On December 20, 2023, the Armed Services Board of Contract Appeals (the Board) denied the government’s motion to dismiss pandemic-related claims. In doing so, the Board rejected the government’s arguments alleging that the claims (1) failed to state a claim, (2) were barred by the sovereign acts affirmative defense, and (3) failed to provide a clear amount as required by the Contracts Disputes Act. The Board’s rejection of the government’s motion to dismiss in McCarthy HITT – Next NGA West JV, ASBCA No. 63571 (2023), suggests well-plead pandemic-related claims can gain traction for government contractors seeking relief from pandemic-related impacts on performance.
Background
Like so many others impacted by the COVID-19 pandemic, the contractor alleged a number of impacts, including government ordered changes to the work, supply chain issues, excessive price increases, labor unavailability, and site access restrictions–all of which were unanticipated at the time of bid and award. In an effort to address these issues, the prime contractor responded on behalf of its subcontractors with a request for equitable adjustment. The Contracting Officer denied this request.
On appeal, the Board held the contractor raised sufficient allegations to survive the motion to dismiss. The Board permitted the contractor’s claims of constructive change, breach of implied duties, and constructive suspension of work to proceed.
Importantly, the Board took particular interest in the government’s lack of cooperation with the contractor in addressing the contract’s pandemic-related impacts to contract performance. In evaluating the government’s implied duty of good faith and fair dealing, the Board found sufficient facts to demonstrate that “as the pandemic struck, the government declined to cooperate with [the contractor] in managing or addressing the impacts [of COVID-19], which were severe and unexpected.” The Board found that such a scenario, as plead, was sufficient basis to survive the government’s motion to dismiss the implied duty claims in their entirety.
Also, notable for contractors raising pandemic-related claims, the Board declined to agree—as the government argued—that the sovereign acts doctrine barred the contractor’s claims. As a general rule, under the sovereign acts doctrine, the government acting as a contractor cannot be held liable for its general and public acts as a sovereign. For this doctrine to apply, the government must prove that (1) the governmental action was public and general; and (2) the act rendered performance of the contract impossible. On more than one occasion with pandemic-related claims, the government has relied on the sovereign acts doctrine to bar pandemic-related claims from contractors. Here, the Board distinguishes this case from previous cases where use of the doctrine was successful. Previous cases in which the sovereign acts doctrine applied as an affirmative defense were decided on their merits. By contrast, this case is still in its early days. At this stage, the pleadings have not yet revealed whether the actions of the government in this case are sufficiently “general and public” for the sovereign acts doctrine to apply. The Board saw value in further evaluation of the contractor’s claims and weighing out the applicability of the sovereign acts doctrine.
Takeaways
Traction in Pandemic-Related Claims. This case offers good news to contractors bringing pandemic-related claims. Although contractors see very little relief in the arena of pandemic-related impacts, the view in this case regarding the sovereign acts doctrine should serve as encouragement for contractors that pandemic-related claims may yet be fruitful, if well-plead. Contractors should be aware that when the government claims the sovereign acts doctrine, the Board will be looking to see whether it is evident from the pleadings whether some of the government’s liability arose from contract-specific actions. While this decision by the Board does not guarantee success in pandemic-related claims, it is a positive shift in the right direction for contractors seeking relief from pandemic-related impacts on performance.
Cooperation is Key. This decision serves as a good reminder to contractors and the government on the importance of cooperation and collaboration in addressing problems that inevitably arise during contract performance. In every contract exists a duty on each party to perform with good faith and fair dealing. Although in practice, this duty is much more nuanced than it appears, this case presents good examples of what the Board views as good faith and fair dealing in the context of pandemic-related impacts on performance.
If you have questions about how this case impacts your pandemic-related claims or other government contract matters, please contact Lauren Brier or Annie Hudgins, the authors of this blog, or another member of PilieroMazza’s REAs, Claims, and Appeals team.
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