Since the beginning of the pandemic, boards and courts have denied a vast majority of construction claims seeking pandemic-related costs under fixed-price contracts. In this blog, PilieroMazza summarizes a recent claim where a construction contractor won on appeal and the important lessons learned for future claims. Please visit this link for previous coverage of this topic.
Appeal of StructSure Projects, Inc., ASBCA No. 62927
- The Claim: The contractor had a task order to renovate a medical center on a military base. The contract required the contractor to provide temporary facilities during construction. When the COVID–19 pandemic hit, the government suspended performance, designating the work as non-essential. While performance was suspended, the government continued to use the temporary facilities. The contract period was later extended at no cost as a result of the stay in construction. The contractor submitted a claim for costs incurred from the use of the temporary facilities through the extension period. The government denied the claim.
- Fixed-Price Contract: On appeal, the government argued this was a fixed-price task order, so the contractor bore the risk of any increased costs due to the pandemic. But the ASBCA (Armed Services Board of Contract Appeals) found the contractor was not merely seeking increased costs. Rather, the contractor essentially asserted a change—that is, it was required to provide temporary facilities beyond its agreed-upon performance period. Here, the government modified the task order to change the completion date due to the pandemic. This meant the contractor had to provide temporary facilities for a longer period of time. The contractor was entitled to recover costs for this change.
- Sovereign Act Defense: The government also argued the contractor could not recover because the closing of the performance location for non-essential activities and the resulting stay in construction activities was a sovereign act. The board found the sovereign act defense only applies when the sovereign act makes performance impossible. But the government’s act did not make a portion of the performance at issue—the provision of temporary facilities—impossible. In fact, the temporary facilities were a separate CLIN (Contract Line Item Number), and the contractor met that deliverable. Thus, the sovereign act defense did not apply to the costs sought.
- The sovereign act defense is a key government defense tactic. Contractors should be aware of it to help them better prepare before filing a claim or REA.
- Contractors should implement protocols in response to COVID-related government directives so that they are prepared to present a viable claim or REA to challenge a sovereign act defense.
Looking for practical insights on gaining a competitive advantage through a deeper understanding of the government’s compliance requirements? Check out PilieroMazza’s podcasts “GovCon Live!” and “Clocking in with PilieroMazza.”