I recall sitting in a mediation one day when the mediator, a judge, told me and my client that we all have lightning in our fingers. He went on to explain that this means, once you sign a contract, it’s like magic in the sense that you can’t get out of the contract and are bound by it, absent certain exceptional circumstances.
I was reminded of this concept while reading a recent opinion from the Armed Services Board of Contract Appeals that dealt with the effect of a contractor signing a release with the government and then trying to back out of that release by refusing payment from the government.
In Central Texas Express Metalwork LLC d/b/a Express Contracting, ASBCA No. 61109, (Sept. 7, 2017), the ASBCA reviewed an appeal of contractor CTEM, which had contracted to repair and replace certain HVAC systems at an Air Force base for $2,457,237. After partial performance, CTEM submitted a request for equitable adjustment for $643,841.88 in increased costs due to the Air Force’s purported delays and changes, including $345,691.07 sought on behalf of a subcontractor called IMS.
In settlement of the dispute, the Air Force agreed to pay the outstanding contract balance of $395,727.99. This resulted in, among other things, CTEM waiving its REA and the Air Force waiving a credit it should have received from reducing the scope of the contract. CTEM and the subcontractor agreed to provide a final invoice and a release of claims, and the release included no exceptions. The pertinent language of the release was “the Contractor, upon payment of the sum by the United States of America (Herein after called Government), does remise, release, and discharge the Government, its officers, agents, and employees, of and from all liabilities, obligations, claims, and demands, whatsoever, under or arising from the said contract.”
CTEM then contacted IMS to inform IMS of what amount it would receive as part of the settlement, and IMS refused the offer. When the government sent the final payment to CTEM, CTEM had frozen its account and informed the government that CTEM was working on submitting a corrected invoice. CTEM then submitted a certified claim to the CO for $643,841.88 for the delays by the Air Force, including the $345,691.07 sought by the subcontractor IMS.
CTEM argued that, because it did not accept the final payment from the government, the release was not binding. The ASBCA, referring to case-law dating back to 1860, wrote that “[o]nce an offer has been accepted, there is a binding contract.” Thereafter, “neither the offer nor the acceptance generally can be revoked or withdrawn.”
In this case, the government made a binding offer for settlement, and CTEM accepted it, so CTEM “cannot avoid its obligations under the release by refusing to accept payment.” What’s more, because CTEM entered into the settlement agreement with the government, CTEM had a duty of good faith to not interfere with the government’s performance in tendering the final payment. Rather, “ecause CTEM cannot withdraw its offer at this point, it is bound to accept $395,727.99 for its claims, and release the remainder of the claims.”
This decision is a good reminder of the power we all hold in our hands when we are signing a contract. This power holds sway in government contracts as equally as it does in other areas of contract law. The government often asks contractors to sign waivers and releases, and like CTEM, other contractors sometimes have second thoughts after they sign. Contractors would do well to think very carefully when they are signing a release with the government that covers all claims, because, barring relatively rare exceptions, those releases are binding.