MAKE THE CONTRACTOR WHOLE

 Preview of an article to come.

In the private sector, the remedy for breach of contract includes what is known as incidental and consequential damages. Lucky is just as the name suggests. They are proximate to the event. Consequential damages open broader opportunities for recovery, and we explore the outer limits of what could be included. One interesting twist to all this is the definition of the word damages. In most cases, damages connote quantification of remuneration. The article explores the non-monetary aspects of making the contractor whole because of the breach. We explore the breach's impact on the original design, the means and methods of performance, the schedule, and the essence of the agreement.  If the effect is significant enough, the contractor may have an obligation to stop work to mitigate damages.  One opinion holds the contractor has no right to make a useless thing and charge his customer for it.

In the public sector, breaches are treated as constructive changes under the changes and disputes articles. The damage calculation is limited to reasonable and allocable costs plus profit on those costs. Those are primarily identifiable as incidental damages. However, consequential damages should include the effects on the original design and means and performance methods.  Inefficiencies caused by the changes manifest themselves in many ways.  Profit on original work can be recalculated and increased because changed work and its impact on the unchanged work create more significant risk and difficulty and, therefore, deserve a higher profit.  Performing in a different period using different means and methods gives rise to the possibility of other ways in which a contractor may recover its actual, consequential damages. The Court of Appeals for the Federal Circuit has said a damage calculation should make a contractor whole. That case arose in the public sector but should also be applied to the private sector. Just what does it mean to make the contractor whole?

“Equitable adjustments in this context are simply corrective measures utilized to keep a contractor whole when the Government modifies a contract. Since the purpose underlying such adjustments is to safeguard the contractor against increased costs engendered by the modification, it appears patent that the measure of damages cannot be the value received by the Government but must be more closely related to and contingent upon the altered position in which the contractor finds himself because of the modification.”  Bruce Construction Corporation v. United States, 324 F.2d 516 (Ct. Cl. 1963).

Altered position.  Design?  Means and methods?  Personnel?  Seems to include more than delay and disruption costs.

Finally, there are the owner’s defenses to the contractor’s claim and the various remedies of the parties. In the private sector, the owner can refuse to pay and force the contractor to sue or engage in arbitration or mediation. It's a little more challenging in the public sector where the changes and disputes clauses provide the contractor must continue to perform even in the face of constructive changes, subject to the right of settlement later.  It gets a bit dicey for the public contractor to threaten to walk off the job. On the other hand, walking off the job is undoubtedly a remedy in the private sector. Litigating in the public sector is a bit of a minefield because of sovereign immunity and the rules and regulations limiting the availability of judicial remedies. We compare relief available in the private and public sectors.

 bill@spriggslawgroup.com