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Attention! Key Legal Considerations for Contractors as the Economy Opens

June 30, 2020

For the past four months, the United States has been paralyzed by the COVID-19 crisis. Although often classified as “essential,” contractors, suppliers and project labor have experienced this paralysis firsthand. However, recent efforts to re-open the economy and gain traction on the construction front are a positive indication of the progress to be achieved in the months ahead. These days ahead, it is imperative that contractors pay particular attention when negotiating and resolving scheduling, delay, increased cost and other COVID-19 related contractual claims. The language of these contract modifications matter and can waive the contractor’s rights to seek additional recovery on change orders/modifications in the future. 

Bilateral Modifications/Change Orders

A particular area, rife with concern, are bilateral modifications or change orders. While the contractor, based on dire financial constraints, may be willing to sign any proposed modification to obtain additional time and funding for the COVID-19 impacts, the result of the modification could result in the waiver of all claims against the owner. For example, blanket release language is often used by owners in seeking to resolve all past areas of concern. At the same time, a contractor or surety merely is seeking to limit the change to a particular issue. Take the time to examine the language and impacts of the modification and its potential future results.

Bell BCI Company v. USA

The Bell BCI Company v. USA, 570 F.3d 1337 (Fed. Cir. 2009), matter demonstrates precisely why such release language matters through the Federal Circuit’s examination and interpretation of one such bilateral modification. In Bell BCI, the government contracted for the construction of a five-story laboratory. Due to additional funding, the government decided to add an additional floor to the building. To memorialize the contractual changes the parties agreed to and executed bilateral modification 93.

Mod 93 provided that, “[t]he modification agreed to herein is a fair and equitable adjustment for the contractor’s direct and indirect costs. This modification provides full compensation for the changed work, including both contract cost and contract time. The contractor hereby releases the government from any and all liability under the Contract for further equitable adjustment attributable to the modification.”

Thereafter, the government issued 113 additional modifications which incorporated 216 extra work orders. Following project completion, Bell BCI issued a request for equitable adjustment, which was denied by the contracting officer. In finding for the government on appeal, the Federal Circuit noted that the language of modification 93 was unambiguous, and “the language plainly states that Bell released the government from any and all liability for equitable adjustments attributable to Mod 93.”

Protecting one’s interests

In light of Bell BCI, one might ask, what can a contractor do to protect its interest when faced with the issuance of such a contractual modification? In light of these potential perils, contractors should consult legal counsel prior to executing a COVID-19 release, especially if a blanket waiver is contained therein.  The courts, while sympathetic to the contractor’s plight, will likely not look past the execution of the waiver and the voluntary execution thereof by the contractor.

Our team will continue to share the latest developments and provide insights on the spread of coronavirus and potential impacts across sectors including the construction industry.