The Contract Disputes Act (CDA) provides a remedy for contractors seeking to recover additional time or costs on a government contract (as part of a Claim or Request for Equitable Adjustment).  But when the basis for recovery is tied up in a contract modification, contractors must beware the agency’s standard waiver language – or risk losing the battle before it even begins.

The government utilizes contract modifications to implement any number of contract changes, ranging from minor adjustments to major alterations.  Modifications come in two general varieties:  Unilateral (the government directs the contractor to perform without negotiation) and Bilateral (the government and the contractor agree and both sign off on the change).

Bilateral changes can present a major stumbling block when the government and the contractor are on different pages when it comes to the terms of the change.

Bilateral changes very often include waiver language releasing the agency from any future claims for compensation (time / costs) arising out of the change that are not included in the modification.  Contractors must therefore be conscious of: (1) the compensation included in the modification and (2) whether that compensation makes the contractor whole.

If the contractor believes the terms of the modification fall short, it must specifically reserve the right to pursue damages at a later date before signing.

The importance of modification waiver language was highlighted in a recent Court of Federal Claims (COFC) case involving alleged delay damages on a U.S. Army contract related to the construction of water bottling facilities in the Middle East during the Iraq War.

As one part of the multifaceted claim, the contractor sought to recover based on alleged government-caused delays to the completion of a bottling plant.  The plant was the subject of two separate contract modifications – but the contractor argued that the modifications did not address the specific issue of delay (and, therefore, that it retained the right to seek the costs associated with the delay as part of the appeal).

The government, on the other hand, argued that the delay was incorporated as part of the second modification and therefore released by the contractor through the modification’s standard waiver language (under the legal theory of accord and satisfaction).  The Court sided with the government – specifically relying on the contractor’s failure to include a reservation of rights before signing the second modification.

The takeaway for contractors is clear:  Read and understand your modifications – and if there are any discrepancies, be crystal clear about reserving the right to seek compensation at a later date before you sign.

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