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Cumulative Impact Award for Contractor Reversed on Basis of Release Despite 274 Later Extra Work Orders
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May 24, 2010
By Laura Thomson
Over a strong dissent, the U.S. Court of Appeals for the Federal Circuit has vacated in part a judgment by the Court of Federal Claims in favor of a government contractor for its cumulative impact and delay claims, relying on contract modification language releasing the federal government from “any and all liability” attributable the change in project scope.
The appeals court did not disturb factual findings by the Court of Federal Claims and remanded for the lower court to determine which, if any, claims were attributable to modifications that did not contain the broad release language at issue. Bell BCI Co. v. United States, 570 F.3d 1337 (Fed. Cir. 2009), reh’g denied.
Bell BCI Co. entered into a fixed-price contract with the National Institutes of Health (NIH) for construction of a five-story laboratory building in Bethesda, Maryland. Bell started construction in April 1998, and substantial completion was scheduled for June 2000.
Nine months after construction began, with the project on schedule, the federal government determined that a 1998 budget surplus allowed for construction of an extra floor, which would result in a six-story building. NIH negotiated with Bell for a price of just under $2.3 million to construct the extra story and for an extension of the project schedule to April 2001 from June 2000. The changes were documented in Contract Modification 93 (known as Mod 93), which the parties entered into in October 2000.
Mod 93 stated it covered all direct and indirect costs of the extra work and all delay costs resulting from all government changes transmitted to the contractor on or before August 31, 2000. Mod 93 also contained the language at issue in the appeal:
| The modification agreed to herein is a fair and equitable adjustment for the Contractor’s direct and indirect costs. This modification provides full compensation for the changed work, including both Contract cost and Contract time. The Contractor hereby releases the Government from any and all liability under the Contract for further equitable adjustment attributable to the Modification.
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After the parties entered into Mod 93, a construction manager working for NIH and technical representative of the government’s contracting officer’s told NIH personnel that no more changes should be made to the project.
Despite that warning, the government subsequently issued 113 additional contract modifications, which incorporated 216 Extra Work Orders (EWOs). The above language from Mod 93 was repeated in about 47 of the subsequent modifications. Bell also performed work under 58 more EWOs that never were incorporated into any modification.
Bell finished construction on February 8, 2002, more than 10 months late, and submitted a request for equitable adjustment for delay and cumulative impact resulting from the numerous changes made after Mod 93. The contracting officer denied Bell’s claim and instead asserted claims against Bell for liquidated damages, credits due the government, the cost of retests and estimated costs for what it called “outstanding major deficiencies.” Bell filed suit in the Court of Federal Claims.
After a six-day trial, the Court of Federal Claims awarded Bell a total of $6,200,672 in damages for: labor inefficiency costs attributable to the cumulative impact of the changes; delays after April 30, 2001; profit on the cumulative impact and delay claims; the unpaid balance of the contract price; and for unresolved changes in the 58 EWOs not incorporated into any modification. Bell BCI Co. v. United States, 81 Fed.Cl. 617 (2008). The Court of Federal Claims rejected the federal government’s claim for liquidated damages and sustained a subcontractor’s cumulative impact claim.
The Court of Federal Claims rejected the government’s argument that Mod 93 was an accord and satisfaction that shielded it from liability for cumulative impact claims. The court held there had been no meeting of the minds of the parties on the scope of the release and that no consideration had been paid for release of the claims at issue in the trial. At best, the release language was ambiguous, the court held.
In so ruling, the Court of Federal Claims distinguished between delay claims (time and the cost of not being able to work) and disruption claims (cost of working less efficiently than planned). It held that the contract preserved disruption claims.
The appeals court did not question the trial court’s finding that Bell had suffered cumulative impact as a result of numerous changes to the contract.
Rather, the appeals court held that the Court of Federal Claims had clearly erred in holding that the release language did not encompass the cumulative impact and delay claims. The appeals court wrote: “The language plainly states that Bell released the government from any and all liability for equitable adjustments attributable to Mod 93.”
While the Court of Federal Claims was persuaded by what was omitted from the releases, ruling that “prudent contracting parties surely would be specific in describing the exact scope of any release or reservation,” the appeals court emphasized that “if parties intend to leave some things open and unsettled, their intent so to do should be made manifest.”
“At best,” the appeals court concluded, “there may be ambiguity as to which claims are ‘attributable to’ a given modification, but we cannot glean any ambiguity about which types of claims are released – Mod 93 clearly, unambiguously releases the government from ‘any and all’ liability.”
Because of its conclusion that the release language was unambiguous, the appeals court declined to examine any extrinsic evidence of intent. The appeals court held that the government’s payment for Mod 93 constituted adequate consideration for Bell’s release.
The appeals court vacated and remanded for further proceedings on the cumulative impact claims, related delay claims and profits awarded on these claims – nearly two-thirds of Bell’s claim. It directed the Court of Federal Claims to determine which specific claims, if any, are “attributable to” the more than 60 modifications not containing release language like that in Mod 93. It held that Bell could recover on these claims. The appeals court affirmed the remaining decisions of the Court of Federal Claims.
The appeals court also affirmed the Court of Federal Claims’ finding that NIH claimed liquidated damages against Bell on “advice of counsel to create negotiating leverage in the event Bell filed a claim against NIH.”
Circuit Judge Newman filed a strong dissent admonishing his colleagues for ignoring the trial court’s fact findings on contractual intent made after a trial. He wrote:
| This case is a compelling illustration of why appellate tribunals should give due weight to the attributes and benefits of the processes of trial, [which] enable the trial judge to dig deeply into the events, to figure out what happened and what was intended, and to reach a just result.
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Judge Newman wrote that the majority improperly made its own contradictory fact findings. He noted that the trial court had found the parties intended the release to cover only specific modifications but did not intend it to extend to all possible future claims for cumulative impact. At trial, the government did not dispute Bell’s testimony to this effect. Rather, Judge Newman wrote, the trial court found there was no discussion of such future claims.
Judge Newman wrote that while NIH publicly characterized the building “as a shining star,” an NIH “lessons learned” report acknowledged there were “major, wholesale changes which could not be accommodated so late in the design.”
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