In government contracts, the doctrine of accord and satisfaction is an affirmative defense that discharges a claim because some performance different from that which was claimed to be due is rendered and the claimant accepts such performance as full satisfaction of his claim. Accord and satisfaction may be viewed as a type of settlement agreement that typically takes the form of a bilateral modification executed by the government and its contractor. Furthermore, the terms of the bilateral modification are considered to be the best evidence of the parties’ intent to enter into an accord and satisfaction. To invoke the doctrine of accord and satisfaction, the party asserting the affirmative defense must demonstrate that four elements are met. First, the subject matter must be proper. Second, both parties must be competent; that is, the individuals signing the bilateral modification on behalf of the parties must be duly authorized. Third, there must have been a meeting of the minds between the parties. A meeting of the minds exists when there are accompanying expressions sufficient to make a reasonable claimant understand that the performance offered is in full satisfaction of the claim. Fourth, and finally, there must exist some form of valid consideration, which is defined as a bargained-for exchange that consists of an act, forbearance, or a return promise. If these four elements are met, the doctrine of accord and satisfaction may be invoked to discharge the claimant’s claim.

In Armed Services Board of Contract Appeals (ASBCA) No. 64036, a decision issued on July 15, 2025, it was determined that all four elements of accord and satisfaction were met, and as a result, the contractor’s claim was deemed discharged. The Army awarded the underlying contract in September 2023 for the remote performance of medical coding services for the Keller Army Community Hospital in West Point. In December 2023, within a few months of the contract’s effective start date, and before the contractor had performed any remote medical coding services, the Army fully terminated the contract for the government’s convenience. Following the termination, the Army issued a modification establishing a complete no-cost termination for convenience, but the contractor refused to execute that modification. Instead, in April 2024, the contractor submitted a termination settlement proposal seeking a payment of $44,559.80. Later in August 2024, the contractor reduced the amount sought to $38,875.80. At this stage, the contracting officer (CO) determined that while the contractor had not demonstrated entitlement to the full amount sought in its termination settlement proposal, the Army was still willing to pay the contractor $9,418 for preparatory costs incurred and reasonable settlement expenses. In October 2024, the CO forwarded the contractor a purchase order for $9,418 and issued a second bilateral modification releasing the Army from any additional charges arising under the terminated contract. The modification also acknowledged that the contractor had no further obligation to perform under the terminated contract. This time, the contractor signed the modification and returned it to the CO, who also executed the modification on the same day.

After receiving a payment of $9,418, the contractor filed a notice of appeal with the ASBCA, seeking reconsideration of the settlement amount and requesting reimbursement of the full $38,875 included in the contractor’s revised termination settlement proposal. In addition to invoking the affirmative defense of release, the Army also argued that the second modification constituted an accord and satisfaction, which barred any further recovery for the contractor. In reviewing the evidence in the record, the Board concluded that all four elements of an accord and satisfaction were met when the parties executed the bilateral modification in October 2024. Firstly, the subject matter of the executed bilateral modification was the same as the underlying contract between the parties. For the second element, both the CO and the President of the contractor who signed the bilateral modification were duly authorized to do so. Next, the Board found that the intention of the executed bilateral modification was clearly stated. That is, the modification’s purpose was to pay the contractor $9,418 following the termination for convenience. At the same time, the contractor agreed to unconditionally waive any claims against the Army for further payments without any exceptions or reservations. Therefore, the Board found that the contractor was aware of the bilateral modification’s clearly stated intention and thus a meeting of the minds existed between the parties, satisfying the third element. Finally, the fourth element of consideration was also met because the Army agreed to pay the contractor $9,418, and the contractor agreed to unconditionally waive any claims for further payments. Therefore, the contractor’s claim was discharged due to an accord and satisfaction.

Meanwhile, in ASBCA No. 63239, a decision issued on January 4, 2024, the Board found that the government failed to establish accord and satisfaction because the element concerning the parties’ meeting of the minds was not met. The Air Force issued a contract for housing maintenance services for the Kaiserslautern Military Community in Germany. Following the end of the period of performance, the Air Force de-obligated unused funds on several CLINs via a bilateral modification. When the modification was initially sent to the contractor, it included language releasing the government from any and all liabilities concerning the de-obligated funds. However, the contractor refused to sign the modification. The contractor requested that the CO remove the statement of release from the modification and include language indicating that the contractor reserved the right to submit additional invoices and claims for the de-obligated funds. The CO obliged, and the release language was removed from the bilateral modification, which was executed by both parties. The contractor later filed a claim seeking the amount that was de-obligated from the contract. In the appeal that followed, the Board determined that there was no specific language in the bilateral modification that would indicate a meeting of the minds between the parties regarding the fact that the contractor’s claims for the de-obligated amount were fully satisfied. In fact, the Air Force was aware of the contractor’s contrary position on the matter and yet failed to resolve the issue before the modification was executed. Furthermore, there was no language in the modification to demonstrate that the contractor was accepting the Air Force’s position. Consequently, the Board ruled that the Air Force could not invoke the doctrine of accord and satisfaction to discharge the contractor’s claim.

Accord and satisfaction in government contracts usually takes the form of a bilateral modification. It occurs when some performance different from that which was claimed as due is rendered, and the claimant accepts such substituted performance as full satisfaction of its claim. Contractors should be mindful that an accord and satisfaction is distinct from the affirmative defense of waiver or release and requires the party claiming it to meet four specific elements. Specifically, to invoke the doctrine of accord and satisfaction, the party must prove: (1) the propriety of the subject matter; (2) the competence of both parties; (3) a meeting of the minds between the parties; and (4) consideration. The affirmative defense of accord and satisfaction may not be invoked if any one of these four elements is not satisfied. In the event a bilateral modification is executed, the adjudicative forum will carefully review the terms of the modification to determine whether each element has been satisfied, and, as a result, an accord and satisfaction has occurred. Since an accord and satisfaction often follows a full or partial termination for convenience, contractors should carefully review the terms of any post-termination modifications to ensure that they accurately reflect their position, especially with respect to any language that releases the government from all future liability. If contractors wish to preserve their right to submit future invoices or file future claims, they can also insist on including language in the bilateral modification that reserves their rights regarding these matters. In doing so, and by understanding the elements required for invoking the doctrine of accord and satisfaction, contractors can be better positioned to negotiate and execute bilateral modifications or supplemental agreements in their government contracts.

This Federal Procurement Insight is provided as a general summary of the applicable law in the practice area and does not constitute legal advice. Contractors wishing to learn more are encouraged to consult the TILLIT LAW PLLC Client Portal or Contact Us to determine how the law would apply in a specific situation.