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Contractor that entered into a number of change orders for additional payments from the project owner (U.S. Navy) was barred from claiming entitlement to additional compensation when the Government subsequently terminated since each of the change orders contained language releasing the Navy as to the matters covered by the change orders.

In J.C. Equipment Corp. v. Gordon England, 360 F.3d 1311 (2004), the contractor (“J. C. Equipment”) had a fixed-price contract to repair a water system for a Navy base.  Work didn’t proceed smoothly due to a large number of underground obstructions and pipelines being encountered.  Forty-two change order modifications were executed during performance and pursuant to the construction contract, each of these “bilaterally executed modifications … released the Government from further payment to J.C.” for the matters covered.”

The Navy eventually ordered the contractor to stop work, and the Government terminated the contract based on the contractor’s alleged failure to diligently prosecute the work.  The contractor filed a formal claim seeking an equitable adjustment of over $2 million.  When the Government contracting officer rejected most of the claim, the contractor appealed to the Armed Services Board of Contract Appeals, where the written record included 15 thousand pages, and there was a hearing resulting in a 1,000 page transcript.   The contractor lost on all but a few minimal claims and appealed the matter to court.

In reviewing the facts of the matter and the Board’s decision, the court concluded that language of waiver of release contained in the change orders was clear and unambiguous, barring contractor recovery.  The waiver and release clause was as follows: “Whenever the Contractor submits a claim for equitable adjustment under any clause of the contract …, such claim shall include al types of adjustments in the total amounts to which the clause entitles the Contractor, including but not limited to adjustments arising out of delays or disruptions or both caused by such change.  Except as the parties may otherwise expressly agree, the Contractor shall be deemed to have waived (i) any adjustments to which it otherwise might be entitled under the clause where such claim fails to request such adjustments, and (ii) any increase in the amount of equitable adjustments additional to those requested in the claims.”

The court explained that this clause meant that in seeking an equitable adjustment, the contractor must include all items for which such an adjustment could be sought, and that failure to do so would constitute a waiver of claims that were not asserted and that the contractor would execute a release of such claims as part of the receipt for equitable adjustment for any change order.  The contractor’s failure at the time of the change order modifications to explicitly except the additional items that it is now claiming from the waiver and release bars the contractor from asserting them subsequently, concludes the court.

Practice Note: This decision, similar to  the one discussed in the September issue of the ConstructionRisk.com Report further demonstrates the importance of waiver and release language.  Such language when contained in an executed change order can be used effectively to manage the change order process so as to avoid subsequent disputes over entitlement to additional equitable adjustment for matters covered by the change orders.  Further entitlement to either (or both) time and money can be waived and released.  The language doing so should be clear, unambiguous, concise, and as comprehensive as possible if the project owner desires to eliminate subsequent claims litigation.  Where clear language concerning the release is both in the contract and in the change order (as it was in this case) the goal of the project owner will be to seek summary judgment against the contractor and thereby avoid the type of expensive litigation that must have occurred here that produced a 1,000 page transcript and up to 15,000 pages of written record.    Contractors desiring to preserve their rights to further recovery must exercise due care to negotiate out of  change orders language that would release the owner from further time or money that the contractor may be intending to seek later in the project that arguable arise out of or are related to these same change orders.  For example, if the contractor wants to preserve the right to seek delay and impact costs that are not yet known at the time of the change order but which could result if the number of change orders keeps growing, this should be specifically stated as an exception to the waiver and release language.

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. 6, No. 7 (Sep 2004).

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