Did you know if you sign a modification with the U.S. government that contains full accord and satisfaction or other similar broad release language, you may be walking away from a lot more than you anticipated? Federal case law that has caused headaches for government construction contractors poses similar potential threats to other contractors, including a variety of real estate owners, developers and related players.
In a line of cases dating back to the Federal Circuit's opinion in Bell/BCI v. United States, 570 F.3d 1337 (Fed. Cir. 2009), courts and administrative boards of contract appeals have vastly expanded the breadth and scope of accord and satisfaction release language in modifications to federal construction contracts, resulting at times in significant unexpected and unplanned forfeitures by contractors. This decision, however, does not necessarily affect only construction contractors; it may have much further-reaching implications.
In Bell/BCI, the prime contractor on a construction project at the National Institutes of Health in Bethesda, Maryland signed a modification (Mod 93) for costs and time incurred as a result of a material change to the contract, under which the agency wanted to add an additional floor to its five-story project. Mod 93 was different from previous modifications in that it contained new waiver and release language stating:
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.
570 F.3d at 1339. The Federal Circuit interpreted this language as a broad waiver of Bell/BCI's rights to claim damages for cumulative impact and delay arising out of many subsequent changes to the work, including more than 100 government-directed changes that had nothing to do whatsoever with Mod 93 and that were not within the contemplation of the parties at the time Mod 93 was signed.
At trial and on appeal at the Federal Circuit, Bell/BCI took the position that when it signed this modification, it was agreeing to the cost of adding the additional floor, including indirect costs and impacts such as extended home and field office overhead. Bell/BCI claimed, however, that it did not in any way intend to waive its right to recover future delays and impacts caused by cumulative future changes to its work. At the time it signed, Bell/BCI did not know that the government would issue more than 100 material changes to the work in addition to, and after, Mod 93, the cumulative effect of which was significant delay and disruption on the project and Bell/BCI incurring significant losses.
At trial, the Court of Federal Claims allowed Bell/BCI to recover its costs, finding that the waiver language in Mod 93 did not address cumulative delay and impact claims. On appeal, the Federal Circuit reversed, holding that the modification language released the government from "any and all" liability attributable to Mod 93, including cumulative impacts and delays. As such, Mod 93 constituted a full "accord and satisfaction" that precluded Bell/BCI from pursuing delay and cumulative impact claims attributable to Mod 93 against the government. The Federal Circuit remanded to the Court of Federal Claims to determine what portion of Bell/BCI's cumulative impacts and delays (and overhead thereon) were attributable to Mod 93 or other modifications containing the same waiver language.
Since that time, other government contracts tribunals have weighed in. While it is clear the Civilian Board of Contract Appeals (CBCA) agreed with neither the outcome nor the courts' rulings in Bell/BCI, it nonetheless felt compelled to follow those rulings, as it is required to apply the Federal Circuit's rulings because appeals from the CBCA go to the Federal Circuit. Interestingly, CBCA Chief Judge Daniels stated in one opinion, "Bell/BCI is hardly the only decision of our appellate authority to speak to a situation [involving modification release language]." Walsh-Davis Joint Venture, 11-2 BCA ? 34,799 (CBCA 2011); see also J.G. Watts Constr. Co. v. United States, 161 Ct. Cl. 801 (1963).1 Since that time additional rulings and other courts and boards of contract appeals have applied Bell/BCI, suggesting that, for the time being, Bell/BCI is a firm fixture in government contracts law. See, e.g., Marin Edwards & Assocs., 12-2 BCA ? 35,058 (ASBCA 2012) (broad, unambiguous release language barred contractor's claims); Kolin Constr., Tourism, Indus. & Trading, 11-1 BCA ? 34760 (ASBCA 2011) (applying Bell/BCI and denying government's motion for summary judgment); Selpa Constr. & Rental Equip., 2011-1 BCA ? 34,635 (PSBCA 2011) (contractor's claims barred under Bell/BCI).
As of today, the holding in Bell/BCI and its progeny that release or accord and satisfaction language may be broader than what one may believe is limited or focused almost exclusively to construction contract cases. However, it is important to consider and realize the very likely possibility that over time, and likely in the very near future, a government agency will attempt to expand this holding to other types of government contracts, including modifications to government leases or other types of contracts. This may prove to be especially true in the context of lease extensions, particularly where tenant improvements are included. At the same time, the "Bell/BCI Doctrine" might also be applied to seemingly any government contracts scenario, which raises real concern as to what is and is not included in one's negotiation of a modification.
In light of this concern, consider the following before signing a modification:
- Be express and explicit in what is and, more importantly, is not included in the modification. If you intend to preserve rights to some future claim, whether it be for material escalation costs, unforeseen conditions, loss of productivity, impact or other like "future" and not readily discernible/definable monetary or other damages, be sure to so state this on the face of the modification. Appropriate and effective language may resemble the following: "Notwithstanding the foregoing accord language, the Contractor expressly preserves its right to seek at a later date damages for [insert description of potential future claims here]." Communicating this language in a separate document, such as a transmittal letter, may not be adequate protection.
- Always consult with your team personnel and legal counsel to confirm that what you are signing adequately protects your rights and ensures you are not inadvertently waiving those rights.
- Submit contemporaneous claim letters referencing the modification and reserving your rights to claim restitution for those losses you anticipate incurring and are not waiving.
These and other protective measures are necessary and de rigeur in the post-Bell/BCI contracting world. A major issue we have observed since Bell/BCI is certain agencies refusing to allow carve-out language similar to that suggested above, which complicates matters. Without certainty that a contractor can capture all costs and damages, including delay, impact, and future unforeseeable or incalculable costs in a modification, the contractor typically should not sign the modification but instead should proceed under protest and with a reservation of rights. This will require the contactor to proceed at its cost and then pursue its changes and disputes rights at a later date, which may or may not be a feasible option, depending on the size, scope and complexity of the project and the contractor's capacity. It is, however, typically the best option if there is any possible significant cost or impact to the contractor. While this decision must be made on a case-by-case basis, it must be contemplated since failure to carefully consider the scope of release language might have devastating unintended consequences.