Government Contracts, Blog 05.03.18

Releases have proven to be the double-edged sword of government contracting. In some cases, a release can prevent a contractor from successfully submitting a request for equitable adjustment (“REA”) or a claim to the Government. At the same time, a prime contractor can use releases to its advantage—requiring a subcontractor to sign releases during performance and at contract closeout. These releases can be used to easily defeat subsequent subcontractor claims if a dispute arises. Contractors should be familiar with releases in both contexts and use this knowledge to make releases work to their advantage.

For a prime contractor working with an agency, a critical consideration is identifying a release. Many contractors are aware of releases in contract closeout documents. However, releases may also be found in pay applications, modifications, or settlement agreements. Like a release in a contract closeout document, a release in one of these documents could prevent a contractor from successfully seeking compensation or an extension of time under a contract. The release could be narrow and limit recovery from a defined set of issues or broad and prevent recovery for all claims predating the release. Imagine that a contractor signed a modification that provided compensation for out of scope work and that it contained the following release:

These adjustments are an accord and satisfaction and constitute compensation in full on behalf of the contractor and its subcontractors and suppliers, and/or for all costs and markups directly or indirectly attributed to the changes ordered herein, and for any delays caused by the Government prior to the execution of this modification.
 
The Government would likely be able to use this language to deny an REA or a claim for additional compensation related to that out of scope work. This would be particularly problematic if the modification did not include compensation for any subcontractors affected by the out of scope work. And, the Government would also be able to rely on that release language to deny any REAs or claims based on delays predating the modification—even if the delay was unrelated to the out of scope work.

Given the potential impact of a release, contractors should carefully review documents before signing them. If a contract document contains a release, language can be added to the release before signing it to preserve a contractor’s rights to pursue its claims. Counsel can assist with drafting and negotiating these provisions.

On the other hand, a prime contractor can use releases to its advantage when dealing with subcontractors. Specifically, requiring a subcontractor to sign leases when it submits invoices or pay applications, as well as when a contract is closed out, can help a prime contractor defeat subsequent claims from the subcontractor. A signed release often leads to the swift dismissal (or withdrawal) of a subcontractor claim.

To pursue this strategy, a prime contractor should include provisions for releases in its subcontracts. The releases should be drafted to be consistent with the prime contract and any applicable laws. And, employees should be trained on the importance of obtaining releases from subcontractors. A well-crafted subcontract, a release, and trained employees are proactive measures a contractor can take to mitigate the risk of subcontractor claims.

If you have questions about releases, contact PilieroMazza’s Government Contracting group.

About the author: Michelle Litteken is an associate with PilieroMazza in the Government Contracting and Litigation law groups. She may be reached at mlitteken@pilieromazza.com.

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