Contractor Did Not Release Claims for Flood-Caused Delay

Because I’m at least partially a North Carolina country boy, I like to promise I’ll finish a project by a certain date “god willing and the creek don’t rise.”

I never give much thought to what I’ll do if the unexpected happens. I assume most people don’t. They expect things to go according to plan. As Meridian Engineering Company found out at the U.S. Court of Federal Claims recently, sorting it out when things don’t go to plan can be a long and arduous process.

In what would appear to be the end of a saga dating back to 2007, the court ended up awarding Meridian almost $900,000 plus interest after ruling that Meridian had not released its claims when it signed two contract modifications back in 2008.

In September 2007, the U.S. Army Corps of Engineers signed up Meridian to construct a $5.8 million flood-control project in Nogales, Arizona. The Corps drug its feet though and did not get Meridian key drawings and surveys until December of that year. The project was also stymied by subsurface flows and soft soil. The Corps issued several modifications, including one to add a new access ramp, followed shortly thereafter by a modification to delete the access ramp.

The modification stated: “[T]his adjustment constitutes compensation in full on behalf of the Contractor . . . for all costs and markups directly or indirectly attributable for the change ordered, for all delays related thereto, for all extended overhead costs, and for performance of the change within the time frame stated.”

Because of the delays, Meridian could not complete the work in time for monsoon season—side note: did you know Arizona has a monsoon season? It’s true!

In June 2008, the site started flooding. From August to September of that year, the work site was flooded 47 out of 54 days. The Corps issued several modifications, each of which included the same language as above, but eventually just cancelled the project and terminated Meridian’s contract for convenience.

A project of that size does not simply stop though. There are costs associated with stopping work too. Meridian and the Corps disputed the costs among themselves until eventually Meridian took its claims to the Court of Federal Claims. The court held two trials, in 2014 and 2016. During the first trial, the court ruled that Meridian had released its claims concerning the flooding by signing the modifications.

Meridian appealed various counts to the U.S. Court of Appeals for the Federal Circuit. The Federal Circuit vacated some counts, dismissed some, and remanded two. Meridian and the Corps worked out a settlement on one of the remaining two counts, so the only issue left for the Court of Federal Claims to decide was Count 4—the flood claim.

The Corps continued to argue that Meridian had released its claim due to the modification’s language “this adjustment constitutes compensation in full on behalf of the Contractor[.]”

The Court disagreed, noting that some of the modifications “pre-date a significant portion of the days when the site experienced flooding” and “the “releases do not explicitly cover flood damage that had not yet occurred and whose scope was not predicted.”

The Court also noted that the parties continued to act as though these claims were active, arguing and negotiating over the amounts, so the releases could not have represented a “meeting of the minds.”

The Corps had also argued that the contract assigned the risk of flooding to Meridian, which the Court could not have agreed less with. It said:

This argument is attended by irony—in one sense, the government seeks to suggest that the flood-events damage directly resulted from the delays caused by modifications . . . (thus seeking to put them within the release language), and yet also suggests that the flood damage from monsoon season was the sheer result of poor planning on Meridian’s part. . . . Simply put, the government cannot escape liability for flood damages when the government is responsible for causing the contractor to be working during the flood-prone season.

The court found the Corps responsible for $873,603.69 in damages, plus interest dating back to 2011 ($377,982.13 so far).

While Meridian eventually came out ahead, its experience is a good reminder to all contractors to be careful when signing contract modifications so as not to later be barred from pursuing damages.