Douglas L. Patin and Winni Zhang | BuildSmart
On October 2, 2024, the Armed Services Board of Contract Appeals released a copy of their opinion in Chugach Fed. Sols., Inc., ASBCA No. 62712, 2024 WL 4542405 (Oct. 2, 2024). In this case, the board found entitlement for an operations and maintenance contractor for complying with a government-mandated, 14-day quarantine at the start of COVID-19. The decision may provide valuable precedent for contractors with similar COVID-19-related claims to prevail.
The Facts
The case stemmed from a United States Air Force (the “government”) firm-fixed price contract awarded in 2012 for Chugach to provide operations and maintenance services at three remote facilities. The contract incorporated AFFARS Clause 5352.223-9001, which required, in part, that Chugach comply with all government health and safety rules, take all reasonable steps and precautions to preserve the health and safety of contractor and government personnel, and take such additional immediate precautions as the contracting officer may reasonably require for health and safety purposes. The clause further directed that adjustments caused by government health and safety directives would be addressed under the contract’s Changes Clause.
On March 18, 2020, about a week after the World Health Organization (WHO) declared COVID-19 a global pandemic, the contracting officer sent Chugach a letter quoting AFFARS 5352.223-9001 in its entirety and asking for Chugach’s collaboration with the government as further policy guidance was issued. The contracting officer closed the letter by stating:
If any required actions result in an increase or decrease in the cost of, or time required for, performance of any part of work under this contract, [Chugach] must assert its right to equitable adjustment within 30 days from receipt of the order. However, if a longer time can be justified, I may receive and act upon the proposal as long as it is before final payment of the contract.
Following up in an email dated March 23, 2020, the contracting officer informed Chugach, again citing AFFARS 5352.223-9001, that Chugach would be required to adhere to federal and state travel restrictions regarding self-isolation and/or quarantine timelines, including a 14-day quarantine. In subsequent memoranda and emails issued by the Air Force commander in charge of the facilities (and on which the contracting officer was copied), the government advised Chugach of further self-quarantine requirements at the facilities. On April 14, 2020, Chugach notified the government that the estimated cost of compliance with the quarantine mandate would be $300,000. While the Air Force commander acknowledged Chugach’s right to seek an equitable adjustment for additional costs to comply with the quarantine restrictions, the government ultimately denied the subsequent claim. Chugach appealed.
On appeal, the government primarily relied on the sovereign acts defense to avoid liability for Chugach’s quarantine costs. Under the sovereign acts defense, the government is not liable for its general acts as a sovereign that render performance of a contract impossible:
Essentially, the sovereign acts doctrine permits the government as a contractor to assert an impossibility defense to claims of non-performance, to the same extent as a private party could, when the government’s sovereign acts obstruct performance. Put another way, it “relieves the Government as contractor from the traditional blanket rule that a contracting party may not obtain discharge if its own act rendered performance impossible.”
The government argued that the quarantine requirements it imposed qualified as a sovereign act because they applied to all personnel and were not self-serving as the goal was the preservation of public health.
In rejecting the government’s defense, the board noted that the government had failed to prove its performance was rendered impossible by the imposition of the quarantine requirements, the alleged sovereign act at issue. To satisfy the impossibility component of the defense, the government had to prove that “the nonoccurrence of the act in question must have been a basic assumption of the contract, and the government must not have assumed the risk that such an act would occur.”
Relying heavily on the incorporation of AFFARS 5352.223-9001 into the contract, the board concluded that there was “no basis to hold that the non-occurrence of the quarantine was a basic assumption upon which the contract was based, and that the government did not assume the risk of it under the contract’s terms.” Section 5352.223-9001 contemplated that the government might issue health and safety directives and, by allowing for adjustments under the Changes Clause, allocated the financial risk of such directives on the government. The board, therefore, found Chugach was entitled to an equitable adjustment arising out of the quarantine requirements.
The Takeaway
Chugach won the appeal because 1) the government failed to prove impossibility (a necessary element of the sovereign acts defense), and 2) the inclusion of the AFFARS Clause shifted the financial risks associated with health and safety compliance to the government. While the specificity of the AFFARS Clause narrows the holding of this case, the reasoning for the board’s rejection of the government’s sovereign acts defense may be applicable in other COVID-19-related cases.
When one of your cases is in need of a construction expert, estimates, insurance appraisal or umpire services in defect or insurance disputes – please call Advise & Consult, Inc. at 888.684.8305, or email experts@adviseandconsult.net.