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Law360 (June 9, 2021, 5:35 PM EDT) -- The Federal Circuit on Wednesday affirmed that the U.S. Department of State did not owe a construction contractor reimbursement for additional costs related to an Ebola outbreak, upholding a decision also relevant to contractual adjustment claims related to COVID-19.
A three-judge panel affirmed a Civilian Board of Contract Appeals decision upholding the State Department's denial of a $1.25 million equitable adjustment requested by Pernix Serka Joint Venture, in a so-called Rule 36 judgment without a written opinion.
Pernix Serka had been tapped by the State Department for a nearly $10.9 million contract to build a rainwater collection and storage system in Freetown, Sierra Leone, and after seeking advice from the agency on how to respond to a local outbreak of the Ebola virus, was told to come up with its own response, according to the underlying CBCA decision.
Ebola is deadly, killing on average about half of the people it infects according to the World Health Organization, and Pernix Serka chose to temporarily demobilize its employees and provide additional medical services for employees after they returned to the work site, the CBCA said.
The company incurred about $1.25 million in related costs and made a request for equitable adjustment, but the State Department denied the request, saying that as a fixed-price deal, the risk of cost overruns was on Pernix and there was no provision for equitable adjustment, according to the CBCA decision.
The board ultimately agreed with the agency, finding there was no obligation on the State Department to provide any direction on how to respond to the outbreak and that an "excusable delays" clause in the contract allowed only for extra time to do the contracted work, not additional money.
"PSJV has not identified any clause in the contract that served to shift the risk to the government for any costs incurred due to an unforeseen epidemic," the CBCA said.
Although related to an Ebola outbreak, the CBCA's underlying decision was also relevant for contractors considering turning to contractual change clauses as an option for mitigating disruptions caused by the COVID-19 pandemic, demonstrating that they should be clear on what those clauses cover before using them to seek reimbursement.
At oral arguments at the circuit court on Monday, counsel for Pernix Serka, Douglas Patin of Bradley Arant Boult Cummings LLP, argued that the company was left hanging by the State Department's refusal to provide guidance related to the Ebola outbreak and was pressured by the department to resume work as soon as possible.
Patin also pointed to a "suspension of work" clause in the contract he said had allowed for the recovery of certain expenses if work is stopped for reasons beyond either party's control, and hadn't allowed the State Department to force the company back to work in dangerous conditions.
U.S. Circuit Judge Sharon Prost questioned why the State Department refused to offer any guidance related to the outbreak — something U.S. Department of Justice attorney Steven Gillingham said was done to avoid being accused of changing the contract's terms — but the judges also pointed to the contract's excusable delays clause several times as a tough obstacle for Pernix Serka to overcome.
"How do you get around the excusable delays clause, which says time but no money?" Judge Prost said. "I don't understand how you could get around that clause notwithstanding all the circumstances in this case."
The panel had also appeared skeptical about Pernix Serka's arguments that it had been forced or at least pressured to return to work, with U.S. Circuit Judge Kara F. Stoll noting there had been no order issued by the State Department to that effect.
Patin agreed there had been no direct order, but pointed a government missive to Pernix Serka that he said had suggested the company "should make every effort to remobilize the entire workforce and complete the remaining portion of the project as early as possible."
A representative for the State Department declined to comment on the ruling on Wednesday. A representative for Pernix Group, one of the partners in the joint venture, did not immediately respond to a request for comment.
Circuit Judges Sharon Prost, Kimberly A. Moore and Kara F. Stoll sat on the panel for the Federal Circuit.
Pernix Serka is represented by Douglas L. Patin of Bradley Arant Boult Cummings LLP and Randolph MacPherson of Halloran & Sage.
The State Department is represented by Steven J. Gillingham of the U.S. Department of Justice's Civil Division and Erin M. Kriynovich of its Office of the Legal Adviser for Buildings and Acquisitions.
The suit is Pernix Serka Joint Venture v. Secretary of State, case number 20-2153, in the U.S. Court of Appeals for the Federal Circuit.
--Additional reporting by Nadia Dreid. Editing by Emily Kokoll.
Update: This story has been updated to include the State Department's response.
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