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Construction Law

: The South Carolina Construction Law Blog

Impact Claims Must Be Released Expressly

By Ryan McCabe

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            The United States Court of Federal Claims allowed a contractor to recover losses suffered due to over 200 contract modifications by the defendant, a government entity called the National Institutes of Health (NIH). Bell BCI Co. v. United States, No. 03-1613C (2006). The contractor, Bell BCI Company (?Bell?), built a new laboratory building for NIH. After completion, Bell filed a so-called impact claim ? a cause of action to recover for the cost born by the contractor because of the great number of contract changes by the owner.

            The NIH contract changes added great cost and inefficiency to the project. One such change was the decision to add a whole another floor after the construction had already begun. NIH initially directed Bell, without Bell?s consent, to proceed with the work on the new floor. Later, NIH and Bell negotiated Modification 93 (Mod 93) in which the parties agreed to work on the new floor for $2.3 million. Mod 93 stated that both parties agreed to increase the contract price as an adjustment for the remaining cost and for any delays from changes by NIH on or before August 2000. Mod 93 also said the contractor released the owner from any liability for other adjustment resulting from ?the Modification.? The court said Mod 93 did not mention a cumulative impact claim release.

            Following the execution of Mod 93, NIH issued other changes, but did not authorize resources to speed up performance and avoid delays in schedule. Rather, NIH started withholding payments and threatened to charge Bell liquidated damages if the completion dates were not met. Liquidation damages are a fixed amount of money specified in the contract that a party must pay to the other if it does not perform according to contract terms.

            Upon completion of the project, Bell submitted to NIH a Request for Equitable Adjustment (REA) ? a request that NIH pay for the additional cost born by Bell because of project modifications. NIH rejected the request and claimed liquidated damages and back charge claims ? charges to make adjustments for previous transactions. The court found that NIH did not act in good faith and dealt unfairly in negotiating with Bell. Facts showed NIH did not really have back charges, but just claimed such to gain an advantage in negotiation.

            The court started its analysis by explaining that an impact claim covers the ?cost of working less efficiently than planned? ? in other words the cost for more difficult and expensive work. The damages claimed needed to be proven with reasonable certainty only, even if they were an approximation. The court interpreted the contract to provide for an equitable adjustment to the contractor if multiple changes affected the total cost.

            NIH also claimed accord and satisfaction as a defense. That means NIH argued that Bell agreed to the changes in performance and NIH performed accordingly. The court rejected such claim and found that nothing in the contract specifically addressed a cumulative claim by Bell or showed that Bell agreed to give up an impact argument. Also, NIH presented no evidence to give merit to an accord and satisfaction defense.

            The government?s bad behavior throughout the project probably influenced the court?s decision. In conclusion, the opinion seemingly indicates that where a contract does not mention expressly that a contractor waives or promises not to raise an impact claim, the interpretation is that the contractor has not in fact waived that right.

            This site and any information contained herein is intended for informational purposes only and should not be construed as legal advice. Seek a competent attorney for advice on any legal matter.

Full post as published by The South Carolina Construction Law Blog on March 10, 2009 (boomark / email).