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Establishing Entitlement to Increased Performance Costs Due to Government Delays in Accelerated Contracts

Government typically has no obligation to assist the contractor in completing work before the contract completion date. Despite this lack of obligation, it is still not permissible for the government to hinder or otherwise prevent a contractor’s early completion of performance. In this regard, when the contractor’s early completion of work is delayed due to government actions, the government may be liable for the delay it causes even when the contractor completes performance within the agreed-upon contract completion deadline. Contractors must satisfy three elements to establish entitlement to benefits of a planned early completion which is adversely impacted by government-caused delays. First, from the outset of the contract, the contractor must establish its intent to complete performance on an accelerated schedule and ahead of the contractually mandated completion date. Notably, while it is necessary for the contractor to convey its intent to complete early performance, it need not inform the government of a specific early completion date. Second, the contractor must have the capability to perform early, and its intent must be supported by consistent actions and performance activities during the performance period. Third, the contractor must establish that had it not been for the government-caused delays, its actions in pursuing acceleration would have led to an early completion. Once the three elements are established, the government is liable for damages arising from its dilatory actions that prevent the contractor’s early performance.

In Armed Services Board of Contract Appeals (ASBCA) No. 48087, a decision issued on April 27, 1999, the government was found liable for the contractor’s increased costs attributable to the government's delay, even though the contractor completed performance ahead of schedule. The U.S. Air Force awarded the underlying contract to repair and replace underground gas mains and service lines to buildings at Davis-Monthan Base in Tucson, Arizona. The Air Force failed to properly coordinate the installation of the main gas connection with the contractor and was found responsible for unreasonable delays. However, the government argued that the contractor could not recover because it completed the contract ahead of schedule. During the Board hearing, the contractor’s project manager responsible for scheduling testified that he intended to complete the work early when he first prepared the progress schedule. Consistent with his testimony, the original progress schedule showed a plan to complete 15 days early. Next, the contractor’s activities supported its intent to accelerate the schedule. Monthly schedule updates demonstrated steady progress, and the work was six weeks ahead of schedule before the government-caused delays began. The contractor also had the capability to perform early, as there was no dispute about the availability of personnel, materials, and equipment. Finally, when performance resumed after the government delays, the contractor completed performance per its schedule. Consequently, the ASBCA concluded that the contractor was entitled to recover its increased costs due to government delays under the contract’s suspension of work clause, even though overall performance was completed ahead of schedule.

Meanwhile, in ASBCA No. 63457, a decision issued on May 18, 2023, the contractor was unable to recover delay damages when it completed performance before the contract completion date because it could not establish its intent from the outset of the contract to complete performance early. The Navy awarded the underlying delivery order to renovate ten buildings at the San Diego Naval Base. The contractor submitted a baseline construction schedule within 15 days after award, which anticipated meeting the June 13, 2022, contract completion date. Following a delay due to limitations on access to work areas, on February 22, 2022, the contractor submitted an updated progress schedule in which it stated an early project turnover and closeout date of May 9, 2022. The contractor eventually completed the project even earlier on April 28, 2022, and requested compensation for additional costs incurred due to government-caused delays. Since the contractor had completed the work before the contract completion date, its ability to complete the work early and the fact that it would have completed the work earlier than the completion date but for the alleged government delays was not challenged. Instead, the government’s argument and the Board’s analysis focused only on the first element – whether it was the contractor’s intent from the outset of the contract to complete the work on an accelerated schedule. The Board found that the contractor could not satisfy this element because its baseline schedule only anticipated meeting the original completion date. While a later revised schedule contemplated an early completion, it did not reflect the contractor’s intent at the outset of the contract, barring its recovery.

Contractors may be able to recover for government-caused delays even when they complete the overall performance ahead of schedule. To do so, contractors must plan for early completion from the outset of the contract and establish their intent to do so. While contractors need not provide the government with a firm early completion date, any accelerated schedule must be feasible and attainable. Furthermore, the contractor’s intent to complete the work early must be supported by its performance activities and actions over the course of the contract. Finally, contractors must show that, but for the government-caused unreasonable delays, their efforts would have led to the planned early completion. If these three elements are satisfied, contractors may obtain compensation for government-caused delays even when overall contract performance is complete ahead of schedule. As in the appeal described above, when a contractor completes early performance, the second and third elements are typically easy to satisfy. That is, the contractor can usually show it had the ability to complete the work early and that it would have done so but for the alleged government delays. However, proving the first element may prove challenging if the contractor did not plan on early performance from the outset of the contract or adequately inform the government of its intent. Therefore, if early performance is anticipated, contractors should inform the government of their intent at the outset of the contract and maintain records of their activities during performance that are consistent with that intent. After all, doing so may be critical to realizing the benefits of planned early completion of work in the face of unexpected government-caused delays.

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.

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Following the award, the government issues a notice to proceed directing the contractor to begin contract performance. The contract or the notice of award may provide a specific date for issuing the notice to proceed, in which case the government has an express duty to issue the notice to proceed by that date. If a date of issuance is not specified, the government still has an implied duty to issue the notice to proceed within a reasonable time. Claims adjudicative forums have held that damages for the government’s unreasonable delay in issuing the notice to proceed may be recovered under the suspension clause. Such damages may include unabsorbed overhead, which are indirect costs that can no longer be charged through the application of the contractor’s overhead rate to its direct costs due to the delay in performance. As set forth in the seminal Armed Services Board of Contract Appeals (ASBCA) decision issued in 1960, the Eichleay formula is the exclusive method for calculating unabsorbed overhead damages due to a period of government-caused delay when contract performance has commenced. However, there may be situations in which the contract is terminated for the government’s convenience without commencement of performance following a period of government-caused delay in the issuance of the notice to proceed. In such cases, while the Eichleay formula may not be used to determine the contractor’s unabsorbed overhead damages due to a lack of allocability, the contractor’s recovery is not altogether barred.

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Contractors may encounter delays when performing government contracts that increase the time or cost of performance. Contractors typically bear the risk of such increases for delays that are avoidable or otherwise within their control. When both the government and the contractor are responsible for a delay, neither party can recover damages unless the delay can be clearly apportioned and the increased expenses can be attributed to each party. To establish entitlement to an extension based on an excusable delay or to monetary damages for a compensable delay, contractors must demonstrate that the delay was caused by unforeseen events beyond their control and without their fault or negligence. In addition, contractors must show that the unforeseeable events delayed the overall contract completion timeline by impacting the critical path of performance. Notably, in cases involving a delivery schedule extended by the parties’ agreement, delays caused by either party before the agreement are excluded from consideration, so neither party may recover for delays before the date of the agreement. The government may terminate a contract for default due to the contractor’s failure to complete contract performance in a timely manner. Once terminated for this cause, the contractor may prove the excusability of the delay to convert the default termination into a termination for the government’s convenience. However, an impact on the overall schedule and the critical path must be demonstrated to establish the compensability of the delay.

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Government agencies have a prima facie case for default termination when a contractor fails to deliver performance in a timely manner. However, even when terminating the contractor on this basis, the government must exercise its broad discretion fairly and reasonably. In this regard, when the government elects to allow a contractor to continue performance past the contract completion date, it may waive the due date and thus its ability to terminate the contract for default for the contractor’s failure to meet it, provided two conditions are satisfied. First, the government fails to terminate within a reasonable period following the default, indicating forbearance. Second, the contractor relies on the government’s failure to terminate and continues performing under the terms of the contract with the government’s knowledge and express or implied consent. A waiver of the contract completion date under such conditions protects contractors who may be under the impression that time is no longer of the essence and, as a result, continue to expend significant effort and resources even after the performance deadline has passed. In construction contracts, the government’s imposition of liquidated damages after a performance date has passed or an express reservation of its rights in the performance deadline typically renders this waiver doctrine inapplicable. However, the completion deadline may be waived in construction contracts when the liquidated damages provision is not invoked or the government otherwise fails to adequately reserve its rights with respect to the completion deadline. Once the original completion deadline is waived, the government must establish a new deadline before it can terminate the contractor for default for failing to make progress.

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The government may sometimes unilaterally direct the contractor to perform additional work outside the scope of the changes clause of a government contract. Such an order for alterations is a cardinal change and amounts to a breach. In order to establish that a cardinal change has occurred, the contractor must show that the work ordered by the government, either explicitly or impliedly, was beyond the contract requirements and materially different from what the contract specified. To determine whether a cardinal change exists, claim adjudicative forums compare the total altered work with the work included in the contract. If the alterations in the work are out of character with the work contemplated in the contract or require a level of effort reasonably unforeseeable at the time of formation, a cardinal change has occurred. In other words, a cardinal change exists when the government requests a unilateral change that so drastically alters the work that the contractor must essentially perform duties that are materially different from those it originally bargained for. While facts and figures involving the number of days of delay and performance cost increases may be helpful in understanding the extent of the additional work, establishing whether a cardinal change has occurred involves a highly fact specific inquiry that must look beyond such numbers alone, into the contractor’s entire undertaking. Once established, a cardinal change is a breach of contract and accordingly has the effect of freeing the contractor from its contractual obligations.

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Establishing Entitlement to Increased Performance Costs Due to Government Delays in Accelerated Contracts

TILLIT LAW Federal Procurement Insights