Government Contracts Claims – Know Your Rights
Manfredonia Law Offices is ready to assist when a contractor is confronted with a dispute with the Government. An immediate effort is made to gather the relevant facts and develop a strategy based on federal Government contract statutes, regulations and case law. Choosing the right strategy is essential to recovery.
VA Release Clause
One common issue faced by contractors performing work for the Department of Veterans Affairs is the use of the following Release Clause in all contract modifications:
Contractor's Statement of Release: In consideration of the modifications agreed to herein as complete equitable adjustments for the Contractor's Change Order Request(s), the Contractor hereby releases the Government from any and all liability under this contract for further equitable adjustments attributable to such facts or circumstances giving rise to the proposals for adjustment. The consideration represents a complete equitable adjustment for all costs, direct and indirect, associated with the work and time agree to herein, including but not limited to all costs incurred for extended overhead, supervision, disruption or suspension of work, labor inefficiencies, and this change's impact on unchanged work.
The VA Contracting Officer may tell the Contractor it has no choice but to sign the above Release Clause. If the contractor agrees, it may be waiving valuable rights to delay damages and other costs associated with the change order work.
The Contractor is not required to sign the VA Release Clause, particularly if there are costs that cannot be fully quantified at the time of the change order. In such a case, the Contracting Officer can issue a unilateral modification instead.
VA Changes Clause's Limitation on Overhead & Profit
The Changes Clause found in the Federal Acquisition Regulations provides uniform relief to Government contractors seeking payment for change order work and associated delays. The VA issued a special supplemental regulation that limits this right for changes less than $500,000. Often referred to as the "G-10 Clause," the VA imposed a ceiling on the amount of overhead and profit a contractor can recover for change order work under $500,000. The VA's supplemental changes clause provides in pertinent part:
Allowances not to exceed 10 percent each for overhead and profit for the party performing the work will be based upon the value of labor, material and use of construction equipment required to accomplish the change. As the value of the change increases, a declining scale will be used in negotiating the percentage of overhead and profit.
Allowable percentage on changes will not exceed the following: 10% overhead and 10% profit on first $20,000; 7 1/2% overhead and 7 1/2 profit on next $30,000; 5% overhead and 5% profit on balance over $50,000.”
Overhead and Contractor's fee percentage shall be considered to include insurance other than mentioned herein, field and office supervisors and assistants, watchman, use of small tools, incidental job burdens, and general home office expenses, and no separate allowance will be made therefore.
The above provision imposes as sliding scale limitation on the amount of overhead a contractor can recover such as field supervision and home office overhead costs, which are the main components of a typical delay claim. Thus, even if a contractor suffers greater overhead costs because of Government-caused delay, the contractor cannot recover more. The Courts have upheld this limitation on damages and rejected contractor claims of unfairness. Santa Fe Engineers, Inc., Appellant, v. the United States, 801 F.2d 379 (Fed. Cir. 1986)
Unfortunately, VA contractors are surprised and dismayed when they learn that, despite the fact that they have suffered legitimate extended overhead expenses due to excusable delay, they must eat those expenses because of the G-10 clause.
The picture is not entirely bleak, however. Boards of Contract Appeals and Courts have allowed contractors to recover extended overhead costs above the G-10 limitations if recoverable under the suspension of work clause. To proved entitlement to suspension of work delay damages, a contractor must demonstrate that (1) there was a delay extending the contract completion time, (2) the delay must have been proximately caused by an unreasonable Government act or omission, (3) the delay resulted in some injury and (4) there is no delay concurrent with the suspension that is the fault of the contractor. P.J. Dick Incorporated v. Secretary of Veterans Affairs, 02-1290 (April 7, 2003)
In layman's terms, the suspension of work clause fully compensates a contractor for all of its extended overhead expenses if the suspension stems from an unreasonable Government act or omission. The G-10 clause does not strip a contractor of this right. It is therefore critical to invoke the suspension of work clause whenever possible if submitting a delay claim to the VA. Otherwise, a contractor could become financially strangled by the G-10 clause.
Defective specifications are a major ground for recovery under the suspension of work clause. Since the Government's issuance of a defective specification is viewed as per se unreasonable. Thus, if negligent drafting of the specifications or drawings necessitated changes, the time a contractor remained idle waiting for the VA to implement a fix would be compensable under the Suspension of Work clause. Dawson Construction Co, Inc., VABCA-3306-3310, 93-3 BCA ¶26,177
By contrast, if for example, the Government changed paint finishes after contract award for decorative reasons, this would not be the result of defective specifications. The VA G-10 changes clause clause would govern in that case. But if the Government sat on its decision to change the paint finishes for an unreasonable long period of time, that delay would be based on an unreasonable act and therefore compensable under the suspension of work clause.
When submitting a delay claim to the VA, one must be keenly aware of the factual distinctions that permit recovery under the suspension of work clause as opposed to the G-10 clause. This must be done on a case by case basis. Lastly, to prove entitlement under the suspension of work clause the delay must impact the critical path.
