By: Erik M. Coon, Smith Currie & Hancock LLP
Generally, a contractor on a federal government contract may be entitled to an equitable adjustment to the contract time, price, or both, if the contractor performs work beyond that required by the contract without a formal change order, and such work was informally ordered by the government or caused by government fault or conduct. Two recent ASBCA decisions underscore the point that proving governmental fault or conduct establishing a constructive change can come in different shapes and sizes, including action and inaction by a federal government contracting official.
In Raytheon Co., ASBCA Nos. 60448, 60785, 20-1 BCA ¶ 37637 (June 24, 2020), for example, the contractor established a constructive change by showing the contracting officer departed from a longstanding course of dealing in the interpretation of an ambiguous contractual obligation. Raytheon provides missiles to the government under successive contracts. Under these contracts, Raytheon also had to provide engineering support for the missiles, but the terms were ambiguous as to how long the contractor had to provide engineering support. Ignoring the contractor’s position that its previous contracts with the government only required one year of engineering support, the contracting officer ordered the contractor to provide three years of engineering support.
Contending that the contracting officer’s position constituted a change to the contract, the contractor submitted a claim for added costs to perform two additional years of engineering support. On appeal, the United States Armed Services Board of Contract Appeals (the “Board”) looked to the parties’ course of dealing – previous conduct between the parties – to resolve the ambiguous contract term. Specifically, the Board looked at how other agency officials and previous contracting officers interpreted the engineering support requirements terms in the past and found that they had always interpreted this requirement to mean one year of such support. The Board reasoned that although the applicable period of performance was ambiguous, the parties’ course of dealing established they understood that the contractor only had to provide engineering support for one year. Having determined that the contract only required one year of engineering support, the Board next found that the contracting officer’s action – the order to provide three years of engineering support – was a constructive change to the contract. Accordingly, because the contracting officer’s decision altered this understanding, the contractor was entitled to recover its additional costs in providing engineering support for two additional years.
A constructive change can also arise from government official inaction when the government waives an unambiguous contractual requirement and then later requires the contractor to redo the work based on that same requirement. In Buck Town Contractors & Co., ASBCA 60939, 20-1 BCA ¶ 37486 (Dec. 17, 2019), for example, a contract procured by the United States Army Corps of Engineers to rebuild a hurricane protection levee required placement of a special fabric at the levee’s base for soil stability and erosion control. The contract specified that the fabric seams be installed perpendicular to the levee centerline; instead, the contractor installed the fabric with seams parallel to the levee centerline. After several weeks of government quality control personnel inspecting and approving the progress of the levee’s construction, government officials finally noticed the incorrect fabric installation and ordered the contractor to tear down the already significantly completed levee and begin again with a new layer of fabric to be installed as specified.
In response, the contractor submitted a $3 million claim, maintaining that it was entitled to an equitable adjustment for the parallel fabric seams because the government, through its inaction, had constructively waived the perpendicular seam requirement. The contractor also sought a time extension and corresponding relief from liquidated damages imposed by the government. On appeal, the Board analyzed whether there was a constructive waiver and, therefore a constructive change to the contract. Such waiver occurs when (1) the contracting officer possessed knowledge of the work outside the scope of the contract, (2) action or inaction by the contracting officer indicated acceptance of non-specified performance, (3) the contractor relied on the contracting officer’s action or inaction, and (4) inequity would result if acceptance of non-specified performance were retracted.
As to the first requirement, the government argued that neither the contracting officer nor the Corps’ quality control assurance personnel had knowledge of the improper installation. The Board rejected this argument, finding that the government had constructive knowledge of the improper fabric installation because not only had the contractor’s quality control reports specifically stated that the fabric was being installed with parallel seams, but government officials had observed the parallel seams during frequent job site visits. For the second constructive waiver requirement, the Board reasoned that the inaction of the government’s entire quality assurance team as construction progressed led the contractor to believe the government accepted the parallel seams. The Board also found that the third and fourth requirements were met because the contractor obviously relied on the government’s acceptance of the seams while building up the levee and it would be unfair to require the contractor to bear the costs of the government’s failure to enforce the contract’s provisions. Accordingly, the Board determined that because the government waived the perpendicular fabric installation requirement, the contractor was entitled to both time and money to tear down and rebuild the levee with properly installed fabric.
Whether a contracting officer departs from a longstanding mutual understanding of an ambiguous contractual obligation or knowingly fails to enforce a clear contractual requirement, a contractor may be able to prove that government official action or inaction resulted in a constructive change entitling the contractor to additional time, costs, or both caused by such action or inaction. As these recent decisions demonstrate, the parties’ conduct in administering and performing a federal contract, or even prior similar contracts, will likely be scrutinized to determine if such entitlement arises. Prudent federal contractors should take care to document effective government official conduct (action or inaction) that may be contrary to the contract requirements and promptly inform their government contracting officials when they believe such events arise.
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