Contractor Barred from Recovering Home Office Overhead by Final Payment Rule

The Armed Services Board of Contract Appeals (the “Board”) denied a contractor’s appeal in Appeal of Matcon Diamond Inc., holding that the contractor’s Eichleay extended home office overhead claim was barred by the final payment doctrine. The Armed Services Board of Contract Appeals (the “Board”) denied a contractor’s appeal in Appeal of Matcon Diamond Inc., holding that the contractor’s Eichleay extended home office overhead claim was barred by the final payment doctrine.

The project, which involved performing certain repair work at an Air National Guard airport, was delayed by a combination of government changes, differing site conditions, and the contractor’s inability to obtain recycled concrete for use as aggregate. After submitting its invoice for final payment, the contractor filed a claim seeking extended home office overhead for 249 additional days of performance added by the contract modifications. The Board denied the contractor’s claim, holding that the contractor failed to establish that the government had impacted the critical path and extended the original time for performance, and had failed to prove that the contractor was on standby.

The Board also found that the contractor’s claims were barred by the final payment doctrine. The Board held that the contractor’s acceptance of final payment, without reserving a right to bring a home office overhead claim, constituted an affirmative defense for the government, because final payment to the contractor bars claims not specifically excepted at the time of payment. The Board explained that final payment does not bar a claim where the contracting officer knows the contractor is asserting a right to additional compensation, even when a formal claim has not been filed.

In this case, however, the Board found that the contractor had failed to establish its intent to file a delay damages claim prior to final payment. The Board rejected the contractor’s argument that the final payment rule does not apply because a government representative confirmed his knowledge of a possible claim from the contractor in his deposition. The Board reasoned that the government’s statements did not establish that the contractor had “manifested a present intention to seek extended home office overhead, or that the government knew at the time of final payment that Matcon was asserting a right to additional compensation.” (emphasis in original). The Board acknowledged that the final payment did not include a release of claims—which was required by the contract—but noted that the absence of the release did not overcome the application of the final payment rule.

Contractors should reserve their claims before accepting final payment from the government. In doing so, contractors must be explicit in their intent to assert a claim. If a contractor fails to do so, it may find itself barred from recovering.

This article, "Contractor Barred from Recovering Home Office Overhead by Final Payment Rule" was published in the Bradley Construction and Procurement Law Newsletter for the second quarter of 2020.