Many family-owned enterprises do business with the Federal government, either as a contractor or a supplier. A recent case decided in the Court of Federal Claims serves as a stark reminder that any time a contract with the Federal government is amended or modified, the parties must pay particular attention to any release language contained in the amendment, or they run the risk of releasing potential claims that are unrelated to the modification.
In Meridian Engineering Company vs. United States, No. 11-492C , the Court of Federal Claims considered a dispute arising out of contract between Meridian Engineering Company (“Meridian”) and the United States Army Corps of Engineers (“Corps”) for the construction of a flood control project in Nogales, Arizona, near the border with Mexico. Numerous issues arose during the project, which was eventually suspended and then terminated. After the project terminated, the parties continued to argue over payments relating to the project, with Meridian eventually filing suit against the Corps for unpaid costs. Ultimately, an appeals court found in favor of the government, relying in part on a provision of the amendment that read (emphasis added):
It is understood and agreed that pursuant to the above, the contract time is extended the number of calendar days stated, and the contract price is increased as indicated above, which reflects all credits due the Government and all debits due the Contractor. It is further understood and agreed that this adjustment constitutes compensation in full on behalf of the Contractor and its Subcontractors and Suppliers for all costs and markups directly or indirectly attributable for the change ordered, for all delays related thereto, for all extended overhead costs, and for performance of the change within the time frame stated.
Meridian’s claims were related to a portion of the project that was not directly related to the modifications, and in ongoing appeals Meridian argued that the release shouldn’t cover the claims at issue. Ultimately, some five (5) years after the initial ruling, Meridian was able to convince the Court of Federal Claims that the language above did not constitute a release and waiver of payment for the work at issue.
While Meridian was ultimately successful, their claims were put at risk because the release and waiver language wasn’t as clear as it could have been. Any release document (including releases with parties other than the government) should be narrowly drawn and clearly articulate those claims that are being released. If there are aspects of a dispute that are not covered by the release, the agreement should say that clearly (i.e. “this release does not constitute a release or waiver of claims relating to…”). Additionally, the parties should carefully review and negotiate any release provisions, to ensure that a meeting of the minds has occurred.