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Law360 (June 9, 2021, 5:35 PM EDT) —
The Federal Circuit on Wednesday affirmed that the U.S. Department of State did not owe a construction contractor reimbursement for additional costs related to an Ebola outbreak, upholding a decision also relevant to contractual adjustment claims related to COVID-19.
A three-judge panel affirmed a Civilian Board of Contract Appeals decision upholding the State Department’s denial of a $1.25 million equitable adjustment requested by Pernix Serka Joint Venture, in a so-called Rule 36 judgment without a written opinion.
Pernix Serka had been tapped by the State Department for a nearly $10.9 million contract to build a rainwater collection and storage system in Freetown, Sierra Leone, and after seeking advice from the agency on how to respond to a local outbreak of the Ebola virus, was told to come up with its own response, according to the underlying CBCA decision.
Ebola is deadly, killing on average about half of the people it infects according to the World Health Organization, and Pernix Serka chose to temporarily demobilize its employees and provide additional medical services for employees after they returned to the work site, the CBCA said.
The company incurred about $1.25 million in related costs and made a request for equitable adjustment, but the State Department denied the request, saying that as a fixed-price deal, the risk of cost overruns was on Pernix and there was no provision for equitable adjustment, according to the CBCA decision.
The board ultimately agreed with the agency, finding there was no obligation on the State Department to provide any direction on how to respond to the outbreak and that an “excusable delays” clause in the contract allowed only for extra time to do the contracted work, not additional money.
“PSJV has not identified any clause in the contract that served to shift the risk to the government for any costs incurred due to an unforeseen epidemic,” the CBCA said.
Although related to an Ebola outbreak, the CBCA’s underlying decision was also relevant for contractors considering turning to contractual change clauses as an option for mitigating disruptions caused by the COVID-19 pandemic, demonstrating that they should be clear on what those clauses cover before using them to seek reimbursement.
At oral arguments at the circuit court on Monday, counsel for Pernix Serka, Douglas Patin of Bradley Arant Boult Cummings LLP, argued that the company was left hanging by the State Department’s refusal to provide guidance related to the Ebola outbreak and was pressured by the department to resume work as soon as possible.
Patin also pointed to a “suspension of work” clause in the contract he said had allowed for the recovery of certain expenses if work is stopped for reasons beyond either party’s control, and hadn’t allowed the State Department to force the company back to work in dangerous conditions.
U.S. Circuit Judge Sharon Prost questioned why the State Department refused to offer any guidance related to the outbreak — something U.S. Department of Justice attorney Steven Gillingham said was done to avoid being accused of changing the contract’s terms — but the judges also pointed to the contract’s excusable delays clause…