Catch and Release: the Importance of Analyzing Potential Claims before Signing a Release and Receiving Final Payment

Construction and Procurement Law News, Q2 2018

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The Army Corps of Engineers (the “Corps”) retained Merrick Construction, LLC (“Merrick”) to perform work on a hurricane protection levee near New Orleans, Louisiana. The contract between the Corps and Merrick contained Federal Acquisition Regulation (“FAR”) 52.243-4(f), which provided that no proposal by Merrick for an equitable adjustment would be allowed if the proposal was asserted after the Corps made its final payment under the contract to Merrick.

During contract performance, the Corps issued a change order related to the installation of a temporary bypass pumping system at the work-site, which was to be paid for on a “unit price per month,” and which provided that a formal modification to the contract would later be submitted with an agreed-to price. The Corps later issued the formal modification setting the monthly rental price for the bypass pumping system. The Corps also issued a modification which stated that the modification constituted “compensation in full on behalf of contractor [Merrick] and its subcontractors and suppliers for all costs and markups directly or indirectly attributable to Variations in Estimated Quantities, and for all delays, impacts and extended overhead relative thereto and for performance of the change within the time frame stated.” Upon completing its work under the contract, Merrick submitted a final payment request to the Corps. As part of the Corps’ final payment, Merrick signed a general release document which provided, in part, that Merrick “releases the United States ... from any and all claims arising under or by virtue of said contract or any modification or change thereof.”

Following receipt of final payment from the Corps, Merrick determined that it had made an accounting error, and filed a claim against the Corps for an additional month’s rent related to the bypass system. The government contracting officer denied Merrick’s claim, finding that Merrick released any potential claims related to the bypass system by virtue of the Corps’ modification, which provided that the modification constituted “compensation in full” to Merrick. Merrick appealed that decision to the Armed Services Board of Contract Appeals (“Board”).

Before the Board, the Corps argued that Merrick’s claim was barred for two reasons: (1) the text of the general release barred Merrick’s claim; and (2) Merrick’s claim was submitted after it received final payment from the Corps. In response, Merrick asserted that its claim against the Corps was not barred by the general release due to the Corps’ superior knowledge regarding certain discrepancies in the rental payments owed on the bypass system, specifically arguing that the Corps knew the duration for the rental of the bypass system, which was longer than the time period for which the Corps had compensated Merrick.

The Board found Merrick’s arguments unpersuasive, particularly noting that there was no evidence that the Corps “knew or should have known” of Merrick’s claim related to the rental discrepancies, as Merrick’s own evidence demonstrated that Merrick itself only learned of the rental discrepancies after signing the release with the Corps. As an alternative basis for its finding in favor of the Corps, the Board also held that Merrick’s claim was barred by FAR 52.243(f), because it was submitted after Merrick received final payment. Where Merrick did not demonstrate it performed any work on the contract after receiving final payment or that the contracting officer “knew or should have known” of Merrick’s claim, the Board found that Merrick’s claim was barred.

The Merrick decision serves as a reminder for contractors and subcontractors to perform a thorough analysis of any existing or potential claims before executing a general release, whether in a change order or in a pay application, and before seeking final payment from any entity, whether public or private. For owners, it reaffirms the enforceability of clear waivers or releases, so long as there is no reservation of rights by the contractor.