For contractors performing work on existing federal contracts in affected areas, assessing the impact of the hurricane on their contracts raises a number of issues and concerns. Federal construction and supply contracts typically provide for a non-compensable time extension for unusually severe weather or Acts of God. See, e.g., The Rice Co., AGBCA No. 2003-188-1, 2005-2 BCA Sec. 32,005 (2005)(hurricane that delayed delivery of rice was excusable delay precluding the assessment of liquidated damages). However, under the “Permits and Responsibilities” provisions found in most federal contracts, a contract is responsible for repairing or rebuilding at its own cost any work damaged or destroyed by the storm that has not been accepted by the government.
In DeRalco, Inc., ASBCA No. 41063, 91-1 BCA Sec. 23,576 (1990), a contractor was held responsible for the cost of rebuilding a 97.5 percent complete brick screen wall damaged by Hurricane Hugo. The Board rejected the contractor’s argument of defective government specifications (the wall was designed to withstand only 100 mph winds and not the 190 mph winds produced by Hugo) because the loss was caused by the hurricane and not the government’s conduct.
A natural disaster such as Hurricane Katrina may also frustrate the purpose of the contract, making continued performance impossible or commercially impracticable. In these situations, the government may choose to terminate the contract for its convenience, entitling the contractor to be paid its costs to date plus certain costs of winding down the contract. Contractors should carefully follow instructions from the government and the procedures contained in the contract’s termination for convenience clause. See Dynatech Building Sys. Corp., ASBCA No. 47462, 95-1BCA Sec. 27,325 (1995) (a contractor forfeited its rights under the clause by filing its claim beyond the one year period provided for, even where its failure to submit its claim was caused by a hurricane).
Natural disasters may also cause the government to make changes in the work, entitling a contractor to equitable adjustments in the contract price and time. For example, a beach renourishment contractor was entitled to an equitable adjustment after a storm dramatically changed the contour of the existing beach and borrow areas and the contracting officer directed the contractor to change the locations where sand was to be deposited. J.A. LaPorte, IBCA No. 1014-12-73, 75-2 BCA Sec. 11,486 (1975). But the burden is on the contractor to prove the merits of such a claim, and relief will be denied where such proof is lacking. See, e.g., L&C Europa Contracting Co, Inc., ASBCA No. 52848, 04-1 BCA Sec. 32,609 (2004) (under a contract to renovate a recreation center contractor failed to prove that it was damaged by delay to start of project due to roof damage caused by Hurricane Fran). Contractors are responsible for pursuing appropriate contractual relief for the effects of the disaster on their work.
The federal government may also assert warranty claims on existing buildings and other structures. Contractors should understand the extent of the warranties they have provided the government. It is the government’s burden to prove its warranty claim. In many cases, there may be questions as to whether the specific weather conditions were within the scope of the coverage of the warranty. If government clients insist on purusing repairs under the warranty clause, contractors should be certain to receive a direction in writing from the contracting officer before starting work to preserve their rights to pursue compensation later, if justified.
Some contractors may be eligible to claim that they are entitled to extraordinary contractual relief under Public Law No. 85-804. Pursuant to that statute, executive agencies have the authority to enter into contracts and to modify existing contracts whenever that would facilitate the national defense. 50 U.S.C. Sec. 1431-1435, see also E.O. 10789, FAR Part 50.3. The granting of so-called “extraordinary contractual relief” is within the discretion of agency officials and is not a matter of right. FAR 50.301. The statute allows such relief when a contractor essential to national defense loses production capability. FAR 50.302-1(a). For instance, a contractor that was the only source of vital components to an ongoing military program might be able to gain 85-804 relief to repair its operations after Hurricane Katrina. There may also be arguments that the relief should be granted to contractors to provide indemnification for environmental liabilities on existing projects that have arisen as a result of the Hurricane.
About the Authors. Dan Donohue (ddonohue@wickire.com) and Hal Perloff (hperloff@wickire.com) are attorneys with the law firm of Wickwire Gavin, with a law practice focusing on government contracts and construction law. 8100 Boone Blvd. , Suite 700 , Vienna , VA 22182 ; 703-790-8750.
ConstructionRisk.com Report, Vol. 7, No. 6 (Oct 2005)
Copyright 2005, ConstructionRIsk.com, LLC
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