Jun 29, 2020

By Tamara McNulty

There is a blessing/curse which says, ‘May he live in interesting times.’ In 1966 Robert F. Kennedy delivered a speech where he mentioned this saying and went on to say: “Like it or not, we live in interesting times. They are times of danger and uncertainty; but they are also the most creative of any time in the history of mankind.” The saying is apropos today since we are certainly living in interesting times.

Since the outbreak of COVID-19, there has been a myriad of articles regarding the issue of Excusable Delay clauses in government contracts. As those articles repeatedly state, in an instance of n excusable delay, such as an epidemic or a global pandemic, a contractor is generally entitled to a time extension but no cost arising from the event. Two recent cases out of the Civilian Board of Contract Appeals (the CBCA) illustrate that you should carefully look at your contract language as well as the owner’s actions and inactions in response to the pandemic before you give up on recovering costs.

Valerie Lewis Janitorial v. The Dep’t of Veterans Affairs

Valerie Lewis Janitorial v. The Dep’t of Veterans Affairs, CBCA No. 4026 (May 5, 2020), concerned a firm-fixed price janitorial services contract at a Veterans Affairs hospital. Like most contracts of this nature, the contract contained a base period of performance along with the possibility of four more option years to provide the services.

COVID-19 was not the culprit in this contract. Instead the hospital suffered an outbreak of clostridium difficile (C diff.), a highly contagious disease.

During the course of performing the janitorial services, and when this outbreak occurred, the hospital required Valerie Lewis Janitorial (VLJ), the services contractor, to perform a two-step process of aseptic cleaning and to clean certain buildings five times per week, instead of the contractually mandated three times per week.

VLJ submitted a claim to the Contracting Officer for its additional costs associated with the outbreak and the hospital’s directions. The Contracting Officer denied the claim.

VLJ appealed to the CBCA pursuant to the Contract Disputes Act (CDA), 41 U.S.C. §§ 7101-7109 (2012). The issue before the CBCA was whether, after the C. diff outbreak, the VA directed VLJ to change its process of aseptic cleaning to a two-step process and whether such a change is compensable.

The CBCA stated that, in general, a contractor asserting a claim for an equitable adjustment has the burden of proving “three necessary elements–liability, causation, and resultant injury.” Servidone Construction Corp. v. United States, 931 F.2d 860, 861 (Fed. Cir. 1991) (citing Wunderlich Contracting Co. v. United States, 351 F.2d 956, 968 (Ct. Cl. 1965)).

The CBCA further noted that the Veterans Administration Board of Contract Appeals (VABCA) had recognized that:

“when the Government informally orders a method of performance more stringent than that required by the contract, a constructive change can be found to have occurred.”

Caddell Construction Co., VABCA 5608, 03-2 BCA ¶ 32,257 (citing Aydin Corp. v, Widnall, 61 F.3d 1571, 1578 (Fed. Cir. 1995); Len Co. & Associates v. United States, 385 F.2d 438, 443 (Ct. Cl. 1967)).

The VABCA has also recognized the following:

“To establish a constructive change, two essential elements must be present: a change and an order or direction, by word or deed. To find the change element, one must first examine the actual performance to see whether it went beyond the minimum standards demanded by the terms of the contract. Then it is necessary to find that the change was one that the Government’s representative ordered the contractor to perform. . . . In particular, the rejection of a method or manner of performance selected or used by a contractor is a constructive change if the method was permitted by the contract.”

John R. Hundley, Inc., VABCA 3493, et al., 95-1 BCA ¶ 27,494 (citations omitted).

The CBCA found that when the VA had directed VLJ to perform a two-step aseptic cleaning process, even though the contract was silent on the method of aseptic cleaning the VA had constructively changed the terms of the contract.

Pernex Serka Joint Venture v. Dep’t of State

The second case, Pernex Serka Joint Venture v. Dep’t of State, CBCA No. 5683 (Apr. 22, 2020), builds upon the issue – specifically how the legal theory of constructive change may interplay with the Excusable Delay clause.

Once again, COVID-19 was not the culprit. In this case, PSJV was performing a firm-fixed price construction contract in Sierra Leone when an outbreak of Ebola spread to the country.

PSJV looked to the State Department for guidance under the circumstances of this epidemic. The State Department declined to issue any instructions, only to say that the US Embassy in Sierra Leone was still operational. PSJV, without direction from the Contracting Officer, took matters into its own hands and elected to stop work and evacuate.

Upon its return to the project, PSJV submitted requests for equitable adjustment related to the stop work and evacuation, as well as costs for additional medical services and supplies to protect the returning personnel. The Contracting Officer denied one of the REAs and simply ignored the other.

The Contracting Officers, did however, issue a modification for additional time to PSJV under the Excusable Delay clause. PSJV appealed.

The CBCA denied PSJV’s appeal, stating:

“It is ‘well-established that ‘a contractor with a fixed price contract assumes the risk of unexpected costs not attributable to the Government.’ ‘[A]bsent a special adjustment clause, a contractor with a fixed price contract assumes the risk of increased costs not attributable to the Government.’

PSJV’s firm, fixed-price contract obligated PSJV to perform and receive only the fixed price. The contract, in clause F.8.1 and the referenced FAR clause 52.249-10, explicitly addresses how acts of God, epidemics, and quarantine restrictions are to be treated. A contractor is entitled to additional time but not additional costs. Appellant’s attempts to shift the risks clearly articulated by the contact are unavailing “

Pernex Serka Joint Venture v. Dep’t of State, CBCA No. 5683 (Apr. 22, 2020) (internal citations omitted).

The CBCA stated that, PSJV had not identified any clause in the contract entitling it to relief, including under the theory of constructive change. The CBCA stated:

“A constructive change occurs where a contractor performs work beyond the contract requirements without a formal order, either by an informal order or due to the fault of the Government. To recover on a constructive change claim, a contractor must show that (1) it performed work beyond the contract requirements and (2) the Government ordered – ‘expressly or implicitly’ – the contractor to perform the additional work. A contractor cannot invoke a claim for constructive change against the Government unless the Government effect[s] an alteration in the work to be performed.”

Pernex Serka Joint Venture v. Dep’t of State, CBCA No. 5683 (Apr. 22, 2020) (internal citations omitted) (emphasis added).

In short, because the Government gave no instruction to PSJV about what it should do under these circumstances it had not imposed a constructive change on the JV.

What can we learn from these two decisions? Contractors should look carefully at the performance requirements of the contract and communications with the Government regarding the contractor’s planned means and methods of performance as compared to the means and methods of responding to the pandemic. If the Government gave specific or implicit instruction on how the contractor should perform or shutdown (i.e. means and methods directives), then it is likely that the costs associated with this instruction are recoverable under the theory of constructive change.

It is important that the contractor document both the communications with the Government and the costs that the Contractor incurs to recover.

Tamara McNulty is a Partner at the law firm of Asmar, Schor & McKenna, PLLC and can be reached at her cell phone (703) 969-1131 during these interesting times.