Hell or High Water: Why Contractors Must Understand Contractual Risks

The Armed Services Board of Contract Appeals (“ASBCA”) recently denied a contractor’s claim for additional compensation as the contractor failed to establish its work was constructively suspended or that its contract was commercially impracticable when the contract placed the risk of high-water levels on the contractor. The appeal of Phylway Construction, arose out of a Mississippi River levee construction project with the United States Army Corps of Engineers (“USACE”) in 2019. Relevant to the appeal, Phylway’s firm-fixed-price contract with the USACE unambiguously stated that Phylway would not be permitted to perform levee work when the water level of the Mississippi River exceeded 11 feet. Further, the contract provided that in the event of high river levels, Phylway would only be entitled to non-compensable time extensions.

In 2019 and 2020, and during construction, the water level of the Mississippi River exceeded 11 feet on 230 and 171 days, respectively (compared to the 1987-2018 average of 80 high water days per year). During these high-water periods, Phylway’s subcontractor was unable to perform certain levee work, which resulted in a significantly higher cost of performance.

Pursuant to the contract, the USACE issued four contract modifications extending Phylway’s performance period by 372 days. The modifications stated that “[i]t is further understood and agreed that this adjustment constitutes compensation in full on behalf of [Phylway].” The modifications did not include any reservation of cost or claims by Phylway associated with the high-water delays. In response, Phylway requested that USACE allow Phylway’s subcontractor to perform work when the Mississippi River exceeded 11 feet and submitted a request for equitable adjustment associated with the high-water impacts. The USACE denied both requests.

In June of 2021, Phylway filed a Notice of Appeal with the ASBCA seeking compensation for delays due to the high-water levels. Phylway complained that the USACE constructively suspended Phylway’s work or that the contract was commercially impracticable, as they were forbidden from completing their work due to circumstances (the high water) outside of their control. The ASBCA denied both Phylway’s claims stating that the “terms of the firm-fixed-price contract expressly allocated the risk of high river levels to Phylway.” While the water levels were unusual, nothig in the contract entitled Phylway to financial compensation for these delays. Additionally, the ASBCA held that even if Phylway established a constructive suspension of the work or that the contract was commercially impracticable, Phylway waived these claims in the releases to the contract modifications that added additional time to the performance of the contract.

The bottom line: It is critical that contractors fully understand and account for the unique risks a project presents before entering into the contract—especially when the contract is a fixed-price contract. Contractors must also proceed with caution when reviewing and before signing bi-lateral contract modifications, as you may inadvertantly waive rights or claims.