DELAYS AND SUSPENSION OF THE WORK UNDER FIXED PRICE GOVERNMENT CONTRACT

Posted on June 22, 2024June 22, 2024 by David Adelstein

Here is an interesting fact pattern and case decided by the Civilian Board of Contract Appeals dealing with (1) force majeure type events and epidemics (Covid-19); (2) suspension of the work; and (3) delays. These are three topics important to all contractors including federal contractors.

In Lusk Mechanical Contractors, Inc. v General Services Administration, 2024 WL 1953697, CBCA 7759 (CBCA 2024), a contractor entered into a fixed price contract with the government to repair, replace, and modernize site and building systems at a federal building. The contractor commenced work right before Covid-19. When Covid-19 hit, the government issued the contractor a two-week suspension of work notice on March 27, 2020. The suspension of work allowed off-site administrative work to continue but suspended on-site physical work. The government extended the suspension of work three more times. The contractor could resume work on the exterior on June 1, 2020, but was not permitted to resume work on the interior until July 20, 2020. On the same date that the contractor was able to commence interior work, it submitted a modification for delay caused by the suspension – 64 days for the time period the entire site shutdown, and 51 days for the interior work shutdown.

The contracting officer responded stating that under FAR Clause (FAR 52.249.10) dealing with fixed priced contracts, epidemics (such as Covid-19) that impact the critical path will entitle the contractor to a no-cost extension of time and the government grants the contractor a 66-day extension of time. The contractor was also seeking compensation, so it then certified its claim seeking an equitable adjustment in its compensation based on FARS’ suspension of work clause – FAR 52.242-14.

First, because the contractor entered into a fixed price contract, it assumed the monetary risk of delays caused by Covid-19:

It is “well-established that ‘a contractor with a fixed price contract assumes the risk of unexpected costs not attributable to the Government.”’ Absent a special adjustment clause, this Board has held that an unforeseen pandemic does not shift the risk to the Government for any unexpected costs incurred under a firm, fixed-price contract. Here, there is no such adjustment clause in the contract. “FAR clause 52.249-10 explicitly addresses how acts of God, epidemics, and quarantine restrictions are to be treated. A contractor is entitled to additional time but not additional costs.”

Lusk Mechanical Contractors, supra (internal citations omitted).

Second, regarding the suspension of work argument under FAR 52.242-14:

[A] contractor may recover an equitable adjustment from the Government if the contractor shows that ‘(1) contract performance was delayed; (2) the Government directly caused the delay; (3) the delay was for an unreasonable period of time; and (4) the delay injured the contractor in the form of additional expense or loss.” [The contractor] has not established that [the government’s] successive suspensions were the sole cause of the delay or that the work was delayed for an unreasonable period of time.

[The government] suspended [the contractor’s] construction on the exterior and interior portions of the project from March 27 to June 1, 2020, for a total of sixty-six days. [The contractor] contends that [the government’s] suspension of work directives were the sole cause of the delay. We disagree. The executive orders issued by the Governor, at least in part, caused [the government] to suspend [the contractor’s] work.

A contractor may only recover under the Suspension of Work clause “when the Government’s actions are the sole proximate cause for the contractor’s additional loss, and the contractor would not have been delayed for any other reason during that period.” The stay-at-home order issued by the Governor…in March 2020 equally interfered with [the contractor’s] performance of the work because there was no stay-at-home exemption for construction work that was not a “core life service” or maintained “the safety, sanitation, and essential operation to properties and other essential businesses.”

***

Even had [the government] been the sole cause of delay, the length of the suspension period was reasonable (based on Covid-19), precluding recovery by [the contractor].

Lusk Mechanical Contractors, supra (internal citations omitted).

Third, as it related to the additional delay to the interior work, that additional suspension also was not unreasonable. The contractor had been able to resume exterior work earlier, and its administrative work was never suspended. And, the contractor never proved that the suspension of work to the interior work impacted its critical path:

Because [the contractor] resumed work on the exterior portion of the project much earlier and the administrative work was never suspended, [the contractor] had to prove that the interior work was on the critical path of the project during the additional suspension period. [The contractor], however, has not established, or even asserted, that the interior work was on the critical path of the project. When establishing a Government-caused delay, the contractor bears the burden of proving that the delay affected the critical path of the project. “‘The reason that the determination of the critical path is crucial to the calculation of delay damages is that only construction work on the critical path had an impact upon the time in which the project was completed.”’ Here, [the contractor] provides no proof that the interior work was on the project’s critical path. Therefore, [the contractor] is not eligible for delay damages for the suspension of the interior work through July 20, 2020.

Lusk Mechanical Contractors, supra (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.

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

Posted on January 14, 2024January 14, 2024 by David Adelstein

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).

RECOVERING COMPENSATION FOR UNREASONABLE DELAYS UNDER THE SUSPENSION OF WORK CLAUSE

Posted on November 2, 2014November 2, 2014 by Edward Garber

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.