IMPACT CLAIM AWARD UNDONE BY CLAIM WAIVER

Date: December 15th, 2010

The Court of Appeals for the Federal Circuit recently vacated a contractor’s impact and delay award of over $4,000,000 because of waiver language in a signed change order. The case, Bell BCI Co. v. United States, arose from the construction of a $63,663,745 federal laboratory. Bell is consistent with the Supreme Court of Washington’s Mike M. Johnson decision and reinforces that notice and claim waiver provisions will be strictly interpreted in state and federal court.

In Bell, the owner added an entire floor to the laboratory and issued more than 113 contract modifications and 275 extra work orders. Because of the owner’s actions, the contract was increased by $21.4 million and delayed by 19.5 months.

After the laboratory was completed, the contractor brought suit in the Court of Federal Claims for its additional costs and time. The trial court, despite claim waiver language in key change orders, awarded the contractor its full claim of $6,200,672. This included damages for unpaid contract balance, change work, subcontractor claims, labor inefficiency, and delay costs. The owner appealed the trial court’s award. On appeal the Federal Circuit found the claim waiver language unambiguously barred the contractor’s claims for impact and delays.

What lessons can be learned?

1. The onerous burden of proving liability for and causation of damages can easily be undone by a signed change order (or progress payment form) with waiver language. As Bell demonstrates, claim waivers continue to be strictly construed and enforced in both federal and state court.

2. Contractors must review and understand all claim waiver language contained within: (1) change orders, and/or (2) progress payment forms. This is crucial when executing change orders/progress payments during the course of work. If a contractor does not thoroughly understand the extent of a change order/progress payment, the contractor may unknowingly give up rights to impact and delay costs before the full extent of these costs is known.

3. Contractors need to make sure an adequate reservation of rights for impact and delay costs is agreed upon and incorporated into change orders and progress payment forms. If the owner does not agree to a reservation of rights, do not sign the change order/progress payment and follow the protest provisions of the contract.

4. Contractors should not accept verbal assurances by an owner that impact and delay costs will not be waived by executing a change order/progress payment. No matter how sincere an owner is, verbal assurances are not usually recognized by courts.

Please contact any of the lawyers or construction consultants at Ashbaugh Beal if you have any questions.