Friday, March 22, 2013

ASBCA APPLIES THE SOVEREIGN ACT DEFENSE

The Armed Services Board of Contract Appeals (ASBCA) has just applied the sovereign act defense in a case involving a contract for improving vehicle armor and upgrading and painting vehicles for the Iraqi National Police under a contract awarded by the government.  The government moved for summary judgment on the contractor's claims asserting among other things the sovereign act defense.  The contract contained the standard commercial items clause.  The contractor claimed there were design problems which were later addressed in contract modifications.

As the contractor performed the contract, it encountered delays throughout the performance period.  In one case, the contractor said it could not pick up its steel truck from the convoy area due to blocked roads by the Iraqi Police Forces and the U.S. Army.  The Iraqi police were not able to deliver vehicles due to security reasons and check point issues.  The contractor claimed unabsorbed overhead based on the delays.  The government argued accord and satisfaction based on the bilateral modifications to the contract.  The ASBCA denied the government's motion, saying the modifications did not cover delay costs.

The ASBCA then addressed the sovereign act defense.  With regard to road blockages and border and gate restrictions imposed by the government, the contractor did not allege that such actions were targeted at the contractor or were taken to achieve some sort of financial advantage in connection with the particular contract.  The Board stated the contractor in effect admitted that the requirements complained of were imposed in connection with general government regulations and operations. 

The Board said:  "Such acts, being of a public and general nature, not targeted at a specific contractor, would constitute sovereign acts.  Actions taken by the United States in its sovereign capacity shield the government from liability for financial claims resulting from those acts, although a contractor is allowed additional time to perform."  The Board's opinion does not include a detailed and in depth discussion of the sovereign act defense.

With regard to the road blockages and border and gate restrictions imposed by the government of Iraq, since the U.S. government was not liable in its contractual capacity (not at fault), it could not be held responsible for the delay costs resulting from security actions undertaken by the government of Iraq.

We've written often about the application of the sovereign act defense to claims arising from actions of the government taken as a result of sequestration.  Although this ASBCA case does not involve sequestration, it signals in a general sense how the ASBCA may address the defense if raised by the government with regard to actions undertaken as a result of sequestration.  In many prospective cases there may be no clear causal nexus between sequestration and the action taken by the government.  Nevertheless, expect the government to assert the sovereign act defense. 

It would appear the ASBCA may look to the general nature sequestration and it may recognize the sovereign act defense by rationalizing that sequestration did not target any particular contract or contractor.  In the broader sense, however, as in the Winstar Supreme Court case, it would appear Congress fully intended that its actions would result in changes, cancellations and terminations of procurement contracts, in which case the defense would not apply.  We'll see.  The Supreme Court probably eventually will have to decide the issue.

bill@spriggslawgroup.com                          www.spriggsconsultingservices.com

2 comments:

  1. I should explain the causal nexus reference in the second to the last paragraph. The issue most likely will arise in the context of claims by the contractor for changes, breaches and terminations. The government may say "the devil (sequestration) made me do it." A wise contractor will inquire as to whether that really is the case. The ASBCA says the defense applies if the government action is not targeted at a specific contractor. Sequestration may be used as an excuse to target certain contractors or contracts. So the first inquiry is whether sequestration really is the proximate cause. If so, the question then becomes whether sequestration was designed to target procurement contracts in order for the government to achieve a financial advantage.

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