Government-Caused Delays in the Performance of Federal Contracts: The Impact of the Contract Clauses

• Author: Major Robert B. Clarke
• Pages: 01

I. INTRODUCTION

It has been said that delays in the performance of Government contracts have accounted for more losses and a greater percentage of business failure than any other single factor in the field of Government procurement.' We are all aware of the example of the over optimistic or inefficient contractor who is forced to Pay liquated damages because he has not been able to complete his work on time, but the contractor is not the only party who can cause delays. In a surprising number of cases it is the Government, rather than the contractor, who is responsible for a work stoppage. The Court of Claims has been called upon over one hundred times to decide claims based upon Government-caused delays. The various administrative boards established to handle factual disputes under Government contracts are continually re-quired to resolve disputes arising from delays caused by the Government. As will be seen, the problem has significance for both parties to the contract.

The purpose of this article is to examine the law relating to the Government's responsibility far delays which it causes, to trace the development and ascertain the impact of certain standard and optional contract clauses which affect this responsibility, to reach conclusions as to whether revision or broadened application of current clauses is desirable and, finally, to make recommendations for possible improvements. The problem arises primarily in fixed price contracts, advertised or negotiated, and examination islimited to this typecantract.

How, then, does the Government cause delays? Total estegorization of the many reasons why the Government voluntarily or

* This artleie "8s adapted from B theaia presented to The Judge Advocate General's School. U.9. Army, Charlotteavilie, Vnqinia, while the autnar 9.88 B member of the Eleventh Career Caurae. The opinions and canclurma DTBsented herem are those a i the avthas and do not nec~ssmily represent the views of The Judpe Advocate General's School o~ any other eavernmenbl

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agency.

**JAGC, U.S. Army: Staff Judge Advocate Seetion, lit Cavalry Diviamn. Korea; LL.B., Univeraity of Wiaconain, 1964; Mernkr of the Wireoibin state Bar.

1 Gaskins, Ddaya, Suepmaims and Available Rsmsdirr Udsr Gavsrnmrnt Cont7naota. 44 MI". L. REV. 76 119691.

involuntarily stops work an a contract is impossible, unless, of course, a rather meaningless "miscellaneous" category 2 is included. However, a general breakdown by factual situations will prove helpful in understanding the problem.

Usually delays will fall into one of the following categories: (a) cases where the Government orders changes in the w r k after the contract has been signed, (b) c a w where the Government fails to make a site available far the work, (c) cases where the Government fails to provide promised material or property for incorparation or guidance in the work, and (d) cases Tvhere a so-called "sovereign" act of the Government delays the work. Before ais. cussing the law relating to each of these areas, a brief examination of the effects of delay an contract costs is appropriate.

Decisions of the Court of Claims show that delays, regardless of how caused, increase contract co3t3 in at leaat three ways:

First, certain expenses continue whether or not work is being performed. These are normally called "stand-by" costs. For ex-ample, laborers cannot be laid off until the extent of delay isknown: salaried supervisors must be kept on the payroll,' equip-ment must remain on the site," a field office must be maintained and a proportional share of home office expensea paid.' Sometimes it is poasible to cut stand-by casts by transferring equipment and personnel to another job. Other times this is impossible. Second. there are costs directly related to stopping and starting,$ including protective maintenance of idle equipment and the re-training of new workers.g Thtrd, there are casts .rhich result from the extension of time necessary to complete the work: wages and prices may increase,'O bargains and discounts may be last,'! work may unexpectedly have to be performed in winter weather with 108s of efficiency and heating requirements,'* additional pre- 2Included ammp such miseeilsneuis de!ayi might be those pvr~narf to tPrminaIing B cantracr for the convemnce of rte Goverrment, thaw required became of an exhaustion of apprapriatmr and those far which no meion

8 ~argvra

conatr CO. /.. rnlted staten. 88 ct. CI. 681 ,18391a Herbert 31. Baruch Carp. v Emled States. 82 Cf. Ci 171 (1841)

Henry Eriearon Co Y. United Stater. 101 Ct. C1. 397, G2 F Sum 312(1941).

6 F H.

XeCran & Co. Y. rnited Stater, 131 Ct. Ci. 601. 130 F. Supp 391(1815).

7 Ruas & Weinslor, Ine. Y. United Stares. 126 Cr Ci. 713, 116 F. Supp. 562 (1863).

8 See Psrieh V. United Starer, 120 Ct. C1. 100, 98 F Svpp 347 (1961).8 See Jopiin Y. United States, 89 Ct. C1. 345 (1939).lo See Langevm V. United Stales, 100 Ct. C1. 16 (1843111 See Kelly & Kelly V. United Stalea, 31 Ct. Ci. 361 (1886).12 See Kirk Y Orited States. 111 Ct. C1. ll2. ii F. Svpp 514 Ll(ii8i2 *eo 111.8

GOVERNMENT-CAUSED DELAYS

miums must be paid far bonds and insurance.'8 Finally, there is 8 loss of profit," for an anticipated gain must now be spread over a longer period and a new job cannot be started.

The foregoing are intended only as examples of the effects of delay and any accountant could add substantially to the list. For the purpose of this discussion we shall consider any increase in cost resulting from delay BB a "delay cost." As can be seen, the problem is more dramatically portrayed in construction contracts, but it can be equally acute in the supply field.

With this introduction we can turn to an analysis of the law as applied to specific areas of delay by the Supreme Court and the Court of Claims,

11. THE LAW OF GOVERSIIENT-CAUSED DELAYS A. DELAYS CAUSED BY CHANGE ORDERS Government contracts, bath supply and construction, currently give the Government the right to order changes in the work.I6 This results in the most frequent instance of Government-caused delay. Of course, a change order does not necessarily create delay. Sometimes, the Government acts with promptness, and the na-ture of the change does not extend the time needed to complete the contract. On other occasions the Government does not (or cannot) act promptly. It knows the work must be changed, but the full details as to how it is to be changed have not been worked out. In this instance a stop order is issued and the contractor must wait for new plans.

The effecte of a change order are not necessarily limited to the particular items changed. Far these portions, the Government makes an "equitable adjustment" in price and the contractor is reimbursed for his increased costs, if any." However, the cost of unchanged work may also be affected. The time required to execute the changed work may push the unchanged work into a period of higher prices. In this event, the order af production between changed and unchanged work becomes important, A similar condition will result if the Government is not prompt in determining the nature of the changes. The significance of the distinction between changed and unchanged work will become apparent upon examination of the law.

The traditional starting point in any discussion of the law re- 13 See 0.

Sehwsrtz & Ca. V. United States, 39 Ct. GI. 82 (1939).16 See McCloskey V. United States, 66 Ct. C1. 106 (1823).l b Standard Form 23-A (Construction Contract) (Apnl 1951 ed.); Standard II Ibid.

Farm 32 (Supply Contract) (September 1961 ed.).

*co 8il.B 3

lating tu change orders is Ciioutrau z Criitrd States:' There, for the first time, the Supreme Court interpreted a clause giving the Government the right to make changes in a contract while the work was in progress. Prior to Chwuteau the Supreme Court had held that once the contract %a8 made the United States had no right to interfere with the work. Either the Government eo-operated with the contractor. or it was liable far breach Of contract.1' But these early cases did not settle the law, for in nonedid the Government expresdly reserve the right to make changes.

Chovteou has an interesting background.:' In July 1863, the Government entered into a contract with one XcCord far the con-struction of an ironclad steam battery, the Etlah. The vessel was to be built at St. Louia and completed in eight months' time. Iron-clads were, of course, a novelty and an the basis of the battle ex-rer~ence of the i e ~

">Ianitors" rhen m service, constan- im-provements \?ere being made. To permit incorporation of improvements during the construction period, the contract cantained the fallowing :lause:her 8e:eed. tiat the palties of the second part [the Govern-hme the prmlega of making alterafiorr and additions to the pec~ficationi at any ?>me dunng the progrex a i the work, ai e m neeelsnr? and proper. ann if said drerationi and sddi-exria expense to tne parties of the firs? part [the cantraetorl,y for the lame at fair and reasonable r ~ t e 3 . ~ 0

From time to time the Government suspended work on the contract and ordered changes in the plans. As a result, the Etlah \\-as not completed until Sovember 1866, almost 18 months after the scheduled completion dare. In the meantime, the price of labor and materials had risen sharply in the St. Louis area. McCord wna reimbused for the increased cost of the changed work, but he received nothing for the increase in cost of un-changed work.

McCard sued in the Court of Claims alleging that the Gouernment's actions in delaying him through the many change orders constituted a breach of contract. The court found no breach and held that the Government had the privilege of ordering changes under the contract. It reasoned that the Government would be

179.5 U.S. 61 1 1 S i i l . 18 United Staler V. Speed. 7.5 U.3. ii 118681; Clark Y United States, 73 U.S. 16 Wall.) 543 (1861)io For the complete bsckground a i thia ~aie,inclvdmg anginal earrespondenee...