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.