A dispute pending in the Armed Services Board of Contract Appeals (ASBCA) dealt with interesting legal issues on a motion to dismiss. See Appeals of McCarthy Hitt-Next NGA West JV, ASBCA No. 63571, 2023 WL 9179193 (ASBCA 2023). The dispute involves a contractor passing through subcontractor claims due to impacts caused by the COVID-19 pandemic and the government’s response to the pandemic. More particularly, the claim centers on the premise that the government “failed to work with [the contractor] in good faith to develop a collaborative and cooperative approach to manage and mitigate the impacts and delays arising from the COVID-19 pandemic.” See Appeals of McCarthy Hitt.

The contractor (again, submitting pass through claims from subcontractors) claimed: (a) constructive changes to the contract entitling it to an equitable adjustment under the Changes clause of Federal Acquisition Regulation (F.A.R.) 52.243-4; (b) construction suspensions of the contractor’s work entitling it to an equitable adjustment under the Suspensions of Work clause of F.A.R. 52-242-14; and (c)  the government breached the implied covenant of good faith and fair dealing.  Each of these legal issues and theories will be discussed below because they are need-to-know legal issues. Keep these legal issues in mind, and the ASBCA’s ruling on the motion to dismiss as its analysis may demonstrate fruitful in other applications.

(a) Constructive Changes

“To prevail upon a constructive change theory, a contractor must show (1) that it performed work beyond the contract requirements, and (2) that the added work was ordered, expressly or impliedly, by the government.” See Appeals of McCarthy Hit. 

The government moved to dismiss this claim arguing the complaint did not allege sufficient facts to support a constructive change theory.  The ASBCA disagreed and found sufficient facts were pled to allege the government required the contractor (and subcontractors) to perform beyond the contract requirements.

For example, [the contractor] alleges that the [government] required it to comply with government guidance on COVID-19 and implement COVID-19 exposure control procedures; perform additional job safety analyses and task-specific analyses; create new health and safety signage; provide additional training; develop contact tracing, testing, and quarantine programs; impose quarantines and enforce return-to-work protocols; impose tool and shared surface disinfection  and cleaning requirements; comply with social distancing requirements; provide and utilize additional personal protection equipment; add air filtration systems; require temperature checks and daily health checks; permit additional breaks; provide for additional break areas; change office, break, and trailer spaces and configurations; change site logistics; and change crew compositions and work plans.

See Appeals of McCarthy Hit.

(b) Suspension of Work

To recover under the Suspension of Work clause, the contractor must show (1) that the contracting officer suspended the work; and (2) that the resulting delay was unreasonable. A constructive suspension occurs when, absent an express order by the contracting officer, the work is stopped for an unreasonable amount of time and the government is found to be responsible for the work stoppage. “A constructive suspension has the same effect and consequences as an actual suspension, and relief should be granted as if an actual suspension order had been issued.

See Appeals of McCarthy Hit (internal citation omitted).

The government moved to dismiss this claim arguing the complaint did not allege sufficient facts to support a constructive suspension theory.  The ASBCA disagreed and found sufficient facts were pled to support a constructive suspension.  For example, the contractor alleges:

[The government’s] actions and inactions in administering the Contract once the pandemic struck had the effect of unreasonably disrupting, delaying or hindering the work on the Project. For example, the complaint alleges that the government refused to work with [the contractor] to develop a collaborative and cooperative approach to manage the impacts caused by the pandemic, instead simply insisting that the work proceed on schedule, which had the effect of hindering and delaying the work unreasonably. The complaint also alleges that [the contractor] informed [the government] of the impacts of its action and inactions, but that [the government] refused to acknowledge that the work was being delayed.

See Appeals of McCarthy Hit.

(c) Implied Covenant of Good Faith and Fair Dealing

Like every contract, the Contract here contained an implied duty on each party to perform with good faith and fair dealing. The implied duty “prevents a party’s acts or omissions that, though not proscribed by the contract expressly, are inconsistent with the contract’s purpose and deprivethe other party of the contemplated value.” A breach occurs when a party violates its obligation “‘not to interfere with the other party’s performanceand not to act so as to destroy the reasonable expectations of the other party regarding the fruits of the contract.”’ The implied duty “‘cannot expanda party’s contractual duties beyond those in the express contract or create duties inconsistent with the contract’s provisions.”’

See Appeals of McCarthy Hit (internal citations omitted).

The government moved to dismiss this claim arguing the complaint did not allege sufficient facts to support a breach of an implied covenant and good faith and fair dealing claim.  The ASBCA disagreed and found sufficient facts were pled to support this claim. For  example, the complaint alleges:

“[A]fter the pandemic struck, the government declined to cooperate with it in managing or addressing the impacts, which were severe andunexpected. Rather, it is alleged, the government insisted that [the contractor] and the Subcontractors continue to perform as though nothing ofconsequence was occurring, used the DO-C2 rating as a means of exerting pressure to maintain the schedule at all costs, and was non-responsiveto requests for help in complying with all the new and changing requirements placed upon [the contractor] and the Subcontractors. Theseallegations suggest that the government essentially left [the contractor] “twisting in the wind” by insisting on uninterrupted performance in the faceof extraordinary circumstances and are sufficient to make out a plausible claim for a breach of the duty of good faith and fair dealing.

See Appeals of McCarthy Hit (internal citations omitted).

Please contact David Adelstein at dadelstein@gmail.com or (954) 361-4720 if you have questions or would like more information regarding this article. You can follow David Adelstein on Twitter @DavidAdelstein1.