Lewis Roca Blog

(This article was originally published in the Fall 2020 Edition of the PACA Pulse Newsletter of the Professional Aerospace Contractors Association of New Mexico.)

No question, the ongoing COVID-19 pandemic is giving rise to multitudes of delay claims (along with claims of other varieties) by contractors against the federal government. Since the effects of the COVID virus did not begin to be felt until March of this year, even the earliest of these virus-related claims have yet to work their way through the dispute resolution process. Consequently, our ability to project how the courts and boards will approach these claims is limited. Recently, however, the Civilian Board of Contract Appeals offered a bit of a preview of how pandemic delay claims may be addressed in Pernix Serka Joint Venture v. Department of State, 20-1 BCA ¶ 37589, CBCA No. 5683 (April 22, 2020). This case concerning delay caused by the 2014 outbreak of the Ebola virus in Africa, is instructive for contractors seeking compensation for COVID delays.

Nature of Contract

In September 2013, the Department of State (DOS) awarded a firm, fixed-price contract in the amount of $10,864,047 to Pernix Serka Joint Venture (PSJV). The contract required PSJV to construct a rainwater capture and storage system in Freetown, Sierra Leone. This agreement included a clause entitled “Excusable Delays,” which stated:

The Contractor will be allowed time, not money, for excusable delays as defined in FAR 52.249-10, Default … Examples of such cases include (1) acts of God or of the public enemy; (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; (4) acts of another contractor in the performance of a contract with the Government; (5) fires; (6) floods; (7) epidemics; (8) quarantine restrictions; (9) strikes; (10) freight embargoes; and (11) unusually severe weather.

Outbreak of Virus

DOS issued a notice to proceed on December 17, 2013. PSJV began performance, completing 65 percent of the project by August 7, 2014.

An outbreak of the Ebola virus began in the Republic of Guinea in March 2014 and spread to Sierra Leone by July. PSJV became concerned about the potential impact of the spread of the virus and its ability to support contractor personnel should they need to be evacuated. In an e-mail to the contracting officer on July 31, 2014, PSJV sought “instructions on the way forward.” On August 6, PSJV told the contracting officer that “we do not want to act unilaterally and need to have a discussion with you, get directions, or at least a consensus of the right action of the way forward.” The contracting officer responded via email on August 6:

Until we get further word on this issue we can’t tell you to leave the Post but the decision for your people to stay or leave for life safety reasons rests solely on your shoulders. Your peoples [sic] safety should be of the most utmost [sic] concern! Please let me know what action you decide to take in reference to this situation.

On August 7, 2014, PSJV sent a notice of delay related to the crisis to DOS. The following day, August 8, the World Health Organization (WHO) declared the outbreak an “international public health emergency.” Airlines suspended flights. Some contractor and subcontractor personnel asked to leave Sierra Leone because of the escalated Ebola threats and the increased risk of not being able to leave Sierra Leone should conditions worsen. The U.S. Embassy in Freetown ordered eligible family members of embassy personnel to depart from the post. However, the U.S. Embassy and staff, as well as the DOS, continued to operate throughout the outbreak.

Contractor Requests for Guidance from Government

On the same day as the WHO declaration, PSJV decided to shut down the project and directed that all personnel in the country be evacuated. PSJV also notified DOS of its decision to temporarily shut down the project work site as a temporary measure. In response, the DOS stated:

We are aware and acknowledge your concerns in your letter dated 08AUG2014 about the impact the Ebola Outbreak has towards continuing work on this project. 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 from the Government with respect to additional costs you may incur in connection with your decision to curtail work on this project.

The contracting officer further instructed PSJV “to keep us advised as to your plans and timeline to resume work.”

PSJV informed DOS that it intended to re-mobilize its personnel once the Ebola outbreak was under control and the risk posed to employees was reduced. Later, during his deposition, a PSJV representative explained PSJV’s concerns:

We felt we were cornered to make a unilateral decision to save our people’s lives essentially, and it felt like it was a chicken game with the Government. They waited us out until we had to leave, and then immediately you get a response that says this is unilateral.

The parties met on multiple occasions from August 2014 through January 2015 to discuss the ongoing crisis. PSJV continued to request guidance from DOS and expressed frustration that DOS would not provide any. In a meeting held on September 30, 2014, DOS clarified that any decisions on the way forward relating to PSJV employees and their safety would rest solely on PSJV. Thus, the DOS would not provide any instructions or directions concerning these issues.

PSJV alleged that in October 2014, the contracting officer “verbally agreed that PSJV could submit a ‘rough order of magnitude’ [ROM] cost proposal for the additional life safety measures needed to complete the project.” However, after receiving PSJV’s cost proposal on November 6, 2014, DOS rejected it, stating, in part:

PSJV may be entitled to a non-compensable time extension under the excusable delay clause if it can prove that performance of the contract was impossible .... If the [U.S. Government] agrees to the existence of excusable delay conditions, PSJV would be entitled to a time extension only, and not an equitable adjustment for delay costs or the other types of expenses included in PSJV’s [cost proposal].

Contractor’s Claim for Costs Imposed by Virus

PSJV continued to press for compensation for the costs incurred during the outbreak. On March 31, 2015, PSJV updated DOS on the status of its remobilization activities and discussed a draft ROM estimate that it had prepared for the cost of the added medical, health, and safety provisions, as well as other costs arising from the Ebola outbreak.

PSJV submitted a revised baseline project execution schedule in April 2015, which shifted the project’s substantial completion date to September 30, 2015. DOS accepted the revised schedule.

On July 6 and August 4, PSJV submitted requests for equitable adjustment (REA) to the contracting officer seeking compensation for various cost impacts of the virus. The contracting office denied the first REA and did not decide the second REA.

On September 30, the DOS issued a contract modification extending the project’s completion date to October 9. The time extension covered the 195 additional calendar days requested by PSJV for the Ebola outbreak.

PSJV submitted to the DOS a certified claim for $1,255,759.88 on January 17, 2017. The claim sought “(1) $608,891 in additional life safety and health costs incurred due to differing site conditions, disruption of work and the need to maintain a safe work site for the Pernix Serka Joint Ventures work and Government personnel, and (2) $646,868.88 in additional costs incurred resulting from that disruption of work, and the need to demobilize and remobilize at the work site.” The claims were denied and PSJV appealed.

Fixed-Price Contract Places the Risk on Contractor

On appeal, the DOS moved for summary judgment. In addressing the motion, the CBCA observed it is well established that absent a special adjustment clause, a contractor with a fixed-price contract assumes the risk of unexpected costs not attributable to the government. In this case, the Excusable Delays clause entitled PSJV to additional time, but not additional costs. The Board noted that the contract did not include a clause shifting the risk to the government for any costs incurred due to an unforeseen virus. Nor did the contract require the government to provide PSJV with direction on how to respond to the Ebola outbreak.

CBCA Rejects Contractor's Attempt to Shift Risk to Government

PSJV’s opposition to the motion for summary judgment focused on allocating the risk for Ebola-related costs to the government. To do so, the contractor asserted two primary theories, that PSJV was forced to perform in cardinal change conditions or was constructively ordered to provide medical and safety measures outside the scope of the contract.

The Board described a cardinal change as a breach that occurs if the government effects a change in the contractor’s work so drastic that it effectively requires the contractor to perform duties materially different than those found in the original contract. In this case, the Board concluded that despite the difficulties encountered during the Ebola outbreak, the government never changed the description of work it expected from the contractor. Throughout its communications with PSJV, the DOS repeatedly stated it would not give directions on how the contractor should respond to the virus, instead leaving decisions solely in the hands of PSJV. The work required of PSJV was detailed in the contract. The addition of safety measures after remobilization did not alter the nature of the thing it had contracted for; the contractor remained obligated to perform at the fixed price.

In response to PSJV’s constructive change theory, the Board stated that a constructive change occurs where a contractor performs work beyond the contract requirements without a formal order, either by an informal order or due to fault of the government. Here, the Board found PSJV fell short of proving that the DOS ordered it to take an action in response to the outbreak, or that the government’s inaction rose to the level of a constructive change. PSJV argued that although the government had no contractual obligation to provide direction, it should have done so nevertheless. Disagreeing, the Board determined that PSJV failed to demonstrate a constructive change because no change to the contract occurred. The contractor remained obligated to perform throughout the performance period and the Excusable Delays clause provided for additional time, but not additional money.

Based on these conclusions, the Board granted the DOS motion for summary judgment. The appeal was denied.

Lessons to be Learned

To contractors pursuing a delay claim arising from the current pandemic, the PSJV v. Department of State case offers more of a warning than helpful authority. At least in a fixed priced environment where the contract does not include an Excusable Delays clause offering monetary compensation, a contractor may have a difficult time recovering COVIDrelated delay costs.

Often in reviewing reported decisions favoring the government, it can be useful, taking advantage of 20/20 hindsight, to identify what the contractor should have done differently. Here, this exercise does not reveal any obvious errors by the contractor. PSJV definitely had the right idea — it maintained a steady stream of communications with the government, placed it on notice of conditions as they developed, and repeatedly requested instructions. The problem was the government refused to offer any guidance that could then be construed as a change to the contract. In addition, the DOS kept emphasizing that all decisions rested on the contractor. Although PSJV’s strategy was unsuccessful, it was worth trying. A contracting officer less savvy or attentive than the DOS official here may indeed provide direction amounting to a contract change. Even a failure by the government to respond to notice from the contractor of changed conditions may be deemed a constructive change.

A PSJV representative referred to its communications with the DOS as a game of chicken. That is exactly right. The government waited out the contractor until it was forced to take action to protect the health of its employees. The government has the upper hand in these circumstances because the contractor is ultimately responsible for the safety of its personnel. Nonetheless, contractors need to be aware of this game and delay acting unilaterally for as long as possible.

Finally, the current COVID pandemic may offer some strategies that were not available to PSJV. If the contracting officer does not provide contract-specific delay instructions to a contractor, more general COVID orders and other directives from the federal government might be used to argue the contract was changed.

To a contractor bringing a COVID-related delay claim, the PSJV decision is not a roadmap for success. On the other hand, it does offer an advance look at the obstacles along the way.

This material has been prepared by Lewis Roca Rothgerber Christie LLP for informational purposes only and is not legal advice. Specific issues dealing with COVID-19 are fluid and this alert is intended to provide information as it is currently available. Readers should not act upon any information without seeking professional legal advice. Any communication you may have with a Lewis Roca Rothgerber Christie LLP attorney, through this announcement or otherwise, should not be understood by you to be attorney-client communication unless and until you and the firm agree to enter into an attorney-client relationship.