Bilateral Modification Releases: A Mid-Project Trap for the Unwary

The Armed Services Board of Contract Appeals (“ASBCA”) recently granted a motion for summary judgment, filed by the U.S. Army Corps of Engineers (“Corps”) in Odyssey International, Inc. in which the Corps argued that the contractor’s execution of a previous bilateral modification containing release language precluded the contractor’s subsequent claim for increased costs. This decision serves as an important reminder to contractors to be cognizant of release language in bilateral contract modifications because they often act as a mid-project reset, foreclosing a contractor’s ability to seek additional costs or time on any matters preceding the modification.

The contract involved in this case was for the construction of a building at the Letterkenny Army Depot in Chambersburg, Pennsylvania. The contract called for the use of “micropiles” in the foundation of the building. In Modification (“Mod”) 2, the Corps compensated Odyssey for 8 of the 20 claimed additional micropiles. After being unable to reach an agreement on the remaining micropiles, the Corps issued unilateral Mod 3, which granted Odyssey some additional time to complete its scope of work. At the end of performance, the parties executed bilateral Mod 9, which, among other changes, converted Mod 3 into a bilateral modification. Mod 9 also included a general release of claims that covered everything attributable to the facts or circumstances giving rise to the changes ordered.

Odyssey later sought additional costs for extra micropiles. The Corps denied Odyssey’s claim based on release in Mod 9, to which an Odyssey employee responded that the release in Mod 9 seemed to be a “trick, trap or typo.”

On appeal to the ASBCA, the Corps quickly filed a motion for summary judgment, again citing the release in Mod 9. In response, Odyssey argued that there was no meeting of the minds and that the release language should not be given effect because the Corps “may have” inserted release language in Mod 9 to fraudulently induce Odyssey to sign the release. The ASBCA, however, disagreed and held that Odyssy had unambiguously released its right to additional costs for the micropiles because unliteral Mod 3 addressed the same micropile costs in Odyssey’s claim and Mod 9 converted Mod 3 into a bilateral modification; therefore, the general release in Mod 9 covered everything related to Mod 3.

Odyssey serves as an important reminder that contractors must be attentive, and negotiate vigorously, when reviewing release language contained in contract modifications because such releases often act as a mid-project reset, foreclosing a contractor’s ability to recover on anything preceding the modification. This can have profound impacts on later claims, and it can come as a surprise to subcontractors, if they were not informed of the mid-job claim nor given an opportunity to participate in its negotiation. A good practice in federal government contracts is to seek early legal advice about signing change orders and to negotiate and agree to a clear reservation of rights within bilateral modifications.