The contractor submitted a pass-through claim on behalf of its subcontractor. But the contractor told the agency the claim was unwarranted, and that the company didn’t stand behind it. Unsurprisingly, the agency denied the claim. The contractor appealed, alleging a constructive change. The ASBCA found no evidence of a change. What’s more, the board noted the contractor hadn’t helped its cause by disparaging the pass-through claim.
Appeal of Frazier Investments, Inc., d/b/a Optimum Construction, ASCBCA No. 63001
Background
Optimum Construction entered a contract with the Air Force to replace a building’s fire suppression system. The Air Force issued a notice proceed. But the tenants in the building told the Air Force the work could not be done during normal business hours. The tenants wanted Optimum to do the work at night and on weekends.
Optimum and the Air Force negotiated a modification to change the schedule. Optimum initially said it needed an additional $884,000 for the work. The Air Force counteroffered $522,000. The course of negotiations were unclear after that counteroffer. But Optimum ended up offering to do the modifications for only $199,000.
This low offer did not sit well the Optimum’s subcontractor, Pugh & Associates. Pugh told Optimum this wasn’t enough money. Despite these warnings, Optimum agreed to the modified schedule for $199,000.
After completing the project, Optimum submitted a pass-through claim on behalf of Pugh. The claim sought $90,000 in additional costs. Optimum was not enthusiastic about the claim. Optimum told the Air Force “the claim is not valid or warranted and we surely do not stand behind it.” Optimum also said the claim “really caught us of guard” and was “ in no way supported by the Optimum management team.”
Unsurprisingly, the Air Force denied the claim. Optimum appealed to the ASBCA. On appeal, Optimum alleged Pugh (through Optimum) was entitled to costs under a constructive change theory. Optimum also alleged it had been coerced into entering the modification.
Analysis
Constructive Change
The board rejected Optimum’s constructive change theory. A constructive change occurs when a contractor performs work beyond the contract’s requirements. Here, the Air Force did not require Optimum to perform work beyond the requirements. Rather, Optimum agreed to and received consideration for a contract modification. Indeed, Optimum agreed to this modification while Pugh was complaining and telling Optimum not to agree to it. Optimum ignored Pugh. Optimum then told the Air Force it didn’t stand behind Pugh’s claim. Needless to say, Optimum had not proven a constructive change.
Accord and Satisfaction
Even if Optimum had a viable claim, the board found it was barred by an accord an satisfaction. The modification explicitly stated that the parties recognized the supplemental agreement constituted a full satisfaction of all the parties’ rights to equitable adjustment.
Duress
Optimum claimed it only agreed to the modification under duress. Optimum contended the Air Force had threatened to terminate the contract if Optimum didn’t sign the contract. The board didn’t see evidence of duress. When an agency threatens to terminate for convenience, it is simply invoking a legitimate contract remedy. There’s no duress when the government properly invokes a contract remedy.
Unconscionability
Optimum alleged the Air Force acted unconscionably in accepting Optimum’s very low offer for the modification. The board didn’t’ agree. There was nothing about accepting the offer that shocked the conscience. The Air Force didn’t receive something for nothing. Also, the parties agreed to a firm fixed-price modification. The government may accept below-cost offers for firm fixed-price contracts.
Optimum is represented by its President, John Frazier. The government is represented by Caryl A. Potter and Nicholas T. Iliff, Jr. of the Air Force.
–Case summary by Craig LaChance, Senior Editor
