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Appeals Court Abrogates McMullan Presumption – Schedule Extension No Longer Raises Presumption of Government-Caused Delay
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June 26, 2006
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Thelen Reid Brown Raysman & Steiner LLP
The "McMullan presumption" is a legal rule created by the Armed Services Board of Contract Appeals in Robert McMullan & Son, Inc., ASBCA 19023, 76-1 BCA ¶11728 (Jan. 22, 1976). Under McMullan, the government's grant of a time extension based on a claimed delay raised a rebuttable presumption that the government caused the delay. However, the U.S. Court of Appeals for the Federal Circuit has abrogated this rule by concluding that the presumption is logically inconsistent and contrary to the Contract Disputes Act. England v. Sherman R. Smoot Corp., 388 F.3d 844 (Fed. Cir. 2004).
Smoot involved a request for equitable adjustment based on the cumulative effects of 51 days of delay caused by allegedly differing site conditions and design and construction changes in a project at the Washington Navy Yard. The government's project engineer recognized the additional time as fully compensable, but the contracting officer stated that only 21 days were the fault of the government. The parties subsequently executed bilateral modifications providing for some equitable adjustments in the contract price for changes identified under Smoot's request for equitable adjustment. Although these modifications contained certain release language, compensation was for less than 51 days of delay.
The government later proposed a "complete equitable adjustment" for "a 51 day time extension" at no change to the contract price. Smoot refused to sign this modification, and the government instead issued a unilateral modification extending the contract completion date by 51 days based on Smoot's request for equitable adjustment. Smoot revised its request for equitable adjustment to recognize the partial compensation provided under prior modifications, requested a final decision on the claim and appealed the Contracting Officer's "deemed denial" to the Armed Services Board of Contract Appeals.
At the board, Smoot argued that the government, through the project engineer, had agreed all 51 days of delay were compensable and that the contracting officer had recognized at least some of the days by paying Smoot under prior modifications. The board concluded that the government was not contractually bound by the project engineer's letter but nevertheless was responsible for the delay based on the board's application of the "McMullan presumption."
According to the board, the government's unilateral contract modification granting the time extension was issued "after all the material facts of the delays had taken place and after deliberate consideration." Pursuant to McMullan, the board found this raised a rebuttable presumption that the government caused the delay. The board found that the government had failed to rebut this presumption and ruled that Smoot had established the delay was compensable. The government appealed to the U.S. Court of Appeals for the Federal Circuit.
In examining this aspect of the board's decision, the Court discussed the McMullan presumption as follows:
[T]he McMullan presumption is logically inconsistent. There are three potential causes of delay in performance of a contract: the contractor's actions, the government's actions, and forces outside the control of both parties. A delay in a construction contract is excusable if it arises from either the government's action or external forces. [footnote omitted] Thus, the mere grant by the government of a contract extension does not indicate that the government is at fault; rather, one of a number of other events external to the government could be responsible. In such a situation, a presumption that the government is responsible for the delay is unwarranted, and nothing in the Federal Acquisition Regulations supports such a presumption.
The court found the McMullan presumption to be contrary to the Contract Disputes Act. In reaching this determination, the court analyzed the dispute considerations involved in the creation and application of the McMullan presumption before the Contract Disputes Act and compared them with the congressional considerations underlying the express provisions of the Contract Disputes Act. Specifically, the Court examined 41 USC §605 (a), which states in relevant part:
Contractor claims. All claims by a contractor against the government relating to a contract shall be in writing and shall be submitted to the contracting officer for a decision. All claims by the government against a contractor relating to a contract shall be the subject of a decision by the contracting officer.... The contracting officer shall issue his decisions in writing, and shall mail or otherwise furnish a copy of the decision to the contractor. The decision shall state the reasons for the decision reached, and shall inform the contractor of his rights as provided in this Act. Specific findings of fact are not required, but, if made, shall not be binding in any subsequent proceeding. [emphasis added]
In addition, the court analyzed 41 USC §609 (a) (3), which requires that an appeal in court will be "de novo." The court reasoned it had held in Wilner v. U.S., 24 F.3d 1397 (Fed. Cir. 1994) that this language required it to give "no deference" to final decisions of a Contracting Officer under the Contract Disputes Act – resulting in there being no presumption of correctness of such decisions. The court concluded that this also applied to contracting officer decisions made before a dispute, stating:
Congress made it clear in the CDA that any findings of fact by a contracting officer in a final decision are not binding in any subsequent proceeding. Although, by its terms, the CDA only applies to contracting officers' final decisions, in light of the policies underlying the CDA, we see no basis for drawing a distinction between an interim and a final decision of a contracting officer. Apart from finality, the interim decision here is indistinguishable from a final decision.
The court also noted that Wilner had reached the same conclusion with regard to cases in the Court of Federal Claims by overruling J.D. Hedin Construction Co. v. U.S., 171 Ct. Cl. 70, 347 F.2d 235 (1965), which had held, before the passage of the Contract Disputes Act, that an interim decision of a Contracting Officer was entitled to a presumption of correctness. Thus, the court in Smoot concluded:
[W]e hold that the McMullan presumption is contrary to the CDA and is no longer good law. Since the decision of the Board rested upon the presumption, it is vacated. We remand the case to the Board for a determination of the merits of Smoot's claim, but without the benefit of any presumption arising from the decision of the contracting officer extending the completion date of Smoot's contract.
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©2006 Thelen Reid Brown Raysman & Steiner LLP
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