SHARING THE RISK EQUALLY

If the loss was foreseeable the fixed price contractor pays. That party assumed the risk.  If the contract is cost reimbursable, the government (owner) assumes the risk and must pay. If the loss causing event is beyond the contractor’s control and without its fault or negligence, the contractor may be afforded some relief for the delay, but he will not be made whole.

If the government knew of the likely interference in the contractor’s performance and failed to tell the contractor, the government bears the risk and must make the contractor whole. Even if the contractor and the government are unaware of the impediment to the contractor’s performance but the government was in a better position to know and to inform the contractor, the risk will be allocated to the government and the government must make the contractor whole.

But what if both parties are unaware of the potential interference and neither was in a superior position to know or otherwise be required to assume the risk.  To whom is it allocated?  If it is a fixed price contract the contractor may have no relief.  Even if the event is force majeure, the parties do not share the pecuniary risk equally.

But they should.  Such a rule would promote party partnership, increase project efficiency, and reduce if not eliminate the contingency. Cost contractors must price into their bids to account for the unforeseen and unforeseeable. The federal law of contracts is close to the right result in some cases and far away in others. We hope the federal contract tribunals will adopt a rule of shared cost and schedule relief for all situations where the pecuniary loss is beyond the contractor’s control and without its fault or negligence.

We suggest adopting the concept of shared responsibility. Risk allocation always is a matter of equity and the inherent powers of equity permit the tribunals to adopt such a rule. Adoption of this principle is only one step beyond allocating the risk to the party in a better position to anticipate it.

bill@spriggslawgroup.com