Word To The Wise: Prior Discussions Will Not Prevent A Modification From Waiving A Contractor’s Right To Assert A Future Claim

Dunlap Bennett & Ludwig PLLC

Oftentimes contractors face changing circumstances during contract performance through delays or change orders and then seek to recover additional time and funding through a bilateral modification with the government. Contractors may be eager and willing to sign a proposed modification, but this potentially waives a contractor’s right to assert a future claim. 

The adjudication of the viability of a future claim hinges on the scope and language of the release to discern whether the parties intended for the release to extinguish a future claim. For example, in the Appeal of Horton Construction Co., Inc., ASBCA No. 61085 (2020), the Armed Services Board of Contract Appeals (ASBCA) ruled:

When a release is clear, unequivocal, and unconditional, the release must be given its plain meaning and effect…When such a release exists, it bars any and all claims for additional compensation based upon events occurring prior to the execution of the release. (citations omitted).

Despite the existence of an unambiguous release in a contract modification, the U.S. Court of Appeals for the Federal Circuit (CAFC), the Boards of Contract Appeals, and the U.S. Court of Federal Claims (COFC) have reviewed claims by contractors in “special and limited” circumstances. For example, the Civilian Board of Contract Appeals (CBCA), in Walsh/Davis Joint Venture v. General Services Administration, CBCA 1460, 11-2 BCA ¶ 34,799, cited J. G. Watts Construction Co. v. United States, 161 Ct. Cl. 801, 810 (1963), where the COFC explained:

For instance, where it is shown that, by reason of a mutual mistake, neither party intended that the release cover a certain claim, the court will reform the release. Similarly, where the conduct of the parties in continuing to consider a claim after the execution of the release makes plain that they never construed the release as constituting an abandonment of the claim, or where it is obvious that the inclusion of a claim in a release was attributable to a mistake or oversight, or where fraud or duress is involved, the release will not be held to bar the prosecution of the claim.

J. G. Watts Construction, 161 Ct. Cl. at 806-07 (emphasis added).

​However, in a recent CBCA decision, Glen/Mar Construction, Inc. v. Department of Veterans Affairs, CBCA 6905 (2021), the CBCA barred the contractor from asserting its delay claim based on verbal agreements to pay for delay costs that occurred before the execution of the release. Glen/Mar Construction, at 12. In Glen/Mar, the contractor surprisingly accepted the proposed modification that included a statement of release and did not adequately reserve the right to assert a future claim associated with the additional work. Id. at 11. Ultimately, the CBCA determined that general discussions of the performance schedule and claim calculation were insufficient to show that the parties continued to negotiate the claim or that the government actively considered granting additional time or damages or negotiate with the contractor regarding the additional work. Id. at 13.

The Glen/Mar case provides important insight and guidance for contractors who sign a modification containing language that release a future claim. First, even a verbal agreement with the Government to pay for delay costs before the execution of a modification can forfeit a contractor’s ability to assert a future claim. Second, contractors must be mindful of the language and scope of a release included in a proposed modification. Third, contractors must be careful negotiating modifications to ensure that it adequately reserves the right to assert a future claim pursuant to Federal Acquisition Regulation (FAR) 43.204(c)(2).

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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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