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To Reserve or Not to Reserve? Maintaining Claims against the Government

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Contractors do not have to waive future claim rights when negotiating the direct cost of a change order (modification) with the government, despite banter by the contracting officer that reservation of claims is not permitted. More often than not, the contracting officer will inform the contractor that it is necessary to incorporate the following language into the modification to settle the change order: “[t]his change order is in full and complete satisfaction of all costs, direct and indirect, associated with the work and time agreed to herein.” This premise is simply false. The applicable FAR clause, FAR 43.204(c)(2), expressly recognizes the contractor’s right to reserve claims in a modification. Thus, reservation of claims is not only permitted, but it is also especially prudent in situations where the impact of a change on the unchanged work is unknown.

So what is the best way to preserve claims? The safest course of action is to negotiate reservation language in the modification itself. The following is an example of language reserving delay and impact claims, incorporated into the modification, which has been upheld as an appropriate reservation of claims:

Contractor reserves any and all claims, including cumulative impact claims, for additional time or money relating to costs (including extended overhead costs) or damages arising from or related to changes, delays, impacts, inefficiencies, disruptions, suspensions, and/or acceleration to the Work. Contractor does not waive any defense, right, or remedy that the Contractor may have under the Contract, by statute, at law, or otherwise.

A recent Armed Services Board of Contract Appeals (ASBCA) decision, however, suggests there are other ways to reserve rights without negotiating language in the modification itself.  In Appeal of NMS Management Inc., ASBCA No. 61519, the board held that a contractor did not waive certain claims as a matter of law where it performed under protest by reserving its rights in an email transmitting the executed modification. Note that NMS is no guarantee that another board judge or the U.S. Court of Federal Claims will agree, but it is now an argument that has been accepted by the board and can be made if necessary. To avoid any risk, insist on including the requisite reservation language in the modification itself, and certainly cite FAR 43.204(c)(2) if and when the contracting officer asserts that reservation of rights is not permitted.

 

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