In a recent opinion issued by the United States Court of Federal Claims, Meridian Engineering Company vs. The United States, a case argued by our firm, the Court ruled that a contract modification containing a release did not prevent the contractor from recovering further damages. The dispute involved a contract between Meridian and the U.S. Army Corps of Engineers for a flood-control project in Nogales, AZ. After entering into the contract, the Contracting Officer issued two contract modifications that compensated Meridian for government-caused delays related to an access ramp and surveys. As a result of the underlying delays, Meridian’s work was pushed into the yearly rainy season in southern Arizona, referred to as the “monsoon” season, and completion of the critical channel invert work was impacted by numerous flood events. Had it not been for the earlier access ramp and survey delays, the work would have been completed before the onset of the “monsoon” season.
The two modifications, signed by Meridian, contained “Closing Statements” that were actually releases. The specific release language was :

It is understood and agreed that pursuant to the above, the contract time is extended the number of calendar days stated, and the contract price is increased as indicated above, which reflects all credits due the Government and all debits due the Contractor. It is further understood and agreed that this adjustment constitutes compensation in full on behalf of the Contractor and its Subcontractors and Suppliers for all costs and markups directly or indirectly attributable for the change ordered, for all delays related thereto, for all extended overhead costs, and for performance of the change within the time frame stated.

The Government argued that the release language should be read broadly to include the release of all flood-event damage claims, past and future, arguing that these were encompassed within the related-costs language of the release. Meridian, on the other hand, argued that each of the releases only applied to the specific costs and time associated with the purposes explicitly listed in the modifications; that is, the costs of the new access ramp and the survey drawing delays.

The Court agreed with Meridian and ruled that “flood-event damage claims arising in the future are simply too attenuated from the access ramp and survey delays to be within the subject matter of these releases.” The Court further found that “the releases do not explicitly cover flood damage that had not yet occurred and whose scope was not predicted.” In essence, the Court ruled that the subject matter of the releases did not address future flood events. In addition, the Court found that there was no meeting of the minds between the parties, and noted that the Corps continued to consider and negotiate the flood events claim after the modifications were issued.

Contractors need to be wary of Closing Statements”, which are actually releases, when they sign a contract modification. As the Meridian case demonstrates, the Government may argue that releases amount to an accord and satisfaction, meaning that the contractor has waived its right to any further cost or time related to the subject matter of the modification. In order for the Government to succeed in asserting an accord and satisfaction defense (meaning that a release is final and complete), four elements must be present:

  1. proper subject matter
  2. competent parties
  3. a meeting of the minds of the parties; and
  4. consideration.

Holland v. United States, 621 F.3d 1366, 1382.

In the Meridian case, we successfully argued that the subject matter of the modification was limited to specific past events, and not future flood events, and that there was no meeting of the minds. Accordingly, the Government could not meet all four tests as expressed in the legal standard. In order to be safe, however, always have your attorney review any language in a modification that is labeled as a “Closing Statement” or “Release”, or any language that suggests that the Government is attempting to have you sign off on a waiver of your rights.

My partner Tim Furin and I attended the FY2020 DOD & Federal Agency Program Briefings this week on March 12 in Herndon, Virginia. The Briefings are part of the Society of American Military Engineers (SAME) Capital Week. The program provides SAME members a chance to hear about the projected upcoming fiscal year’s engineering, construction, and environmental programs from contracting representatives, and Senior Executive Service leaders from the engineering components of the military services and select federal agencies. Representatives from the United States Army Corps of Engineers (USACE), Army, Navy, Air Force, General Services Administration (GSA), Departments of State and Energy, as well as the U.S. Customs and Border Protection and U.S. Forest Service all made presentations. The presentations are available on SAME’s Capital Week website.

Continue Reading A Look Ahead: What to Expect in Federal Construction Contracting in FY2020

For federal construction contractors, payment and performance bond obligations in construction contracts with the federal government that exceed $150,000 should, typically, come as no surprise. However, what requirements should contractors expect from a contract that is ambiguous as to whether it is a construction contract, yet calls for construction-related services, but lacks explicit bonding requirement terms? Can bonding requirements be “read-in” to the contract? When should contractors raise such questions? This past November, the Federal Circuit addressed those questions in K-Con, Inc. v. Secretary of the Army, 908 F.3d 719 (Fed. Cir. 2018). This decision provides instrumental lessons contractors should keep in mind before submitting offers for projects that include construction-related services. Continue Reading No Bonding Requirements? Think Again, Instructs the Federal Circuit

On December 3, 2018, the Department of Defense (DoD) issued a deviation from the FAR’s self-performance requirements, which applies to subcontracting limitations on contracts set aside for small businesses. Although the changes to subcontracting limitations were mandated by the 2013 National Defense Authorization Act (yes, 2013), implementation has been slow and piecemeal. The Small Business Administration (SBA) did not implement the changes until June 2016, and although the FAR Council recently issued a proposed rule that would bring the FAR into compliance, the FAR has not officially caught up. In the meantime, the discrepancy between the FAR and the SBA regulations has caused headaches for contractors who must decide whether to comply with the FAR, the SBA regulations, or both. The DoD’s deviation will bridge the gap for all DoD contracts until the FAR catches up.  Continue Reading Department of Defense Issues FAR Deviation for Limitations on Subcontracting

On November 27, 2018, the U.S. General Services Administration (GSA) announced that it will consolidate the GSA’s 24 Multiple Award Schedules (MAS) into a single schedule for products and services. The GSA stated that the changes were intended to “modernize federal acquisition” and “make the government buying and selling experience easy, efficient, and modern.”

Through the MAS, also referred to as the GSA Schedules and Federal Supply Schedules, the GSA establishes long-term, government-wide contracts with commercial firms. Approximately $31 billion is spent through MAS each year on a wide variety of supplies and services. Prior to the announced changes, the GSA maintained 24 separate MAS organized by industry or service ranging from IT Procurement (Schedule 70) to Sports Equipment, Signs and Trophies (Schedule 78). Under that preexisting framework, a vendor selling a variety of supplies and/or services to the government was often required to participate in multiple schedules that each included their own terms and conditions. As a result of the announced changes, and the corresponding consolidation of all MAS into a single schedule, all contractors will be able to sell their products and services through a single program with a uniform set of terms and conditions.

Continue Reading GSA Announces Consolidation of Multiple Award Schedules

When an agency decides to set aside an acquisition for participation only by small businesses, certain subcontracting limitations apply to the small business awardee. For construction contracts, the small business contractor cannot pay subcontractors more than 85% of the amount they receive from the agency. For service and supply contracts, the small business contractor cannot pay more than 50% of the amount paid to it by the agency to other entities that are not similarly situated. Work performed by similarly situated entities is not considered in determining if the limitation on subcontracting is violated. A similarly situated entity is defined as a small business subcontractor that is a participant of the same small business program as the prime contractor and is small for the NAICS code assigned by the prime contractor to the subcontract.

Continue Reading Recent GAO Decision Suggests SBA Regulation Regarding Limitations on Subcontracting Takes Precedence Over the FAR

By law, a GAO protest must be filed by an interested party. An interested party is an actual or prospective bidder or offeror whose direct economic interest would be impacted by the award of a contract or by the failure to award a contract. Before bid opening or the closing date for receipt of proposals, a protestor must be a prospective bidder or offeror with a direct economic interest in the procurement. This generally means that a bidder or offeror has expressed an interest in competing and is capable of performing the type of work that the solicitation requires. After bid opening or the submission of proposals, a protestor must be an actual bidder or offeror with a direct economic interest in the procurement. This generally means a bidder or offeror who would be in line for award if the protest were sustained. A protestor who cannot receive an award if it prevails on the merits of its protest is not an interested party. In some cases, a high-priced bidder might be able to demonstrate that all lower-priced bidders are ineligible for award, thus becoming the next-in-line for award. In a “best value” negotiated procurement, the GAO determines whether a protestor is an interested party by examining the probable result if the protest is successful. This means that an actual offeror, who is not in line for award, is an interested party if it would regain the opportunity to compete if the protest is sustained.

Continue Reading Recent GAO Decision Highlights the Distinction Between Jurisdiction and Prejudice

A bid protest must allege a violation of a procurement statute or regulation. Although most protests challenge the award or proposed award of a contract, the GAO will also consider protests involving defective solicitations and other unreasonable agency actions like the cancellation of a solicitation. In certain cases, the GAO will consider protests involving the termination of a contract where the protest alleges that the government’s termination was based upon improprieties associated with the contract award (this is sometimes called a “reverse protest”). Additionally, the GAO will consider protests concerning (1) awards of subcontracts by or for a Federal agency, (2) sales by a Federal agency, or (3) procurement actions by government entities that do not fall within the strict definition of Federal agencies, if the agency or entity involved has agreed in writing to allow the GAO to decide the dispute.

Continue Reading The GAO Reaffirms That a Bid Protest Must Allege a Violation of a Procurement Statute or Regulation

The Department of Defense (DoD) enhanced post-award debriefing requirements, contained in Section 818 of the National Defense Authorization Act for Fiscal Year 2018 (NDAA), have been a large topic of conversation this past year. In January 2018, our Government Contracts team detailed the specifics of these new requirements, which includes, among other things, the mandatory question and answer period for debriefings. On March 22, 2018, DoD issued a class deviation letter titled “Enhanced Post-award Debriefing Rights,” (Enhanced Debriefing Rules) which implements the question and answer period requirements. Notably, however, the Enhanced Debriefing Rules do not address the other new requirements in Section 818 of the NDAA, such as those involving the release, under certain circumstances, of redacted source selection award determinations.

Continue Reading GAO Interprets Protest Filing Deadlines in the Wake of Enhanced Debriefing Rules

Disputes frequently arise because the government refuses to agree that a contractor is entitled to additional money or time resulting from constructive changes, differing site conditions, government-caused delays, or countless other reasons. These disagreements typically are dealt with through the submission of Requests for Equitable Adjustment (REAs) or certified claims and are ultimately resolved through the disputes process. They focus on the rights of the parties under the specific terms of the contract. The problem, however, is that contractors also incur costs because of government indecisiveness that has not yet generated an REA or claim under a particular contract clause. This places the contractor in a state of limbo, not knowing whether there will be a significant impact to the project.

Continue Reading The Impact of Government Indecision on Government Contractors