Get It in Writing: Contractor Must Comply With Contract Specifications Despite Government Accepting Nonconforming Goods and Goods Passing Applicable Testing
A recent decision from the Armed Services Board of Contract Appeals highlights the importance of memorializing changes to contract specifications in writing from the contracting officer, even if the Government’s actions suggest that it has accepted the changes.
On June 27, 2018, the Board issued a decision in the appeal of Relyant, LLC (ASBCA No. 59809), rejecting Relyant’s appeal for costs associated with the Government’s acceptance of pre-fabricated relocatable buildings (RLBs) in Afghanistan. Different government representatives at two different delivery sites had differing views about whether the received RLBs complied with the contract specifications. The RLBs delivered to the first site passed initial testing, but the CO determined that they did not comply with the contract’s statement of work and rejected similar RLBs at the second site. However, the local accepting authority at the first site still accepted the RLBs there, despite the CO’s rejection. Relyant then shipped the RLBs destined for the second site to the first site.
The Board first held that the government was within its rights in rejecting the RLBs for nonconformance. The RLBs actually delivered differed slightly in how the walls were constructed. Despite the fact that the RLBs passed initial testing and had substantially similar performance, the CO was entitled to reject them for failure to strictly conform to the contract requirements. The Board stated that it would not step into the shoes of the CO in making any judgment and that the CO could insist on strict compliance “whether it was a good or bad idea.”
The Board then held that the local authority’s acceptance of the RLBs did not constitute a change to the contract terms. Only the CO may agree to changes in the contract terms; no other party or entity has the authority to do so. Even though Relyant received assurances from the government representatives at the first site that it would accept the nearly-conforming RLBs, the Board held that those representatives could not change the contract’s strict requirements. The Board relied on case law that contractors assume the risk that whom they are dealing with actually has the authority to approve contract changes, and that they cannot rely on any representations not flowing from the CO.
The Board was not persuaded that the government’s testing and passing of the initial RLB shipment overruled contract specifications or constituted some kind of waiver or acceptance of nonconforming good by the government. Even though the Board found that the acceptance of the RLBs at the first site was “inexplicable,” the “approval had no effect on the terms of the [contract].” Thus, Relyant could not recover on the contract because it shipped nonconforming goods that the government representatives had no actual authority to accept as conforming—only the CO could do so.
The Board also held that the government did not have superior knowledge than Relyant that it would eventually reject the nonconforming RLBs despite accepting delivery. The government has a responsibility to inform a contractor within a reasonable period of time if it knows that performance has fallen short. For nearly two years, the government did not explicitly indicate that it would reject the RLBs, but the Board held that it did not clearly know that it would reject them. Thus, Relyant’s argument that the government had “superior knowledge” of Relyant’s performance was without merit.
Finally, the Board did hold the government responsible for a several-month delay in responding to Relyant’s request for a final decision on whether the RLBs conformed to the contract. Nonetheless, Relyant itself delayed in making that request for over a year, and the Board would not hold the government responsible for that portion of the delay.
The Relyant appeal puts into stark relief the importance of memorializing changes to the contract terms, even when the actions of the government representatives strongly suggest that a change has or will be made. It also shows how crucial it is to always deal with the CO when contract change issues arise, and to attempt to resolve them early.