DO-C2 rating as a means of exerting pressure to maintain the schedule at all costs, and was non-responsiveto requests for help in complying with all the new and changing requirements placed upon [the contractor] and the Subcontractors. Theseallegations suggest that the government essentially left [the contractor] “twisting in the wind” by insisting on uninterrupted performance in the faceof extraordinary circumstances and are sufficient to make out a plausible claim for a breach of the duty of good faith and fair dealing.

See Appeals of McCarthy Hit (internal citations omitted).

Please contact David Adelstein at dadelstein@gmail.com or (954) 361-4720 if you have questions or would like more information regarding this article. You can follow David Adelstein on Twitter @DavidAdelstein1.

RECOVERING COMPENSATION FOR UNREASONABLE DELAYS UNDER THE SUSPENSION OF WORK CLAUSE

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Federal government construction contracts for fixed-price contracts contain a suspension of work clause found in F.A.R. 52.242-14 (a copy of this clause can be found at the bottom of this posting).   This clause allows the government, through the contracting officer, to order the suspension, interruption, or delay of the construction work.  This clause further permits the contractor to obtain an equitable adjustment for the increased costs it incurs associated with the delay / suspension of its work for an unreasonable period of time. George Sollitt Const. Co. v. U.S., 64 Fed.Cl. 229, 236-37 (Fed.Cl. 2005).  The unreasonableness of the delay / suspension depends on the actual circumstances of the project, but it is this finding of unreasonableness that triggers additional compensation to the contractor.  See id.   The test applied to determine whether the contractor is entitled to an equitable adjustment for additional compensation pursuant to the suspension of work clause is as follows:

 

1.  The delay must be of an unreasonable length extending the contract’s performance;
2.  The delay must be proximately caused by the government;
3.  The delay resulted in injury or damage to the contractor; and
4.  There is no concurrent delay caused by the contractor.

 

CEMS, Inc. v. U.S., 59 Fed.Cl. 168, 230 (Fed.Cl. 2003) quoting P.J. Dick, Inc. v. Principi, 324 F.3d 1364, 1375 (Fed.Cir. 2003).

 

As reflected above by the fourth factor, “even if the government has caused an unreasonable delay to the contract work, that delay will not be compensable if the contractor, or some other factor not chargeable to the government, has caused a delay concurrent with the government caused-delay.”  George Sollitt, 64 Fed.Cl. at 237.

 

This suspension of work clause is designed to make the contractor whole for unreasonable delays, but additional profit would be excluded from any additional compensation owed to the contractor.  See F.A.R. 52.242-14(b).

 

As mentioned in previous postings, contractors need to understand the clauses incorporated into their prime contract so they can appreciate how to best preserve their rights when they encounter a delaying event.  Also, understanding the clauses will enable the contractor to best present their request for equitable adjustment or claim in a manner that supports their position for additional compensation.

 

F.A.R. 52.242-14

Suspension of Work (APR 1984)

(a) The Contracting Officer may order the Contractor, in writing, to suspend, delay, or interrupt all or any part of the work of this contract for the period of time that the Contracting Officer determines appropriate for the convenience of the Government.

(b) If the performance of all or any part of the work is, for an unreasonable period of time, suspended, delayed, or interrupted (1) by an act of the Contracting Officer in the administration of this contract, or (2) by the Contracting Officer’s failure to act within the time specified in this contract (or within a reasonable time if not specified), an adjustment shall be made for any increase in the cost of performance of this contract (excluding profit) necessarily caused by the unreasonable suspension, delay, or interruption, and the contract modified in writing accordingly. However, no adjustment shall be made under this clause for any suspension, delay, or interruption to the extent that performance would have been so suspended, delayed, or interrupted by any other cause, including the fault or negligence of the Contractor, or for which an equitable adjustment is provided for or excluded under any other term or condition of this contract.

(c) A claim under this clause shall not be allowed (1) for any costs incurred more than 20 days before the Contractor shall have notified the Contracting Officer in writing of the act or failure to act involved (but this requirement shall not apply as to a claim resulting from a suspension order), and (2) unless the claim, in an amount stated, is asserted in writing as soon as practicable after the termination of the suspension, delay, or interruption, but not later than the date of final payment under the contract.

 

Please contact David Adelstein at dadelstein@gmail.com or (954) 361-4720 if you have questions or would like more information regarding this article. You can follow David Adelstein on Twitter @DavidAdelstein1.