Executing partial releases and a final release in consideration of payment are routine on construction projects. Counsel will correctly tell you not to sign a release if you don’t intend to release all of your claims through the date of the release. Counsel will also tell you to be sure to exempt those claims from a release that you do not intend on releasing. The reason for this is that if you sign a release and then seek damages or costs pre-dating the release, the party you gave the release too will waive it in front of your face and say “tough luck; you released these claims and costs!”
However, the opinion in H.J. Lyness Construction, Inc. v. U.S., 120 Fed.cl. 1 (Fed.Cl. 2015) gives those contractors (or subcontractors), particularly federal government contractors, that sign a release and do not exempt certain claims or costs from the release some hope that not all is lost. In this case, the federal government terminated a contractor for convenience. After the termination for convenience, the contractor submitted a release and was paid in consideration for that release. The contractor did not exempt or carve out any claims or costs from that release even though the release allowed the contractor to do so. In other words, the release did not carve out any termination for convenience settlement costs that the contractor would be entitled to. Notwithstanding, the government and contractor continued to discuss termination for convenience settlement costs and when an agreement could not be reached, the contractor filed suit.
The government moved for summary judgment that the contractor released the government for termination for convenience settlement costs because the contractor executed the unambiguous release after the termination for convenience. The contractor countered that the release did not apply to termination for convenience settlement costs and, to show this, the government continued to entertain discussions regarding these costs after it received the release the government is arguing under. Furthermore, the contractor argued that it timely and properly submitted its settlement costs in accordance with F.A.R. 52.249-2(e) that provides:
(e) After termination, the Contractor shall submit a final termination settlement proposal to the Contracting Officer in the form and with the certification prescribed by the Contracting Officer. The Contractor shall submit the proposal promptly, but no later than 1 year from the effective date of termination, unless extended in writing by the Contracting Officer upon written request of the Contractor within this 1–year period. However, if the Contracting Officer determines that the facts justify it, a termination settlement proposal may be received and acted on after 1 year or any extension. If the Contractor fails to submit the proposal within the time allowed, the Contracting Officer may determine, on the basis of information available, the amount, if any, due the Contractor because of the termination and shall pay the amount determined.
Based on these facts and circumstances, the contractor took the position that the government never intended the release the contractor furnished post-termination for convenience to operate as a final release and release of its termination for convenience costs. The Court of Federal Claims sided with the contractor:
The Court finds that through the affidavit provided by Mr. Lyness [contractor’s representative], the parties’ actions and course of conduct in this case creates a genuine issue of material fact regarding whether the release constituted a full and final release of claims given in exchange for a final payment, or was simply a routine payment application form that was used with respect to all applications for partial payments requested by HJL [contractor].
H.J. Lyness Construction, supra.
Now, why is this case helpful? Because it goes directly to the argument on federal projects that even if a contractor executed an unambiguous release and does not exempt or carve out any claims, there may be an argument that the conduct of the parties reflects that the parties did not intend the release to operate as a final release of all claims. In H.J. Lyness the argument was that the release was not intended to bar termination for convenience settlement costs even though the release was executed months after the termination for convenience.
Regardless of the holding in H.J. Lyness, it is important for contractors to read what they sign and be cognizant of those claims and costs they do not want to release. This includes executing a release without properly exempting termination for convenience settlement costs if the contractor does not intend its release to be a final release of all claims.
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.