A final Modification was issued in January of 2013 for an
additional three months of System rental which contained language that stated,
“This adjustment constitutes compensation in full on behalf of the contractor
and its subcontractors and suppliers for all costs and markups...” This brought the total number of rental payment
to thirteen months, but the System had been on site for a total
of fourteen months. During the course of the project after the pumps had been
removed, Merrick believed that an accounting discrepancy had occurred, and the
System supplier had overcharged Merrick and it filed suit to recover those
costs. In July of 2015, Merrick
submitted its final payment request to USACE and Merrick’s vice president
signed a general release which stated:
"[Merrick] hereby releases the United States, its
officers, agents, and employees from any and all claims arising under or by
virtue of said contract or any modification or change thereof, except with
respect to those claims, if any, listed below…”
Merrick did not provide any claims or reservations and final
payment was issued in the requested amount. Later in September of 2015, Merrick
became aware that the supposed over-payment to the System supplier was in fact
an underpayment by the USACE. Merrick
submitted a claim to the USACE in May of 2016 for a one-month rental of the System
and the USACE contracting officer denied the claim citing the general
release. Merrick appealed the decision
to the Armed Services Board of Contractor Appeals (Board) and USACE moved for
summary judgement.
The Board begins it analysis by presenting USACE’s argument
that the signature of the general release bars any claims by Merrick after the
fact. The Board points to Clean by Lucy, Inc., ASBCA No. 58432,
which states a release, "abandons a claim or relinquishes a right that
could be asserted against another" and “[as] a rule, a general
release, whether associated with final payment or not, which is not qualified
on its face, bars any claims based upon events occurring before execution of
the release.” However, the Board then identified that there are exceptions to
the release such as fraud, mutual mistake, economic duress, or consideration of
a claim after release.
Merrick argued that the general release should not bar its claim because USACE had superior knowledge of the discrepancy in payments for
the System because of Merrick's mistake. Merrick’s
superior knowledge argument was centered around the fact that before the final
release was signed, but after the final Modification for the System’s rental
was executed, there was a change in project management by Merrick and USACE knew
that the new project manager was not involved in any prior negotiations. Merrick further argued USACE took advantage
of this because it knew of the discrepancy between rental months paid and
actual rental months onsite. Merrick further argued that through the act of
bringing a suit against the System supplier, USACE knew or should have known
that Merrick intended to preserve a claim against it. The Board rejected the
superior knowledge argument because it was highly speculative and Merrick itself
was not aware of the discrepancy until nearly three months after the general
release was signed.
The Board next reviewed Merrick’s argument against summary
judgement because of mutual or unilateral mistake. The Board stated that Merrick’s ignorance of
its own claim is not the type of mistake that would constitute an exception to
general releases and quoted J. G. Watts
Construction Co. v. United States, 161 Ct. Cl. 801, 806 (1963) which
stated, "where it is shown that, by reason of a mutual mistake, neither
party intended that the release cover a certain claim, the court will reform
the release." Merrick admits that it did not know of the claim until after
it signed the release and consequently could not have intended it to be exempt
from the general release. Furthermore,
the Board pointed to Mingus Constructors,
Inc., v. the United States, 812 F.2d 1387 (Fed. Cir. 1987) that held:
"failure by the contractor to keep
adequate records to at least know the source and the amounts of its cost overruns
is not a sufficient reason to entertain suits on claims otherwise released, especially
when the terms of the contract require such information on the mandatory release
at the end of the project."
The Board found that Merrick had not provided the basic facts
which established entitlement to an equitable remedy for a unilateral mistake
and the general release is enforceable.
Accordingly, the Board granted USACE’s motion for summary
judgement.
--------------------------------------------------
The author, Brendan Carter, Esq., is the Director of Industry
Advancement & Labor Relations with the AGC of Massachusetts based in
Wellesley, MA. He is a monthly contributor to The Dispute Resolver and a former
Student Division Liaison to the Forum on Construction Law. He may be contacted at 781.786.8916 or
carter@agcmass.org.
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