Type: Law Bulletins
Date: 05/12/2020

Request for Equitable Adjustment Success Not Guaranteed During Pandemics

In a timely decision, that should pique the interest of businesses performing government contracts during the COVID-19 pandemic, the Civilian Board of Contract Appeals (CBCA) just denied a contractor’s claim for costs associated with interruptions and additional safety measures it put in place while performing a U.S. Department of State (DOS) contract during the 2014 Ebola outbreak.

The contractor, Pernix Serka Joint Venture (PSJV), was awarded a firm, fixed-price contract for the construction of a rainwater capture and storage system in Freetown, Sierra Leone in 2013. The contract included an “Excusable Delays” clause that explicitly stated “[t]he Contractor will be allowed time, not money, for excusable delays as defined in FAR 52.249-10, Default.” This clause even identified “epidemics” and “quarantine restrictions” as examples of excusable delays.

The facts of the case should be eerily familiar to businesses operating in the throes of the COVID-19 pandemic. By August of 2014, PSJV had performed sixty-five percent of its contract when, without warning, the Ebola outbreak spread from the Republic of Guinea to Freetown, Sierra Leone. Concerned for its employees’ health and safety, PSJV repeatedly sought guidance from DOS as to how to address the risks posed by this deadly disease. DOS refused to provide any guidance or direction to PSJV, despite the fact the World Health Organization had declared the Ebola outbreak an “international public health emergency.” Airlines in Sierra Leone had even suspended flights, and the U.S. Embassy in Freetown had advised family members of embassy personnel to return to their home countries. Nevertheless, DOS insisted that PSJV would have to make its own decisions about how to respond to the outbreak.

Given the gravity of the circumstances, and without guidance from DOS, PSJV notified DOS that it would temporarily shut down the project and send its employees and subcontractors home. DOS acknowledged PSJV’s decision and responded:

We are aware and acknowledge your concerns… Since you are taking this action unilaterally based on circumstances beyond the control of either contracting party, we perceive no basis upon which you could properly claim an equitable adjustment… in connection with your decision to curtail work on this project.

As the situation on the ground improved, in 2015, PSJV brought back employees and subcontractors, but only after investing in additional health and safety measures at the work site. At the completion of performance, PSJV submitted two Requests for Equitable Adjustment (REA) to the DOS. The REAs sought recovery of life safety and health costs incurred due to a differing site condition (e.g. Ebola) as well as costs incurred due to the disruption of the project, including the costs to demobilize and remobilize at the work site. After a series of negotiations, DOS decided not to grant either of the REAs. Instead, it chose to issue a no-cost contract modification to extend the project’s completion date in accordance with the “excusable delays” clause.

In response, PSJV submitted a claim to the CBCA for $1.25 million. PSJV argued that DOS was responsible for a cardinal or constructive change to the contract and that DOS had breached its duty of good faith and fair dealing. In response, DOS filed a motion for summary judgment.

The CBCA granted DOS’s summary judgment motion and denied PSJV’s claim. First, it ruled that PSJV’s firm, fixed-price contract obligated PSJV to perform and receive only the awarded fixed price. The contract's “excusable delays” clause entitled PSJV only to more time to perform due to the pandemic, but no money. Second, the CBCA concluded PSJV had failed to establish that DOS had caused a cardinal change or a constructive change to the contract. Specifically, the CBCA noted that the contract specifications never changed and that there was no evidence DOS ever directed PSJV to take action in response to the Ebola outbreak.

So, what does this decision mean for government contractors in the current COVID-19 era?

  • First, coping with a pandemic does not automatically entitle contractors to financial relief under firm, fixed-price contracts. Courts and Boards of Contract Appeals will continue to strictly apply the terms of your contract, no matter how sympathetic COVID-19 makes your situation. If you have an “excusable delays” clause like this one, which calls out pandemics or quarantine measures, be prepared to sustain and absorb unforeseen additional costs.
  • Second, while the federal government has taken unprecedented steps to support many businesses during the pandemic, CARES Act relief for government contractors is discretionary, subject to the availability of funds.
  • Third, government contractors should always try to get a contracting officer to provide direction, instruction or agreement regarding significant cost-driving decisions. The health and safety of your employees should be your primary concern. But, providing safety measures to protect them will require additional expense that could not have been anticipated when putting your bid/proposal together. A prudent contractor can improve its chances of reimbursement by encouraging government participation in pandemic response decisions.

For more information about this CBCA decision and about COVID-19-related Requests for Equitable Adjustment, please contact a member of the Taft Government Contracts team.

Please visit our COVID-19 Toolkit for all of Taft’s updates on the coronavirus.

In This Article

You May Also Like