Government contracts for construction projects typically include a Differing Site Conditions clause to account for the risk that the contractor may encounter unanticipated subsurface or otherwise latent physical conditions. The purpose of this clause is to discourage contractors from inflating their pricing on account of unexpected physical conditions that may or may not arise. The clause contemplates two types of differing site conditions. In a type I condition, the contractor encounters physical conditions materially different from those specified in the contract. Meanwhile, a type II condition is unknown, unusual, and materially different from that ordinarily encountered. To successfully recover under a type I differing site conditions claim, the contractor must establish five elements by a preponderance of the evidence. The contractor must establish that: (1) a reasonable contractor reading the contract as a whole would interpret it as making a representation as to the site conditions; (2) the actual site conditions were not reasonably foreseeable to the contractor with the information available to it outside the contract documents; (3) the contractor in fact relied on the contract representation; (4) the conditions differed materially from those represented; and (5) the contractor suffered damages as a result.

Upon being awarded federal contracts, contractors sometimes find that they made a mistake in their bid or proposal regarding the level of effort required for performance. In such situations, contractors may seek relief in the form of a pricing adjustment or change in performance requirements under the theory of unilateral mistake. To obtain recovery for a unilateral mistake, contractors must present evidence establishing that: (1) a mistake in fact occurred prior to contract award; (2) the mistake was a clear-cut, clerical or mathematical error or a misreading of the specifications and not a judgmental error; (3) prior to award the government knew, or should have known, that a mistake had been made and, therefore, should have requested bid verification; (4) the government did not request bid verification or its request for bid verification was inadequate; and (5) proof of the intended bid is established. Contractors must meet all five elements with clear and convincing evidence. If contractors can satisfy these elements with the required burden of proof, the contract may be reformed to reflect the correction, and relief may be obtained either through a pricing adjustment or a change in performance requirements.

In government contract interpretation disputes, adjudicative forums may rely on extrinsic evidence of the parties’ prior course of dealing to interpret ambiguous terms. In this context, prior course of dealing refers to a sequence of previous conduct between the government and the contractor which can be fairly regarded as establishing a common basis of understanding for the purposes of interpretation. When the parties have interpreted the disputed terms in a certain manner in a previous contract, those terms are typically presumed to hold the same meaning in a later disputed contract, absent clear evidence of changed intent or the parties’ disagreement at the time of contract formation. Furthermore, for the parties to be bound by their prior course of dealing, they must have actual knowledge of the conduct and be aware that it can reasonably be construed as indicative of their common understanding or intentions. In such cases, after determining the existence of an ambiguity, the claims adjudicative forum may rely on prior course of dealing evidence to assign meaning to the disputed terms.

In Armed Services Board of Contract Appeals (ASBCA) No. 60448, issued on June 24, 2020, the Board determined that the contractor was entitled to an equitable adjustment as the parties’ prior course of dealing had established a common basis of understanding regarding the ambiguous terms. The U.S. Air Force issued the three underlying contracts for the production and delivery of Advanced Medium Range Air-to-Air Missiles (AMRAAM). The contracts were part of a series of annual contracts issued for over more than two decades under which the contractor delivered a specified number of missiles each year. As relevant to the interpretation dispute, the statements of content (SOCs), which are similar to statements of work, for the three contracts each contained two paragraphs that the Board determined were ambiguous. The first paragraph, SOC 2.a, required the contractor to produce a specified number of missiles (or lot) over a three-year period of performance. Meanwhile, the second paragraph, SOC 2.b, required the contractor to provide Systems Engineering/Program Management (SEPM) support for a one-year performance period.