Disputes and Termination

The Contracts Disputes Act (“CDA”) is included in every contract, usually in Section I of the contract. Collectively, these rules authorize a contractor to submit a claim to the government, under certain conditions, when changes occur during performance of contract work and the contractor has not been adequately compensated for the changed. Contractors often submit a Request for an Equitable Adjustment (“REA”) under the Changes clause to obtain compensation for performing work as changed. If they are not successful, the contractor converts the REA to a certified claim under the Disputes clause.
But what happens when a contract is terminated for the convenience of the government while a certified claim is pending?
The United States Joint Contracting Command – Iraq (“JCC”) awarded a firm fixed price contract to Symbion Ozdil Joint

Venture (“Symbion”) on June 27, 2006 for design, construction, and installation of a 132KV electric line south of Baghdad with a length of approximately 53 miles.
On December 19, 2007, Symbion submitted a REA for “piling work” in the amount of $10,276,587.82. Forty days later on February 1, 2008, the JCC terminated the contract for convenience for the remaining uncompleted work. Symbion submitted a termination settlement proposal for $1,098,167.42. The JCC paid $2,696,819.32 for the claim and the termination settlement proposal. Symbion appealed and the Board issued an opinion in the appeal of Symbion Ozdil Joint Venture, ASBCA No. 56713, dated January 25, 2010 (the “ASBCA” or the “BOARD”).
The issue to be decided was whether the extra piling work performed before the contract was terminated should be paid separately or if it is “merged” into the termination settlement proposal. Therefore, can Symbion recover the fixed unit prices for the actual piling work performed or must it be merged into the settlement proposal at cost plus a profit?
The Board decided that since the price for the piling work was based on a specification, then the specification provision entitles Symbion to an increase in the contract price at the specified unit prices.
The government’s argument relies on the “merger doctrine.” The ASBCA stated in that case that
As a general proposition, a fixed price contract is converted into a cost reimbursement contract once it is terminated for convenience and the contractor is allowed to recover its allowable costs…equitable adjustments are “merged” into the pricing provisions of the termination for convenience clause and determining specific costs attributable to claim events generally is superfluous unless a “loss contract” is alleged.
In this case, however, the Board rejected the “merger doctrine” and upheld the “specification provisions [that] entitle Symbion to an increase of the contract price at the specified unit prices to reflect the actual piling and foundation work performed,”(emphasis added). The Board went on to say, however, that the termination for convenience clause controls the ultimate amount due Symbion. Hence, this clause prescribes how to prepare the termination settlement proposal. The Board stated that the “specification provisions give Symbion the right to a contract price increase at the prescribed fixed unit prick multiplied by the additional quantities of piling work performed.”
The ASBCA stated that the Contract Disputes Act provides for the payment of “interest on amounts found due contractors shall be paid to the contractor from the date the contracting officer pursuant to §605(a) of this title until payment thereof.”

The ASBCA stated that interest can be paid only on amounts “found due” to the contractor; i.e., amounts actually paid by the contractor, and not on costs never paid by the contractor.
Somehow the Board denied interest to Symbion who performed the work, because the final termination for convenience amounts had not been identified, so Symbion was awarded only its base claim of $10,276,587.82.

The moral of the story is always have well defined specifications in a fixed price contract and avoid any ambiguity. If there is a dispute followed by a termination, a lack of definiteness in the specifications may result in a substantial loss.

The foregoing is not a legal opinion or legal advice. Consult your attorney for legal assistance.

Footnotes:

1  41 U.S.C. 601-613
2  FAR 52.233-1
3  FAR 52.243-1-9
4  James M. Ellet Construction Co. V. United States, 93 F.3d 1537-1548 (Fed. Cir. 1996)
5  Worsham Construction Co, ASBCA No. 25907, 1985
6  FAR 52.249-2
7  41 U.S.C. 611
8  41 U.S.C. 601-613
9  Richlin Security Service Company V. Chertoff, 437F. 3d 1296 (Fed. Cir. 2006)

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