This article was originally published in Government Construction (Volume 5, Issue 2 – Summer 2020), an ABA Division 13 Quarterly Newsletter. It is republished here with permission.
The United States Civilian Board of Contract Appeals (the “Board”) recently issued a decision that may be particularly pertinent in light of the COVID-19 pandemic. In Pernix Serka Joint Venture v. Department of State,1 the Board rejected a contractor’s claim for additional costs related to demobilization and remobilization of the job site in Freetown, Sierra Leone, due to an Ebola virus outbreak. The Pernix decision should put government contractors on notice that, depending on applicable contract language, federal contractors may be entitled to schedule relief, but not costs, as contractors deal with COVID-19 related impacts.
In September 2013, the Department of State (“DOS”) contracted with Pernix Serka Joint Venture (“PSJV”) in a firm, fixed-price contract to construct a rainwater capture and storage system in Freetown, Sierra Leone.2 The contract included all necessary labor, materials, equipment, and services.3 Additionally, the contract permitted the contractor to recover time, but not money, for excusable delays as defined in Federal Acquisition Regulation (“FAR”) 52.249-10.4 The excusable delays provision expressly referenced government acts, epidemics, and quarantine restrictions.55 The DOS issued PSJV a notice to proceed in December 2013. In July 2014, about four months before the project completion date, Sierra Leone suffered an Ebola virus outbreak.6
In light of the outbreak, PSJV sought guidance from the DOS on how the project should proceed.7 Specifically, PSJV queried about a potential project shutdown and temporary demobilization to protect its employees during the outbreak.8 In response to PSJV’s requests, the DOS advised that its operations post in Sierra Leone was operating as usual, that the DOS would not order an evacuation of the job site, and that PSJV must make its own business choices about the need to demobilize.9 After the World Health Organization declared the Ebola outbreak an international public health emergency on August 8, 2014, the PSJV notified the DOS that it planned to shut down construction and demobilize the site.10 In response, the DOS acknowledged the concern about the Ebola outbreak, but advised that it recognized PSJV’s site demobilization as a unilateral decision and, therefore, would not grant an equitable adjustment for costs associated with the temporary shutdown.11
In mid-March 2015, PSJV remobilized to the site.12 Upon remobilization, PSJV incurred additional costs as it expanded the on-site medical facility and provided a standby licensed paramedic.13 Due to the associated demobilization and remobilization costs, and the expanded medical capabilities, PSJV submitted a request for equitable adjustment to the DOS seeking both an extension of time and additional costs.14 The DOS granted PSJV the requested time extension, but rejected PSJV’s claim for additional costs associated with the temporary shutdown and expanded medical capabilities.15 Following PSJV’s resubmission of the REA as a certified claim, and the contracting officer’s denial of that claim, PSJV appealed to the Board.
The DOS successfully moved for summary judgment based on the above facts. To support its grant of summary judgment in favor of the DOS, the Board first explained that the Parties entered into a firm, fixed-price contract. The Board emphasized the well-established principle that “a contractor with a fixed price contract assumes the risk of unexpected costs not attributable to the Government.”16 The Board emphasized that PSJV and DOS entered into a firm, fixed-price contract that expressly provided for how certain excusable delays not attributable to the Government would be treated: PSJV would be granted time, but not money. So, where the costs increased due to the unforeseen Ebola outbreak, PSJV bore the risk.
The Board next addressed PSJV’s argument that it was entitled to recover costs because of either a cardinal or constructive change to the contract. “A cardinal change is a breach that occurs when the Government effects a change in the work so drastic that it effectively requires the contractor to perform duties materially different from those in the original bargain.”17 Indeed, a cardinal change may rise to an actual breach of contract.18 To recover for a constructive change, the contractor must show “(1) that it performed work beyond the contract requirements, and (2) that the additional work was ordered, expressly or impliedly, by the government.”19
The Board found both of these arguments unavailing. First, the Board found that no cardinal change occurred because the addition of life safety measures did not so alter the very thing that PSJV contracted for. The Board further found that no constructive change occurred because the DOS never ordered PSJV to evacuate the work site. At all times, PSJV was required to construct the rainwater capture and storage system, and was entitled to additional time, but not money, to complete the project in the event of an excusable delay.20
There is no question that global supply chains and labor forces have been heavily disrupted due to COVID-19. Contractors are suffering delays and increased costs due to COVID-19-related impacts, and ensuing litigation is inevitable. The Pernix decision, however, offers some sobering insight into how the Board might interpret certain government contract provisions in light of COVID-19. It appears that time extensions will be granted without much contest, but the Board will not readily award additional costs – at least in the face of a clear contract provision such as that in the PSJV-DOS agreement. In a COVID-19 world, understanding your contractual entitlement and planning early will be critical to monitoring costs and keeping your project alive.
1 CBCA 5683, 2020 WL 1970843 (C.B.C.A. Apr. 22, 2020)
2 Id. at 2.
5 Id. (“The Contractor will be allowed time, not money, for excusable delays as defined in FAR 52.249-10[.] . . . Examples of such cases include . . . (2) acts of the United States Government in either its sovereign or contractual capacity; (3) acts of the government of the host country in its sovereign capacity; . . . (7) epidemics; (8) quarantine restrictions[.]”
8 Id. at 3.
9 Id. at 3, 9.
10 Id. at 3-4.
11 Id. at 4.
12 Id. at 6.
15 Id. at 7.
16 Id. at 7-8 (quoting Matrix Business Solutions, Inc. v. Department of Homeland Security, CBCA 3438, 15-1 B.C.A. (CCH) ¶ 35,844, 2014 WL 8106179 (C.B.C.A. Dec. 19, 2014)).
17 Bell/Heery v. United States, 106 Fed. Cl. 300, 314 (2012) (quoting Krygoski Constr. Co. v. United States, 94 F.3d 1537, 1543 (Fed. Cir. 1996)).
18 Id. at 313.
20 Pernix, CBCA 5683 at 9-11.