Releases. Again.

Last year about this time, I blogged about a case in which the Civilian Board of Contract Appeals (“CBCA”) denied an appeal arising out of costs that were identified after the parties signed a contract modification that contained a general release. The contractor asserted that the Contracting Officer had agreed, essentially, to defer an adjustment for costs related to, but not covered in the modification. The Government denied the existence of such an agreement and relied upon the contractor’s release as a bar to the recovery of those costs.

In my blog, I also recalled a case that my partner and I had handled in which the Government asserted that a release barred our clients’ claim. In that case, the Armed Services Board of Contract Appeals held that the costs that were the subject of that claim were not in the contemplation of the parties at the time of the release. Therefore, the claim was not barred by the contractor’s release.

To me, the lesson of those cases was:

Beware of releases! That seemingly benign boilerplate is not toothless throw-away verbiage. Thus, when negotiating an REA, an SCA price adjustment, or some similar deal, consider whether there are any potentially expensive contingencies for which there might be no relief based on the language of the release. If so, try to negotiate a carve-out. If you don’t, you might find yourself in an on-your-heels position in which you have to rely on an exception to a general rule. You might win the argument, but perhaps you should try to prevent the argument.

This brings me to a new case that was just released by the Court of Federal Claims. See Salazar v. United States, No. 21-1114C, 2022 U.S. Claims LEXIS 799 (Fed. Cl. May 3, 2022) (found here on the Court’s website). This case arose out of contracts for hauling clean water and/or gray water for use by the U.S. Forest Service in the prevention and extinguishing of forest fires. There were different rates and requirements depending on whether a contractor is hauling clean versus gray water. These contracts also provided that, in general, modifications must be made by contracting officers; however, they also permitted the issuance of an emergency agreement that could be executed at an “incident.” Given that fighting wildfires is a dynamic process, I can see the logic of this arrangement—sometimes needs have to be met on the fly.

However, operating on the fly with a degree of informality can lead, as it did in this case, to a breakdown in contract documentation. Here, the contractor entered into a clean water hauling contract at $2,099 per day. However, a couple of days into the contract, he was told to begin hauling gray water. He did that for a few weeks after which he was issued an emergency agreement for gray water delivery at a rate of $1,350 per day. This agreement covered the work that had been done following his being directed to haul gray water. The Contractor, however, felt he should have received the higher clean water rate presumably because that was what he originally was engaged to haul.

Noting that there were other issues in the case, I’ll zero in on the release issue. He alleged he was told that if he wanted to be paid anything at all for his work, he had to sign contract modifications that called for the payment of lower rates and contained broad releases of any further claims or payment on the work. However, he averred that he also was told that his release would not waive his disputes about the per diem rates or other payments he believed he was owed. However, when he thereafter sought the money he believed he was due, the contracting officer rejected the claim on the ground that the releases barred his claims.

In his appeal at the Court of Federal Claims, the contractor argued that the release should not bar his claim because it was procured through duress—the duress being that he would not be paid anything unless he signed the release. While a refusal to pay strikes me as a pretty heavy cudgel to extract the release of known claims, the Court applied a near-universal principle in the law of duress to reject the argument. Duress requires a party to establish that it was involuntarily compelled to accept the other party’s deal and that there were no other options, the absence of which was due to the other party’s coercive actions. Tough bargaining and economic hardship caused by that bargaining simply don’t suffice to support a claim of duress, particularly when the option of litigation is available. Hence, the title of this blog—”so sue me.”

Accepting the contractor’s assertions as true, he was given very little choice but to give up his claim if he wanted to be paid literally anything. It’s one thing if a contracting officer offers a deal that is a take-it-or-leave-it proposition in which he or she disagrees with the contractor about what it is owed. That’s theoretically ok. But if the contracting officer tells a contractor that they’ll pay xyz amount and that they can work the rest of it out later, they should not pull out the rug and hide behind broad release language.

If you’re the contractor in this kind of circumstance—do everything you can to persuade the contracting officer to accept a carve-out of a release. If you hit a brick wall, then you may actually have to sue them.