STOP in the Name of Releases, Before They Break Your Claims

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STOP in the Name of Releases, Before They Break Your ClaimsGiven the uncertainty that COVID-19 has brought to federal projects, it is imperative now more than ever that contractors preserve rights to potential claims at all turns. Fortunately, with careful reading and documentation, contractors can satisfy the government’s desire for releases while preserving their claims. A recent Armed Services Board of Contract Appeals decision is yet another caution for any contractor that signs a release without preserving claims (see Horton Construction Company, Inc., ASBCA 20-1 BCA ¶ 37,622 (June 2, 2020)).

In Horton, the general contractor for a concrete crushing and erosion control project signed several modifications that stated: “Contractor unconditionally waives any charge(s) against the Government arising under the revised statement of work of this contract.” At final payment, the contractor signed a certification releasing the government “of and from all liabilities, obligations, claims, and demands whatsoever under or arising from the said contract, other than claims in stated amounts as listed below.” The contractor did not list any claims on the document. Nevertheless, the contractor did, in fact, have a claim based on the fact that it priced its production rate based on the government’s estimate of 69,000 tons of concrete on site, when only 30,000 tons were available. The contractor later argued before the board that its project manager who signed the modifications did not have authority to do so. The board disposed of that argument based on the fact of the project manager’s evident authority to act on behalf of the contractor during the project.

Horton is a reminder that any contractor personnel who sign any document containing a release should stop in their tracks, read, and consider what they are releasing. In Horton, the release provided space to list claims, but space or not, a contractor should repeatedly list any pending claims that it wants somewhere on the release every time a release is signed.  Consistency is key: Carving out a pending claim in one progress payment release may be insufficient to preserve that claim if the next release does not do so. Keep in mind that a contractor (or subcontractor) may also want to be sure it excepts unpaid retainage, agreed but unfunded change orders, and claims.

Now more than ever, contractors need to provide for contingencies and preserve future claims. Contractors can, and should, make a habit of negotiating a general reservation of rights for every single release. And do not let the government tell you otherwise: The FAR expressly permits contractors to do so. If all else fails, while not guaranteed to preserve a claim, it may be possible to preserve claims by including reservation of rights language with the release.