Like the COVID-19 virus, COVID-related contract claims have not gone away. In “Contracting in the Fog of War: Recovering Costs Caused by an Epidemic,” we reported on Pernix Serka Joint Venture v. Department of State, CBCA No. 5683, 20-1 BCA ¶ 37589 (April 22, 2020), in which the Civilian Board of Contract Appeals (CBCA) determined a contractor’s additional costs incurred due to the Ebola outbreak did not entitle the contractor to an equitable adjustment. In most cases, COVID-related claims have been similarly disappointing for government contractors. This is particularly true under fixed-price contracts, where the contract price is not normally subject to any adjustment based on a contractor’s cost experience in performing the contract. However, the Armed Services Board of Contract Appeals (ASBCA) recently held that a contractor was entitled to compensation for additional COVID-19-related costs arising under a fixed-price task order, based on the particular facts of the case.
Facts
In StructSure Projects, Inc., ASBCA No. 62927 (Aug. 7, 2023), the U.S. Army Corps of Engineers (“Agency”) awarded StructSure Projects, Inc. (StructSure) a fixed-price task order to perform design and alteration services at a medical center on an Air Force base. The order contained several contract line item numbers (CLINs) for various services, including the provision of temporary phasing facilities for use at the medical center during the alteration services. After StructSure began work, and due to the COVID-19 pandemic, the government designated the task order non-mission-essential and precluded StructSure from any on-site activities for 44 days.
StructSure submitted a request for equitable adjustment (REA) for the impacts of the suspension of work. In response, the government issued a bilateral modification providing a non-compensatory time extension, resulting in a longer period of performance.
StructSure submitted another REA asserting that the government used the temporary phasing facilitates and associated rental furniture and equipment during the time the project was classified as non-mission-essential and StructSure could not perform on site. As a result, StructSure stated it incurred extended rental costs for the facilities, furniture, and equipment. Originally those items were to be on site for only 13 months, but due to the stoppage of work and per the modification, the temporary phasing facilities were on site for 16 months.
The government denied the REA, stating that, pursuant to the contract’s Default clause, FAR 52.249-10, the government may grant extra time in response to a pandemic or quarantine but not additional money.
StructSure submitted a certified claim seeking reimbursement for the same costs, alleging it was entitled to the additional rental costs incurred because the government occupied the temporary phasing facilitates and utilized the rental furniture and equipment during the stoppage of work.
The contracting officer’s final decision denied the claim for two reasons: (1) the Agency stated that the exclusion from the work site was not a change as it was considered a sovereign act of the government and therefore, pursuant to FAR 52.249-10, the contracting officer could issue a non-compensable extension for days lost, which the Agency did, and (2) StructSure was obligated to bear the costs here—despite the fact the medical facility continued to use the temporary phasing facilities during the period StructSure was not allowed access—because it had a fixed-price task order.
Decision
The ASBCA stated that under the contract’s Changes clause, FAR 52.243-4, the contracting officer was required to make an equitable adjustment and modify the award for any change causing an increase in the contractor’s costs. In this case, the government modified the task order and changed the completion date, which required use of the temporary phasing facilities for a longer period of time. As a result, the ASBCA concluded the government changed the task order CLIN to utilize the temporary phasing facilities for additional time, and StructSure was entitled to compensation for those additional rental costs.
The government raised two primary challenges against StructSure’s claim.
First, the government argued that the task order, including the CLIN requiring the provision of temporary phasing facilities, was fixed-price, and the risk of a pandemic is always borne by the contractor in a fixed-price task order, with the exception of the grant of a non-compensable extension of time pursuant to the default clause. The ASBCA disagreed, explaining that the default clause would not apply to performance of this particular CLIN because StructSure provided the temporary phasing facilities during the 44-day stoppage of work.
Second, the government contended that StructSure could not recover additional costs incurred due the sovereign acts defense. The government argued that the defense applied because the base leadership suspended all non-mission essential activities due to the COVID-19 pandemic, not merely work relating to StructSure’s task order. As a result, according to the government, StructSure was only entitled to a non-compensable delay, which the government provided in its bilateral contract modification extending the task order completion date.
Under the sovereign acts defense, the government, when sued as a party to a contract, cannot be held liable for its general and public acts as a sovereign. The defense precludes a contractor from monetary recovery for contract damages resulting from the government separately acting in its sovereign capacity.
The defense only applies when: (1) the government’s sovereign act is public, general, and only incidentally falls upon the contract or order, and (2) the sovereign act renders performance impossible or impracticable.
Here, the government’s actions in limiting base access to only mission-essential personnel due to COVID-19, and finding StructSure’s task order non-mission-essential and therefore precluding StructSure from on-site construction activity, were public and general sovereign acts. However, supplying the temporary phasing facilities was a separate CLIN under the fixed-priced task order, and StructSure met its deliverable. In other words, the Government’s decision to suspend access to the base for non-mission -critical contractors did not make supplying the temporary facilities impossible. To the contrary, StructSure delivered the temporary phasing facilities, and the government used them for ongoing medical treatments. Therefore, the ASBCA concluded the sovereign acts defense did not apply and StructSure was entitled to compensation for the additional rental costs.
Takeaway
StructSure Projects provides a potential avenue for recovery of COVID-19-related costs under the Changes clause where the government receives some additional benefit. It also demonstrates the limitations of the sovereign acts defense where the contractor continues to perform its own obligations—in this case, providing the temporary facilities—despite the government’s sovereign act. This case could be significant, as contractors continue to grapple with the impact of the pandemic.