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Contractor’s Duty to Proceed

Posted on May 17th, 2014 by

Oftentimes, the Government will demand that a Contractor continue performance even though the Contractor disagrees for whatever reason. The disputes clause requires the contractor to continue performance despite this dispute. Referred to as the “Duty to Proceed,” this duty is based on the contract’s disputes clause which states that “the Contractor shall proceed diligently with performance of this contract, pending final resolution of any request for relief, claim, appeal, or action arising under the contract, and comply with any decision of the contracting officer.” This duty to proceed ensures that work does not stop while differences between the parties are resolved.

When faced with a disagreement over whether a change exists, for example, the contractor should continue performance and file a claim for an equitable adjustment with the contracting officer. Meanwhile, the contractor should keep good records of the additional work (labor and material), as well as the time to perform this additional work. Hopefully, the contractor can afford to pay for the additional work while it seeks relief under the contract dispute procedures.

There are three exceptions to the Duty to Proceed recognized by the boards and courts:

• The specifications are so defective that performance cannot continue without assured failure;
• The contractor cannot proceed until it receives a response to a clarification request; and
• The Government materially breached the contract, i.e. cardinal change.

The defective specification exception requires a showing that the specifications are so defective that the purpose of contract is guaranteed to fail and the Government knows this. Absent clear direction from the Government to perform despite inevitable failure, the contractor can stop work. In Seven Sciences, Inc., ASBCA No. 21079, 77-2 BCA P12,730, the Board held that a contractor was allowed to stop work because it would have produced a “useless” product:

We agree with the Government that, short of commercial impossibility, a contractor is not entitled to refuse performance on the ground that performance would entail substantial additional expense not taken into account in its bid price. However, in the present case, appellant acted reasonably in refusing to perform. As established in our findings, even if appellant had been able to obtain sufficient information to proceed with procurement of parts, fabrication of battery chargers in accordance with the Government’s defective design, without original stable base drawings, would likely have resulted in failure. Absent clear Government direction to proceed with the manufacture of useless chargers, appellant was not obliged to do so. The consequences of the Government’s breach were so severe as to provide appellant with the right of avoidance.

The clarification exception to the duty to proceed exists if the Contractor cannot move forward with performance without an answer to an RFI or clarification request and the Government fails to provide an adequate response. See, Appeal of James W. Sprayberry Constr., 87-1 B.C.A. (CCH) P19,645, where the contractor was excused from performance because the Government did not answer clarification about slope of roof.

The breach of contract exception to the duty to proceed under the cardinal change theory requires proof that the Government has fundamentally changed the purpose or scope of the contract. While there is no formula for determining whether a cardinal change has occurred, the courts have considered the following factors: (i) whether there is a significant change in the magnitude of work to be performed; (ii) whether the change is designed to procure a totally different item or drastically alter the quality, character, nature or type of work contemplated by the original contract; and (iii) whether the cost of the work ordered greatly exceeds the original contract cost.

Anyone considering stopping work should think twice. The duty to proceed generally requires the contractor to continue performance. The exceptions to this rule are rare. Make sure you have done everything possible to continue performance and seek legal advice before taking the drastic action of stopping work.

 

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