Court trims damages in subcontractor’s suit

Listen to this article

A federal court has partially granted a Norfolk contractor’s motion to dismiss after a subcontractor sought to recover additional monies related to COVID-19 and delay-related expenses.

The subcontractor filed suit seeking more than $5.6 million in compensation and interest, in addition to attorneys’ fees and costs, stemming from pandemic-related expenses and costs incurred from “constructive changes” to the subcontractor’s performance.

U.S. Magistrate Judge Robert J. Krask partially granted the motion, tossing claims for delay-related expenses but denying the motion to dismiss the COVID-19 pandemic expense claims.

Krask authored the opinion in L3Harris Maritime Services Inc. v. BAE Systems Norfolk Ship Repair Inc. (VLW 023-3-688) for the U.S. District Court for the Eastern District of Virginia.

Ship repair

L3Harris Maritime Services Inc. entered into a firm fixed price, or FFP, subcontract with defendant BAE Systems to provide ship repair services to the U.S.S. Vicksburg in exchange for nearly $1.9 million. The contract was in support of BAE’s prime contract with the U.S. Navy.

Under the contract, L3Harris was required to notify BAE of “any difficulty in performing the subcontract’s scope of work.” The subcontract also included a provision that a contractor “shall not be in default because of a failure to perform if the failure arises from causes beyond the control and without the fault or negligence of the contractor.” These causes include “acts of God and epidemics, among other causes.”

L3Harris’ performance of the subcontract was impacted by the COVID-19 pandemic beginning in March 2020. BAE directed continued performance of the subcontract during the pandemic, leading L3Harris to incur additional pandemic-related costs including COVID-19 testing, increased sick leave, protective measures and inefficiencies caused by the requirement to social distance. L3Harris’ costs rose by more than $863,000 from March 2020 through July 2021 due to the pandemic.

BAE also allegedly “engaged in acts and omissions that delayed or otherwise interfered with L3Harris’ performance of the subcontract” between December 2019 and August 2022. As per the subcontract’s general terms and conditions, L3Harris documented these delays, which were divided into categories.

L3Harris filed a complaint in June 2023, seeking judgment against BAE “for all sums due to compensation of increased work beyond the scope of the Vicksburg Subcontract.” The subcontractor specifically sought the pandemic-related expenses, costs related to BAE’s constructive changes to L3Harris’ performance and costs for additional “close out work.” At the time the complaint was filed, L3Harris was still performing the subcontract “due to constructive changes by BAE that increased and delayed L3Harris’ work.”

BAE filed a partial motion to dismiss the following month, claiming the pandemic- and delay-related expenses weren’t compensable under the subcontract as it was a firm fixed price contract, which places the burden of increased costs on the subcontractor instead of the prime contractor.

Pandemic expenses

BAE sought to dismiss the claim for COVID-related expenses; the costs were incurred by L3Harris in performing the existing contractual obligations, not changes to the subcontract.

But L3Harris said the complaint “sufficiently pleads the elements of a constructive acceleration change, which it asserts is compensable under the changes clause of the subcontract.”

Krask agreed with L3Harris, saying it “alleged sufficient facts to survive BAE’s motion to dismiss.”

“The complaint adequately alleges that the COVID-19 pandemic constituted an excusable delay under 48 C.F.R. § 52.249-14, that BAE’s direction that L3Harris continue performing the subcontract during the pandemic amounted to a constructive acceleration order under the changes clause, and that L3Harris’ continued performance resulted in increased expenses,” Krask wrote, thus making the claim a sufficient constructive acceleration claim.

Krask noted that constructive acceleration, in simple terms, is “when the government requires compliance with an original deadline, despite excusable delay being present,” in this case the onset of the COVID pandemic.

BAE argued L3Harris failed to meet the pleading requirements for such a claim, saying a discrepancy existed on whether BAE required L3Harris to meet its original schedule.

Citing the Federal Circuit, Krask pointed out that “any pressure by the government to continue performance through excusable delay, ‘even if it were merely implicit,’ is sufficient to constitute an acceleration order.”

“L3Harris sufficiently alleges and the complaint permits the reasonable inference that BAE directed L3Harris to perform within the existing contract schedule, despite excusable delay, and L3Harris incurred increased costs as a result,” he wrote, denying this portion of BAE’s motion to dismiss.

Delay-related expenses

BAE further sought dismissal of five of the seven categories of claims that L3Harris alleged constituted constructive changes to the scope of the subcontractor’s work.

The dismissal specifically highlighted claims related to delays caused by “BAE’s failure to perform structural support services”; third-party subcontractors; delivery of required materials; additional personnel costs stemming from the delays; and management and administrative extension costs.

Krask said a contractor who performs work “beyond the contract requirements at the government’s direction, without a formal or informal order by the government under the changes clause to do so” is treated as a constructive change to the contract, entitling the contractor to an equitable adjustment.

“However, while changes to the scope of work to be performed under a contract are compensable under the changes clause, damages for delay are remediable only under the suspension of work clause,” Krask wrote.

The subcontract between L3Harris and BAE did not include such a clause, making these claims contingent on whether BAE’s conduct “amounted to a constructive change” in the work done by L3Harris.

Krask noted that the five categories constitute claims that allege damages as a result of delays caused by BAE, not changes to the scope of work under the subcontract.

“Although each of these claims alleges facts sufficient to demonstrate that BAE’s conduct delayed L3Harris’ performance, none adequately alleges that L3Harris’ scope of work under the subcontract was ever changed,” he wrote.

The judge added that, despite delays pushing the project period of performance to over five years, L3Harris does not allege BAE required it to perform work beyond the subcontract’s scope.

“As direction by the prime contractor and performance of work outside the scope of the subcontract are each required to sustain a constructive change claim, L3Harris’ claims for delay-related expenses are not compensable under the changes clause,” he said.

As delay-related claims were not compensable under the subcontract, Krask dismissed these claims and partially affirmed BAE’s motion to dismiss.

CORRECTION: A previous version of this story misspelled Magistrate Judge Robert J. Krask’s name. Virginia Lawyers Weekly apologizes for the error.