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Where a contractor timely completed a construction contract for the U.S. Army Corps of Engineers and accepted payment which included changes required by the Corps, the contractor was barred from later filing a claim for additional compensation.  The claim was barred by accord and satisfaction because when signing change orders the contractor did not reserve its rights to assert any additional delay or impact.  Moreover, the contractor had signed releases in certain bilateral modifications that barred its claims.

The contractor was paid the lump sum contract price plus over $600,000 in additional compensation for changes to the work that were agreed upon and authorized by bilateral modifications.  After completing the work and being paid, the contractor, Jackson Construction Company (Jackson), sought to recover additional compensation under two separate claims.  One claim was for early completion delay.  The other was an impact claim to recover additional overhead and general administrative costs.  Jackson asserted that the project was delayed by the Corps of Engineers at the start of the project causing the contractor to have to overcome a 120 day delay.  This was allegedly due to the having to redesign and relocate a waterline that ran through the footprint of the building.  Jackson argued the applicability of what is known as the Eichleay formula for calculating additional home office overhead.  The other claim was for additional damages allegedly incurred due to cumulative impact of numerous changes required by the Corps during performance.

The U.S. Claims Court found in favor of the Corps and denied the claims due to (1) accord and satisfaction and (2) on the merits, the contractor failed to prove its case.  As explained by the court, “The doctrine of accord and satisfaction is an absolute defense that terminates any previous right that a party may have had to assert a claim of the same subject matter.”    Further explaining this, the court stated: “An ‘accord’ is a contract under which both parties agree that one party will render additional or alternative performance in order to settle an existing claim made by the other party, and ‘satisfaction’ is the actual performance of the accord.  A party asserting an accord and satisfaction defense must establish four elements: (1) proper subject matter; (2) competent parties; (3) a meeting of the minds; and (4) consideration.”

The issue concerning the delay was that the contractor asserted that although it completed the contract exactly on time, it could have completed its work much earlier if it had not been for delays due to the waterline location that were allegedly caused by the Corps.  In reviewing these issues, the court pointed out that Jackson chose to move the waterline and that the Corps approved Jackson ’s plan with the work to “be performed at no additional cost to the Government.”  Eventually, the Corps paid Jackson on a claim for the waterline relocation in the amount of $15,212 on a total claim of $18,212.   The modification, along with all the other bilateral modifications executed by the parties included the following stipulation regarding schedule delays and impact changes:  “The contract period of performance remains the same.  It is further understood and agreed that this adjustment constitutes compensation in full on behalf of the contractor and his subcontractors and suppliers for all costs and markup directly or indirectly, including extended overhead, attributable to the change order, for all delays related thereto, and for performance of the change within the time frame stated.”

The Corps agued that Jackson was barred by this release language from obtaining any further damages.   The court agreed that Jackson did not make a timely reservation of rights to assert additional damages for the problems associated with the work, either in its original claim or at any time prior to the execution of the bilateral modification.  It was not until after the contract was completed that Jackson first attempted to make an additional delay claim.  The same was true of Jackson ’s cumulative impact for the changes required by the Corps.  The court found that “ Jackson never attempted to reserve its rights to assert a cumulative impact claim at any time during the work.”

Jackson argued that there had been no accord and satisfaction because the release language was in effective for the following reasons: (1) Jackson says it made a written reservation of rights to assert an impact claim at a later date; (2) the modifications were ambiguous; (3) the modifications were the result of misrepresentations by the Corps; and (4) the modifications were executed under duress.  The court found none of these arguments were supported by the evidence presented at trial.  The court found Jackson did not explicitly reserve its rights to assert a delay or impact claim at a later date.   Even if Jackson did attempt to reserve its rights, however, the court found it did not do so in a timely manner.   In fact, the court stated that the delay and impact claim appeared to be an after thought.  According to the court, “It does not appear that Jackson had even considered submitting a delay claim at that time.  Jackson did not request any delay damages when it submitted its [original] claim for the waterline location….”

Much later, when executing two contract modification completely unrelated to the claims at issue in this particular matter, Jackson attempted to make two after-the-fact reservations of rights pertaining to the earlier matters.   “The Court views Jackson ’s actions as an invalid attempt to revive claims that had already been extinguished by its execution of bilateral modifications.”  Moreover, said the court, “ Jackson did not reserve its rights to assert future claims arising from any of the other specific performance problems that it presented at trial.”

In reviewing the language of the release, the court found that it was neither ambiguous nor obtained by misrepresentation.  And, finally, the court found that Jackson had been under no duress when it agreed to the release language.   For these reasons, the court found in favor of the Government and against the contractor.

Jackson Construction Co., Inc v. The United States , 62 Fed.Cl. 84.

Comment:  This case points out how important it is for contractors to exercise extreme caution when executing change orders—if they intend to reserve any potential claims for delay and impact.  It is sometimes difficult when agreeing to a change order to know the full impact of the change in the event that the project owner issues multiple additional changes impacting the project and the contractor’s work.  If there is a chance that additional damages may arise out of a change, the contractor should strive to include some language explicitly reserving its rights.  Otherwise, it may find itself in the situation described in this case.

About the author: Article written by J. Kent Holland, Jr.,  a construction lawyer located in Tysons Corner, Virginia,  with a national practice (formerly with Wickwire Gavin, P.C. and now with Construction Risk Counsel, PLLC) representing design professionals, contractors and project owners.  He is founder and president of a consulting firm, ConstructionRisk, LLC, providing consulting services to owners, design professionals, contractors and attorneys on construction projects.  He is publisher of ConstructionRisk.com Report and may be reached at Kent@ConstructionRisk.com or by calling 703-623-1932.  This article is published in ConstructionRisk.com Report, Vol. 7, No. 8 (Dec 2005).

Copyright 2005, ConstructionRIsk.com, LLC