Federal contractors not so infrequently find themselves in a position where they are unable to complete performance of a contract by the agreed-upon deadline. So, what happens when the delay is neither party’s fault, but the government denies extension of the period of performance or provides inadequate extensions?
In IAP Worldwide Services, Inc. (ASBCA Nos. 59397, 59398, and 59399), the Armed Services Board of Contract Appeals found under the legal theory of “constructive acceleration” that the U.S. Army Corps of Engineers was liable for extra costs incurred by IAP due to the Corps insistence of timely contract delivery despite excusable delays.
Under the contract, IAP was to provide power plants and services at forward military bases in Afghanistan. IAP had historically shipped equipment for such procurements into Afghanistan by way of Pakistan.
IAP submitted proposals on at least three delivery orders under the contract. Within IAP’s proposals for each of the delivery orders, IAP explained that it would obtain generators from a distribution point in the United Arab Emirates and transport them via the Pakistan route. More specifically, IAP stated it would “ship their equipment 45-90 days prior to mobilization depending on the conditions at the border and shipping route” or “power equipment [would] be surface shipped to and then trucked to the site.” The government acknowledged that the proposals contemplated use of the Pakistan route.
IAP initially received three contract delivery orders, including one for a 10-megawatt generator set, one for a 15-megawatt power plant, and one for a 12.5-megawatt generator set, each with delivery at Forward Operating Bases in Afghanistan. The period of performance for delivery order of each order was 365 days. After receipt of the three contract delivery orders, Pakistan closed its border in response to a military attack by the United States and NATO. The border remained closed for seven months.
The day following closure of the Pakistan border, IAP notified the contracting officer that the closure was affecting IAP’s delivery schedule and requested guidance. IAP subsequently requested that the contracting officer issue a delivery schedule adjustment and suggested use of either air freight transportation (with an estimated $11.8 million cost increase) or delivery for two orders via the Northern Distribution Network (NDN) (through multiple other countries with over $1 million in increased costs). The contracting officer responded by simply stating the contract was fixed price and “FAR 52.247-34 (F.O.B. Destination) governed the transport of equipment.” During a subsequent telephone conversation, the contracting officer informed IAP that no extensions would be granted, and if IAP failed to meet its performance deadline, it would be in default. Based on these communications, IAP choose shipment through the NDN route.
A subsequent debate concerning the excusable nature of the delay arose, and the contracting officer continued to demand performance within the contract’s deadline with the threat of default. In this debate, the government may have overlooked that, under FAR 52.249-14, a delay is excusable “if the failure to perform the contract arises from causes beyond the control and without the fault or negligence of the Contractor.” Later recognizing this standard, the government changed its position and agreed the border closure was an excusable delay but still maintained that the delay was not compensable and that IAP was entitled only to an extension of time.
IAP subsequently submitted certified claims for each delivery order, totaling more than $11 million. The Corps denied the claims, and IAP timely appealed to the ASBCA. Among IAP’s arguments, IAP alleged the government constructively accelerated IAP’s performance of all three task orders by failing to timely grant its request for extension after Pakistan closed the border with Afghanistan.
The ASBCA wrote that “[c]onstructive acceleration often occurs when the government demands compliance with an original contract deadline, despite excusable delay by the contractor.” Under such a theory, recovery arises under the contract’s changes clause. The ASBCA continued:
To establish entitlement to compensation arising from an acceleration, the contractor must prove:
(1) [T]hat the contractor encountered a delay that is excusable under the contract; (2) that the contractor made a timely and sufficient request for an extension of the contract schedule; (3) that the government denied the contractor’s request for an extension or failed to act on it within a reasonable time; (4) that the government insisted on completion of the contract within a period shorter than the period to which the contractor would be entitled by taking into account the period of excusable delay, after which the contractor notified the government that it regarded the alleged order to accelerate as a constructive change in the contract; and (5) that the contractor was required to expend extra resources to compensate for the lost time and remain on schedule.
Here, the ASBCA held, IAP established each of these items. Specifically, by the government’s own admission, IAP experienced an excusable delay. IAP notified the contracting officer that the border closure was delaying the transportation of IAP’s power plant equipment into Afghanistan, and IAP expected a schedule adjustment. Despite this request, the contracting officer refused an extension citing to the firm-fixed nature of the contract and iterated that failure to meet the established deadlines would constitute default. The ASBCA noted that by the time the government allowed for a 75-day extension, IAP had taking extraordinary measures to ship its generators via the more expensive NDN route to remain on schedule.
The ASBCA held that “[t]he government accelerated performance when it failed to timely grant extensions to fully account for the delay.” Accordingly, “IAP is entitled to an equitable adjustment reimbursing it for expenses actually and reasonably incurred in complying with the acceleration orders.”
Federal government contractors may find themselves in situations where they are unable to perform within a specified timeframe – for a multitude of reasons. As IAP Worldwide demonstrates, however, a contractor may not have to foot the bill when an excusable delay arises and the government demands performance within the original time frame anyway.