Recent Armed Services Board of Contract Appeals (ASBCA) cases have rejected contractor requests for equitable adjustments (REAs) related to the impact of COVID-19 on contract performance under firm fixed price (FFP) contracts. In both cases, discussed below, the ASBCA turned to the Connor Bros. Federal Circuit decision (550 F.3d 1368 (2008)). In that decision the Federal Circuit found the act of the Sovereign Government does not result in an act of the Government as a contracting party. Therefore, under the “Changes” clause (FAR 52.243-1, Changes-Fixed-Price) that was in Connor’s contract this did not give rise to an equitable adjustment in the contract price. The basis of the Connor Bros. decision and the two recent cases is the “Sovereign Acts Doctrine.”
While these cases all relate to the additional cost associated with employees not being able to access the work site, it is likely that they may set a precedence for any REAs under FFP contracts related to additional cost (e.g., personal protective equipment, additional cleaning requirements, etc.) because of the impact of COVID-19. Both recent cases include statements to the fact that fixed-price contracts place the risk of additional cost on the contractor. In both cases, the contracting officer extended the period of performance through contract modification without consideration.
Sovereign Acts Doctrine
Sovereign Acts Doctrine establishes that actions taken by the United States in its sovereign capacity shield it from contractual liability for those actions. The United States v. Winstar Corp. (518 U.S. 839, 904 (1996)) established a two-part test for the sovereign acts doctrine: “1) the act be genuinely public and general, with only incidental impact to the contract, and 2) that the act rendered governmental performance impossible.” The Federal Circuit in Seaboard Lumber Co. v. United States (308 F.3d 1283, 1294 (2002)) broke impossible performance down into the following: “(i) a supervening event made performance impracticable; (ii) the non-occurrence of the event was a basic assumption upon which the contract was based; (iii) the occurrence of the event was not [the Government’s] fault; and (iv) [the Government] did not assume the risk of occurrence.”
The Sovereign Act Doctrine is inherent in every Government contract. The object of the doctrine is to place the Government in a similar position as a private contracting party in the same circumstances. In other words:
- The Board and Court put it this way – The acts of the Sovereign Government (e.g., legislation or executive order) when public and general, do not alter, modify, obstruct, or violate any contracts impacted by the action of the Sovereign.
- In our words – The US Government in its sovereign role can take a broad-based public action that impacts numerous contracts and the effect of that public action is not considered a change to the contract by the contracting officer. If the action is not specific to any one contract, for example base closure, and both contracting parties (i.e., the contractor and the contracting officer), are unable to support contract performance neither contracting party can cover damages.
ASBCA No. 62936 – JE Dunn Construction Co.
JE Dunn Construction Company (JE Dunn) argued that the Government changed the contract by implementing COVID-19-related restrictions requiring all personnel arriving at Fort Drum from more than 350 miles away to quarantine for 14 days prior to performing work on-site. The Government countered the sovereign acts doctrine barred the claim and the risk of costs relating to a pandemic or quarantine under a fixed-price contract rest with the contractor. The Board found the quarantine to be a sovereign act and denied the appeal.
Interestingly, the findings of fact section of this case includes the FAR 52.249-10, Default (Fixed-Price Construction) Clause. This clause provides that a contract should not be terminated for default, nor the contractor charged damages when the contract performance is delayed due to epidemics or quarantine restrictions. The clause goes on to instruct the contracting officer to extend the period of performance for such situations. The Government argued that the risk of costs relating to a pandemic or quarantine under a fixed-price contract rest with the contractor based on the Default Clause. This is common language in the fixed price default clauses not just construction. The Board did not address this argument as the sovereign acts doctrine barred the claim.
ASBCA No. 62982 – APTIM Federal Services, LLC
APTIM Federal Services, LLC (APTIM) appealed the denial of its claim for additional costs incurred for a construction contract during a roughly two-month when Arnold Air Force Base was closed due to COVID-19. The Government invoked the sovereign act affirmative defense. The Board found the base closure to be a sovereign act and denied the appeal.
Federal Circuit 550 F.3d 1368 (2008) – Connor Bros.
Conner Bros. Construction Company, Inc., sought delay damages after it was denied access to its construction site for 41 days following the terrorist attacks of September 11, 2001. The ASBCA denied the claim on the basis of the Sovereign Acts Doctrine. The Federal Circuit agree with the Board that the sovereign act of limiting base access precluded recovery of damages for the delay that resulted.
Our Takeaway
Requests for equitable adjustment due to the impact of COVID are likely to be few (if any) and far between. It does appear that contracting officers have no concerns with extending periods of performance with no expectation of consideration. Additionally, if the REA does get past the Sovereign Acts Doctrine the fixed price default clause language could be the next roadblock.
For a much more in-depth legal view on these cases we suggest listening to Crowell Government Contracts Special Edition of the Fastest 5 Minutes “Sovereign Acts Doctrine and COVID Impacts” from June 2, 2022. Special Edition of the Fastest 5 Minutes: Sovereign Acts Doctrine and COVID Impacts | All Alerts & Newsletters | Crowell & Moring LLP
Redstone GCI assists contractors throughout the U.S. and internationally with understanding the Government’s expectations and supporting contractors from contract award to contract closeout. We would be happy to be part of your team.
John is a Director with Redstone Government Consulting, Inc. providing government contract consulting services to our clients primarily related to the DFARS business systems, CAS Disclosure Statements, and DCAA/DCMA compliance preparation, advisory, and defense. Prior to joining Redstone Government Consulting, John served in a number of capacities with DCAA/DCMA for more than 30 years. Upon his retirement, he was based in Texas as an SES-level Corporate Audit Director for DCAA, managing a staff of 300 auditors at one of the largest DOD programs. Professional Experience John began his career in the late 80s working in the Clearwater, FL audit office and over the next three decades he progressed through a number of positions within both DCAA and DCMA with career highlights as DCAA Program Manager at Ft. Belvoir, Chief of Technical Programs Division, Deputy Assistant Director-Policy, Director of the DCMA Cost and Pricing Center, the SES-level Lockheed Martin Corporate Audit Director, and Director of Integrity and Quality Assurance. John’s three decades of experience in performing and leading DCAA auditors and DCMA reviewers provides a wealth of expertise to our clients. John’s role, not only in the performance of audits, but also in the development of audit policy affords him unique insights into the defense of audit findings and the linkage of audit program steps to the underlying regulatory framework. He is an expert in FAR, DFARS, and other agency acquisition regulation, as well as a subject matter expert in the Cost Accounting Standards having reviewed and provided audit feedback on many of the largest and most complex cost accounting practices during his tenure with the DCAA. John’s tenure with DCAA and DCMA came at a critical time during each agency’s history where a number of changes were occurring such as the response to the ICS backlog, development of audit approaches to the DFARS Business Systems and implementation of new audit initiatives as a result of Congressional oversight through the NDAA process. John’s leadership at the DCMA Cost & Pricing center saw oversight of all major DOD pricing actions, leadership of should cost review teams, the Commercial Pricing group and many other areas of strategic value to our clients. His involvement in these and other Agency initiatives is of great value to our clients due to his in depth understanding of DCAA and DCMA’s internal policy directives. Education John holds a Master of Business Administration and a B.A. in Accounting from the University of South Florida. Certifications Certified Information Systems Auditor State of Alabama Certified Public Accountant