Government contractors need to be conscious of the paperwork they sign on Federal contracts. Signing a waiver or release of claims at any point during a project can result in a lost opportunity to recover damages – even if the event giving rise to those damages was already discussed in detail with the Contracting Officer.
In a recent post, we discussed the hazard associated with bilateral project modifications. Even when a modification includes requested relief (like a time extension), it also likely includes broad waiver/release language that will apply to all pending claims. A contractor should not sign a bilateral modification without a full and complete understanding of what claims (if any) are being surrendered with the stroke of a pen.
The same logic and advice applies to requests for final payment – and really any other document executed during the course of a Federal project.
In a case before the Postal Service Board of Contract Appeals, the contractor notified the Agency that it underestimated the paving area for the project – resulting in a significant labor and materials overrun. The contractor informally requested that the Agency share in the associated costs, arguing that the government was aware of the estimating mistake prior to award. The Contracting Officer disagreed with the contractor’s position and referred it to the contract’s disputes clause.
As the project approached the finish line, the contractor – who still intended to pursue a cost overrun damages claim – requested final payment on the contract. In connection with that submission, the contractor executed a “Contractor’s Release.” The Release expressly stated that the contractor released the Agency from any further claims, without exception.
After signing the Release, the contractor proceeded to pursue its cost overrun claim. The Agency denied the claim in full, relying on the Release language.
On appeal, the Board sided with the Agency and likewise denied the claim for damages. Notably, the Board rejected the contractor’s position that its conversations with the Contracting Officer were sufficient to preserve the claim (in other words, the Agency was indisputably on notice of the claim). The express language of the Contractor’s Release trumped any equitable argument.
The lesson here for contractors is an easy one. Read your paperwork and understand the consequences of a waiver/release before you sign it. Broad releases are almost never in a contractor’s best interests, so develop a strategy in advance for preserving your right to recover what your company is lawfully owed on a contract.