Contractor Said It Needed a Price Adjustment Because of COVID. Why Did ASBCA Say Take a Hike?

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The contractor alleged the government breached because it refused to adjust the contract to reflect increased costs caused by the COVID-19 pandemic. The ASBCA, however, dismissed for failure to state a claim. The contractor had a fixed-price contract. Under a fixed-price contract, the contractor bears the risk of loss regardless of unprecedented events like a pandemic.

Appeal of Ace Electronics Defense Systems, ASBCA No. 63224


The Navy issued a delivery order to Ace Electronics Defense Systems for cruise missile parts. The delivery order contained numerous fixed-price line items.

Ace obtained some of the required parts from another vendor. In 2020, after the COVID-19 pandemic hit, prices from that vendor rose substantially. Ace incurred over $113,000 in additional costs. Ace submitted a claim for the additional costs. The Navy denied the claim. Ace appealed to the ASBCA, alleging the Navy breached by not adjusting the contract price in light of pandemic. The Navy moved to dismiss for failure to state a claim.


Fixed Price Contract

Ace had a fixed-price delivery order. Under a fixed-price arrangement, a contractor assumes the risk and full responsibility for all costs and resulting profits and loss. Ace had not identified a clause in the contract that would shift the risk of additional costs to the government. The board found that regardless of the pandemic, Ace was responsible for the additional costs under the terms of the contract.

FAR 16.203

Ace argued that FAR 16.203 permits the government to insert an economic price adjustment clause into a fixed-price contract. While Ace’s delivery order did not contain such a clause, Ace argued that the board should rewrite the contract to include a clause due to the unprecedented circumstances created by the COVID pandemic. But the board found that it did not have authority to revise a contract and insert an economic price adjustment clause.

Good Faith and Fair Dealing

Ace contended the Navy breached the contract’s implied duty of good faith and fair dealing by not compensating Ace for the changed circumstances caused by the pandemic. The board was not convinced, finding that Ace’s complaint did not allege anything to suggest that the Navy’s refusal to relieve Ace of the burdens of fixed-price contract undermined Ace’s reasonable expectations.

Ace is represented by Adam D. Bruski of Warner Norcross + Judd LLP. The government is represented by Craig D. Jensen, Andrea S. Maglasang-Miller, and Matthew B. Hawkins of the Navy.

–Case summary by Craig LaChance

ASBCA - Ace Electronics Defense Systems