Armed Services Board of Contract Appeals Addresses Sovereign Immunity in Context of COVID-Related Cost Claims

In JE Dunn Construction Company (ASBCA No. 62936 April 25, 2022) the Armed Services Board of Contract Appeals took up the issue of whether the sovereign acts doctrine barred a contractor's claim for additional costs arising out of COVID-19-related restrictions. In this instance, the restrictions were government imposed and required all personnel arriving at Fort Drum from more than 350 miles away to quarantine for 14 days prior to performing work on-site. The government argues that the sovereign acts doctrine barred the claims, that the restrictions were identical to state-imposed restrictions so no additional cost was incurred, and that the risk of costs relating to a pandemic or quarantine under a fixed-price contract rested with the contractor.

Following denial of the contractor's claim for additional costs, the contractor submitted an appeal and the parties waived a hearing and requested a decision based on the record. The contractor argued that the government had constructively changed the contract by imposing the above COVID-19 restrictions.

In reaching its decision, the board discussed the sovereign acts doctrine, pursuant to which a contractor is barred from monetary recovery for damages resulting from the government acting in its sovereign capacity. The board noted that in order for the sovereign acts doctrine to apply, (1) the government's act must be public and general, and (2) the act must render performance of the contract impossible. An act is public and general if "it is general and applies to all persons."

To determine if the government's act is public and general, courts examine whether the act "is specifically directed at nullifying contract rights" and whether the act "applies exclusively to the contractor or more broadly to include other parties not in a contractual relationship to the government." In this appeal, the board found that the requirement was implemented to serve a broader government objective of controlling the spread of COVID-19 on the base and was not specifically directed at nullifying contract rights. Consequently, the board found the 14-day quarantine requirement was public and general.

The contractor argued that the government's performance under the contract was not rendered impossible because the government could have implemented a quarantine requirement in the least costly manner, i.e. utilization of the New York quarantine requirement that made an exception by allowing quarantine for only three days if the quarantine was bookended by negative times. The board rejected this argument on the basis that the contractor failed to establish that a less restrictive quarantine would have reduced the contractor's damages. Accordingly, the board found the contractor's claims were barred under the sovereign acts doctrine.

Based on the above, the board chose not to address the government argument that the risks of costs relating to a pandemic or quarantine under a fixed-price contract rest with the contractor.

Key Takeaways

The conclusion one must draw from this is that recovery of compensation for COVID-19-related costs is not as simple as invoking the changes clause in a federal contract. Rather, any recovery is probably going to involve consideration of the sovereign acts doctrine and any applicable exceptions to that doctrine.

The facts, laws, and regulations regarding COVID-19 are developing rapidly. Since the date of publication, there may be new or additional information not referenced in this advisory. Please consult with your legal counsel for guidance.

DWT will continue to provide up-to-date insights and virtual events regarding COVID-19 concerns. Our most recent insights, as well as information about recorded and upcoming virtual events, are available at www.dwt.com/COVID-19.