A recent decision by the Armed Services Board of Contract Appeals reminds us of the significance of release language in a modification, this time in the context of a contractor seeking to overturn a termination for default of a construction contract. The decision also underscores the importance of keeping the Government advised of how you intend to complete performance within the contractually specified time period. In Coastal Environmental Group, Inc. (July 17, 2018), the ASBCA upheld the Government’s termination for default of a construction contractor who had missed the modified contract completion deadline for performing a marine construction project.
The original contract completion deadline was February 4, 2014. However, the Government issued a stop work order on January 8, 2015. On July 31, 2015, the parties executed a modification that, among other changes, extended the completion deadline to November 26, 2015. The modification included a release “for delays and disruptions arising out of, or incidental to, the work herein revised.”
The contractor failed to meet the mobilization milestone in its revised project schedule. Thereafter, in response to Government complaints, the contractor acknowledged it was behind schedule, but that it intended to mobilize in two weeks, and that it would provide an updated schedule. However, the contractor did not meet that deadline and with 50 days remaining before scheduled completion, the contracting officer terminated the contract for default, citing “continued lack of progress thereby endangering completion as required by contract.”
The contractor appealed the default termination. At the hearing, the project manager of the company that the contractor had hired to perform the marine work testified the company was prepared to perform and meet the completion deadline, and also provided a breakdown of how the work would have progressed.
In denying the appeal, the Board observed that the Government had demonstrated that it was reasonable for the Government to conclude there was no reasonable likelihood the contractor would complete the project by the completion deadline. The Board based its decision on the milestone dates in the contractor’s recovery schedule and the contractor’s failure to meet those dates. The Board rejected the testimony of the project manager, noting that the post-termination evidence did not change the Board’s conclusion because the question was what could be reasonably concluded on the date of termination.
The Board noted that the Government had no evidence before it on how the contractor would meet the contract completion deadline on the date of termination. The Board then stated that, because the Government met the burden to show the default termination was justified, the burden then shifted to the contractor to establish that the default was excused. The contractor pointed to the Government’s stop work order in effect between January 8 and July 29, 2015 as a basis for excuse. The Board rejected this argument, stating that, by executing the modification, the contractor waived all pre-modification Government-caused delay. The contractor argued that the release only covered changed work, but the Board held that the modification language referred to all contract work and that the waiver of delays or disruptions referred to all contract work, extending to any delays or disruptions prior to execution of the modification. Therefore, the contractor had not demonstrated an excuse and the termination was upheld.
The teaching points of this decision are that (a) if you fail to meet an interim date in your progress schedule that jeopardizes timely completion, you should immediately update your schedule to show the Government how you can still achieve timely completion, and (b) be very careful in reviewing the scope of the release in any modification you execute. With respect to (a), if the cause of delay is excusable, be it either compensable or non-compensable, make sure you properly notify the Government of your right to additional time (and money, if appropriate). Failure to do so may result in the Board ignoring any post-termination evidence of how you could have achieved completion. With respect to (b), clearly understand what potential claims you are surrendering when you execute a modification and release. Failure to do so may result in the Board ignoring any excusable delays occurring prior to the default.