Absent Timely Revocation, Government Acceptance Is Conclusive

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In a recent decision, the Armed Services Board of Contract Appeals issued a summary judgment ruling in a case involving government claims relating to the contractor’s supply of thermal sight systems for armored vehicles. The government contended that some of the sights were defective while others were delivered late.

As to the allegedly defective sights, the board granted the contractor’s motion and rejected the government’s claim because the government accepted the sights and failed to revoke acceptance thereafter in a timely manner. In this case, the government had declined to include a warranty in the contract, leaving it limited recourse after acceptance. Under FAR 52.246-2 (Inspection of Supplies—Fixed Price), “[a]cceptance shall be conclusive except for latent defects, fraud, or as otherwise provided in the contract.” Further, the government bears the burden to prove facts nullifying the conclusiveness of acceptance, and revocation of acceptance “must be done within a reasonable time after the latent defect … is discovered, or could have been discovered with ordinary diligence.” The board determined that the government failed to make a sufficient showing of timely revocation of acceptance based on latent defects.

As to the alleged late deliveries, there were two components: 132 sights due under the original schedule and 15 sights due under an expedited schedule.

The contractor acknowledged that its delivery of the 132 sights was late but argued that the government’s claim failed because (1) the government accepted the late delivery and (2) the government waived its claim. The board rejected both arguments. First, while the government’s acceptance of the late delivery precluded a claim for material or total breach, the government was still entitled to pursue its claim for partial breach arising from the delay. Second, although a party may waive its right to insist upon strict performance by, among other things, treating a contract requirement as “dead,” the board could not conclude from the record that the government had “manifested that the contract’s original schedule was ‘dead.’”

Regarding the 15 sights, the government sought the return of mistakenly paid fees for the expedited delivery. But because the government failed to present competent evidence that the sights were delivered late, the board granted the contractor’s motion and denied the government’s claim.

Lessons Learned

  1. Although the government can revoke acceptance based on latent defects, it must do so within a reasonable time after the latent defect is discovered or should have been discovered.
  2. The government’s acceptance of late delivery does not preclude a claim for partial breach relating to the delay.
  3. The government can waive its right to insist on strict performance by treating a contract requirement as “dead.”

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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