Snowmen In August: Strict Compliance And Government Waiver of Contract Requirements

Morrison & Foerster LLP - Government Contracts Insights

The Government “can engage a contractor to make snowmen in August, if [it spells] it out clearly [in a contract].” Rixon Electronics, Inc. v. United States, 536 F.2d 1345, 1351 (Ct. Cl. 1976). And the contractor generally must make the snowman as the contract directs, even if the contractor can think of a better way to get the work done. A recent decision of the Armed Services Board of Contract Appeals (ASBCA) provides a useful reminder, both of the ordinary obligation for contractors to comply with all requirements of their government contracts, and of an important limit to that obligation.

The Facts

American West Construction, LLC, ASBCA No. 61094 involved a fixed price order issued by the Army Corps of Engineers for construction of permanent bridges over irrigation canals near the border between Texas and Mexico. To permit construction of one of the permanent bridges, the order called for construction of two temporary bridges, which were to be dismantled and removed after the permanent bridge was completed.

The contractor became concerned that building temporary bridges as the contract required would unnecessarily delay completion of the project. Instead, the contractor believed it would be quicker, safer, and more efficient to access the construction site using a levee on property belonging to the local water district. In September 2015, the contractor provided the agency with a plan that included the levee approach instead of the contractually required temporary bridge approach. The following month, the water district accepted payment from American West’s subcontractor and granted an easement to permit use of the levee.

The agency never expressly approved the contractor’s alternate method of performance, but neither did it object despite knowing what the contractor was doing. In December 2015, the contractor submitted a progress payment request for completion of the milestone that included building the temporary bridges with a “Paid Permit” notation added to the relevant line item. An agency official who was present on the construction site and was aware no temporary bridges were built approved the payment request.

In May 2016, the contractor substantially completed the project. The following month, the agency demanded that American West submit a proposal for using the levee rather than building temporary bridges and set out the savings to which the Government would be entitled as a credit for the alternative method of performance. In December 2016, the agency issued a Contracting Officer’s Final Decision demanding $40,000 as a credit for the estimated cost difference between performing with temporary bridges (as contractually required) and using levee easement.

The Litigation

Before the Board, the parties agreed that the delivery order required construction of temporary bridges. They also agreed that the Changes clause ordinarily entitles the Government to an equitable adjustment to contract price in the amount of a contractor’s cost savings from not fully complying with the terms of a contract. The contractor argued, however, that the agency waived the requirement for temporary bridges and could not un-waive the requirement after the contract had been successfully completed. Gresham & Co. v. United States, 470 F.2d 542, 554 (Ct. Cl. 1972) (“There can be no doubt that a contract requirement for the benefit of a party becomes dead if that party knowingly fails to exact its performance, over such an extended period, that the other side reasonably believes the requirement to be dead.”).

The Board agreed with American West, finding that the agency was well aware that the contractor was using the levee rather than the temporary bridges to build the permanent bridges and even paid the relevant progress payment without objection. In reasonable reliance on the agency’s acquiescence, American West paid for the right to use the water district’s levee instead and completed the order on that basis. Under these facts, the Board found that the contractual requirement for temporary bridges was “dead.” Since the requirement was dead and unconditionally waived, the agency could not resurrect it later for purposes of receiving a downward price adjustment. The Board noted: “The outcome of this appeal may well have been different if the Corps had clearly and explicitly conditioned its waiver of the contractual requirements at an earlier date, but that circumstance is not before us.” One might say that was all water under the bridge.

Takeaway: Things worked out well for American West, other than the litigation costs it incurred to fight the Government claim. But this case is the exception rather than the rule. Contractors ordinarily should comply strictly with contract requirements, even if that means building snowmen in August, unless they have written authorization from the contracting officer to do otherwise. American West is a good reminder, however, that an agency waiver sometimes can be shown by the parties’ conduct during the course of performance, and lack of clear conditions to the waiver may excuse the contractor from the equitable adjustment to which the Government otherwise would be entitled.

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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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