A divided panel of the United States Court of Appeals for the Federal Circuit ruled last week in Bell BCI Co. v. United States, ___ F.3d ___, No. 08-5087, 2009 WL 1796783 (Fed. Cir. June 25, 2009), that boilerplate release language in a bilateral modification barred a contractor's claims for the cumulative and disruptive impact of multiple change orders. Over a vigorous dissent, the panel majority held that the release language unambiguously discharged claims for cumulative impact and disruption, notwithstanding (1) the absence of any reference to "cumulative impact" or "disruption" in the modification, (2) the Government's failure to introduce any evidence that the parties intended to release such claims and (3) the trial court's findings to the contrary. Moreover, the majority held that these claims were barred notwithstanding the fact that, at the time the modification was executed, the full disruptive impact of the change orders was not known--and indeed could not have been known given that the contractors' claim was for the cumulative impact of multiple change orders, many of which had not yet been issued when the modification was signed.
Unless the Federal Circuit agrees to rehear Bell BCI en banc, contractors must now expressly reserve their rights to cumulative impact and disruption claims in all bilateral modifications if such claims are possible. Cumulative impact and disruption claims are common not only on large construction projects, but on any contract where the Government, through multiple change orders, adversely impacts the contractor's planned sequence of work, allocation of resources, and/or efficiency. Moreover, given that the scope of such claims are usually never known with any degree of certainty until later in contract performance, insisting on such reservations will undoubtedly complicate and delay the negotiation of timely change orders, frustrating the very purpose of the Changes Clause.
Bell BCI involved the construction of a laboratory building at the National Institutes of Health (NIH) in Bethesda, Maryland. Approximately nine months into construction, NIH decided to add a new floor to the building. NIH issued more than 200 contract modifications that delayed the completion of the project by 19-1/2 months, and increased the contract price by 34 percent. The Government and the prime contractor negotiated numerous modifications addressing the direct impact of many change orders with the following release language: "This modification provides for 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." Following contract completion, the prime contractor submitted a claim for the cumulative impact of the multiple change orders issued by the Government, which the Contracting Officer denied.
The United States Court of Federal Claims (COFC) ruled in favor of the prime contractor, holding that the Government's accord and satisfaction defense was "without merit." Bell BCI Co. v. United States, 81 Fed. Cl. 617, 619 (2008). The COFC discussed the "clear distinction in the law" between claims for the cost of performing changed work and claims for the effect of multiple changes on unchanged work. Id. at 639. The COFC held that the release language did not bar the latter type of claim, reasoning that (1) "[n]one of the contract modifications included any payment to Bell for cumulative impact or labor inefficiency"; (2) "Bell did not expressly release its cumulative impact claim in any modification"; (3) "the release language does not address cumulative impact claims"; and (4) the releases "preceded many of the events giving rise to the claim." Id . at 619. The COFC further observed that the Government offered no evidence to support its assertion that the parties intended to bar cumulative impact and disruption claims. In fact, the Government declined to offer any testimony from the Contracting Officer who signed the modifications and who presumably was in the best position to know what the Government understood the release language to cover. The COFC inferred that the Contracting Officer's testimony would not have supported the Government's position. Id. at 639.
As discussed above, a divided panel of the Federal Circuit reversed the COFC, holding that the release language unambiguously covered "any and all liability . . . attributable to" the modifications containing the release language. The majority therefore remanded the case to the COFC to "determine which of Bell's cumulative impact claims, if any, are 'attributable to' modifications other than those modifications that contain the release language." Bell BCI, 2009 WL 1796783 at *4. Judge Newman dissented, noting that "[a]n accord does not arise until there is a dispute." Id. at *9. Judge Newman therefore concluded that the release language "did not produce an 'accord and satisfaction' of unforeseen claims arising from unforeseen and unintended events." Id.