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Government Contractor Denied Compensation for Work Stoppage Resulting from 9/11 Attacks
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January 25, 2010
By Todd J. Wagnon
In April 2000, Conner Brothers Construction Co. contracted with the Army Corps of Engineers to construct four buildings within the Army Ranger compound at Fort Benning, Georgia. After the terrorist attacks on September 11, 2001, Ft. Benning was closed to everyone except essential personnel. Conner was ordered to stop work and leave the compound. On September 17, the force protection condition for Ft. Benning was lowered, allowing contractors and others to return to the fort.
However, the commander of the 75th Ranger regiment continued to restrict access to the Ranger compound, a separate area within Ft. Benning, to mission-critical personnel. Conner was not allowed to resume work on grounds that its employees’ presence jeopardized operational security. The Rangers were executing a “protracted low-level deployment” to Afghanistan in which they departed in small groups so their movements would not attract notice. The Ranger commander testified that he was concerned about information leaks and shut down Conner’s operations because construction work put Conner’s employees and subcontractors in a unique position to observe sensitive deployment activities.
The contracting officer granted Conner’s request for a time extension but denied Conner’s claim for $137,744 in delay damages. The damage claim covered the 35 days when Conner was excluded from the Ranger compound but not the 6 days when all contractors were excluded from Ft. Benning.
Conner appealed the contracting officer’s decision to the Armed Services Board of Contract Appeals (ASBCA). After a hearing, ASBCA held that Conner was not entitled to recover damages because the exclusion order was a sovereign act relating to the U.S. government’s war-making powers that did not directly target Conner’s contractual rights. Conner appealed to the U.S. Court of Appeals for the Federal Circuit, which affirmed the ASBCA ruling. Conner Bros. Construction Co., Inc. v. Geren, 550 F.3d 1368 (Fed. Cir. 2008).
The appeals court wrote that the sovereign acts doctrine is an affirmative defense inherent to all government contracts and provides that the U.S. government, when sued as a contracting party, cannot be held liable for obstructing performance of a government contract if the obstruction results from the government’s “public and general” acts as a sovereign. The defense is based on the government’s dual roles as contractor and sovereign. As the appeals court noted, “the United States as a contractor cannot be held liable directly or indirectly for the public acts of the United States as sovereign.” In such circumstances, the court noted, government contractors may not be treated more favorably in response to a sovereign act than if they had contracted with a private party.
To qualify for the defense, the government’s act must be “public and general” – and not self-interested or specifically targeted at particular contract rights. Thus, the appeals court noted, the defense is not available when the government action is specifically directed at contractor rights or seeks to extricate the government from an unfavorable contract. The degree of government self-interest or economic advantage is an important factor in determining the availability of the defense, the court noted.
Before ASBCA and on appeal, Conner argued that the shutdown order excluding it from the Ranger compound was not a “public and general” act because the order was specifically directed at Conner and performance of its contract.
The appeals court rejected this argument, writing: “[T]he fact that the government made case-specific determinations as to who was nonessential and whose presence interfered with the Rangers' operations in the compound does not convert an otherwise public and general act into a nongeneral one.”
Conner also argued that the order was not “public and general” because Conner was the only contractor excluded from the Ranger compound. The appeals court found this argument to be factually incorrect because the order applied to civilian employees of the Army and other contractors. In addition, the appeals court held that in applying the sovereign acts doctrine, the key consideration is the nature of the government action, not the number of contractors affected by it. The court noted that the defense had been denied as to legislation with generalized effect that specifically discharged the government’s contractual obligations while the defense had been allowed when only one contractor was impacted.
The court agreed with ASBCA that this claim was “a far cry from the ‘change of heart’ cases in which the government unilaterally terminated a single contract after deciding that performance would be unwise.” It noted that the government did not exclude Conner because it was unhappy with Conner’s performance, was unhappy with the contract price or no longer wanted the project. The court held that the order was not directed at Conner’s contract rights.
The court rejected Conner’s argument that it was entitled to damages because it was treated differently from other contractors. The court noted that dining facility and custodial workers provided by other contractors were considered mission critical because they provided necessary food and sanitation services. In addition, those workers, unlike Conner’s construction workers, either were confined to limited areas or could be escorted.
Finally, the court noted that a contractor performing a private contract just outside Ft. Benning would have been entitled to no compensation (absent a contract clause specifically providing for it) if the Army had set up a security perimeter around Ft. Benning and excluded the contractor from the jobsite.
The court concluded that the exclusion order fell well within the range of actions that previously had been treated as sovereign acts. Because Conner’s losses were incidental to achievement of a broader government objective relating to national security, the sovereign acts doctrine barred Conner’s claim.
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