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Pre and Post Award Bid Protest

Signed Contract Modification Supersedes Prior Verbal Agreement

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It is not uncommon for a project to encounter delays, rework or project scope changes. When this occurs, the contractor needs to submit a change proposal to the government agency detailing the modifications and any additional costs associated with the project changes. Once the modification is submitted to the government, they can either approve the modification or reject it with recommended changes. Once the agency approves the modifications and the contractor signs off on the document, the contractor is bound by the agreed-upon terms. However, if a contracting officer verbally promises adjustments to the signed modification that are not documented, are those verbal agreements upheld or does the final signed document supersede any verbal agreements regardless of when they were made by the client. In the case below, Glen/Mar Construction (Glen/Mar) discovered which agreement type, verbal or written, would be upheld during an appeal.

Glen/Mar Construction, Inc. CBCA Appeals No. 6904
Decision issued April 2, 2021

The Solicitation

On July 31, 2017, Glen/Mar was awarded a contract by the Department of Veteran Affairs (VA) for the demolition and replacement work in certain buildings at the VA’s Southern Oregon Rehabilitation Center and Clinics located in White City, Oregon. The contract was for two phases spanning over 450 days. Phase one of the contract involved scheduling and material submissions for the project. Phase two included the demolition and construction work. One document Glen/Mar submitted to the VA prior to the start of demolition noted there would need to be “a new permanent bypass for the existing Century Link2 campus fiber feed.”

Around March 7, 2018, Glen/Mar and the VA disagreed on which party was responsible for completing the Century Link work, each citing it was the other party’s responsibility. Eventually, the VA agreed to take responsibility and sent an email to Glen/Mar requesting they submit a change proposal for the Century Link work. Glen/Mar submitted three change order proposals which included the Century Link work, camera fiber termination work, and some water line tap work. The proposal also included an additional sum for 15 days of expected delay to the overall project. The VA’s contracting specialist rejected the change order. According to Glen/Mar, the VA contracting specialist told Glen/Mar, during a phone meeting, the costs for the delay needed to be removed from the proposal. According to Glen/Mar, the VA stated it would figure out how much money to pay for delay later once it became clear just how much delay the contractor would actually experience because of the reroute work. However, the contracting specialist had an entirely different recollection of the conversation. The contracting specialist claimed he never made any promise to revisit the Century Link change order to assess any additional days that might be owed to Glen/Mar, and that he had been perfectly clear the VA would not be paying for any delay costs.

The VA sent Glen/Mar proposed modification P00001 to the contract, which approved an additional $37,796.33 for the reroute work. The document also included the following language: “This modification represents full and complete compensation for all costs, direct, and indirect, associated with the work agreed to herein, including but not limited to, all costs incurred for extended overhead, supervision, disruption or suspension of work, and labor inefficiencies, and this change's impact on unchanged work.”

“In consideration of this modification, agreed to herein as a complete equitable adjustment of the contractor's proposal arising under or related to the change(s) identified above, the contractor hereby released the Government from any and all liability under this contract for further adjustment attributed to the contractor's proposals.” The modification also listed “0 additional calendar days” to complete the reroute work. Glen/Mar’s Vice President signed the modification on June 8, 2018, after the Century Link fiber reroute work had commenced but before completion.

On October 23, 2018, Glen/Mar submitted a revised master schedule. The revised master schedule did not note any time slippage being caused by the VA. Around August 27, 2019, Glen/Mar raised a “schedule delay package” when it submitted a request for equitable adjustment (REA) requesting an additional $859,917.60 for “schedule impacts” including, but not limited to, 229 additional days due to the Century Link work. The VA rejected Glen/Mar’s REA, referencing the release contained in modification P00001. On April 7, 2020, Glen/Mar filed a certified claim for $642,021.65 of additional costs incurred as a result of the reroute work including errors and omissions in the design of technical documents and incurring costs related to work performed outside the contract’s scope. On June 5, 2020, the VA denied the request, again relying on the release language in modification P00001. Glen/Mar appealed to the Civilian Board of Contract Appeals (CBCA). The VA moved for a summary judgment.

The Appeal

The VA relied to the release language of modification P00001 for its motion of a summary judgment. The VA specifically refers to two statements in P00001:

This modification represents full and complete compensation for all costs, direct, and indirect, associated with the work agreed to herein, including but not limited to, all costs incurred for extended overhead, supervision, disruption or suspension of work, and labor inefficiencies, and this change’s impact on unchanged work.  

In consideration of this modification, agreed to herein as a complete equitable adjustment of the contractor’s proposal arising under or related to the change(s) identified above, the contractor hereby released the Government from any and all liability under this contract for further adjustment attributed to the contractor’s proposals.

The VA also referred to the section of the modification that stated: “0 additional calendar days” are attributed to the Century Link work. The VA asserted this language unambiguously releases the government from “any and all liability”.

Glen/Mar argued a summary judgment is not appropriate because the VA agreed to exempt the delay claim associated with the Century Link work from the modification and that because modification P00001 still shows the original completion date of March 17, 2019, “the release only applied to claims for cost [Glen/Mar] incurred while performing work up to the March 17, 2019 date of final completion.” Based on self-drafted meeting notes, Glen/Mar further argues the VA continued to consider Glen/Mar’s delay claim after modification P00001 was executed and signed off.

THE OUTCOME

Despite Glen/Mar’s insistence that the contract specialist had verbally promised additional negotiations on reimbursement for delay costs after the modification, the CBCA decided the government didn’t owe Glen/Mar any more money. CBCA explained that a written bilateral contract modification generally resolves all claims for payment between Glen/Mar and the VA on whatever work is covered by the modification unless the modification specifically reserves certain claims for Glen/Mar to pursue at a later date. In this case, modification P00001 did not reserve the right to later seek reimbursement for delay costs from the reroute work. In fact, it said the opposite by releasing the government from any liability for further adjustments due to the fiberoptic reroute work.

The CBCA also determined it did not matter whether the contract specialist had verbally promised to pay for additional delay costs after the modification was signed. Even assuming Glen/Mar was correct, this verbal agreement happened before Glen/Mar signed the modification. Legally, any verbal agreements that may have happened before a written agreement do not matter.

In effect, the CBCA ruled Glen/Mar should have insisted on having this verbal understanding memorialized in modification P00001. Glen/Mar could not rely on a prior verbal agreement when a later signed agreement clearly released the VA from all liability. While verbal agreements with the contracting specialist after a signed modification could possibly make the VA liable for additional costs, a verbal agreement before a signed modification can never impose liability on the government.

THE TAKEAWAY

This case is a warning to every contractor who verbally negotiations with a contracting specialist or contracting officer (CO) concerning contract modifications. If the CO promises to allow further payments on a portion of the additional work, it is imperative that any signed modification includes language specifically stating the portion of the claim for payment left open for further discussions is not being resolved or released by the modification. Any verbal promise from the contracting specialist or CO must be documented in the modification.

If the government has asked you to sign a contract modification for less money than you should rightfully be getting but promises to talk about the remaining amount later, contact us. Whitcomb, Selinsky, PC has a team of experienced attorneys ready to help.

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About the AuthorDavid Tscheschke, Esq.

When David counsels clients, he keeps potential business concerns in mind. This is due to his extensive knowledge of business administration and economics. By identifying critical business or industry issues early on, David tailors his advice to address any concerns he has identified during his initial research and discovery. This mindset allows David to focus on delivering value to every client.

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