Could 'Accord and Satisfaction' Language Be Overcome?

By John S. Mrowiec

We have written regarding disputes arising from signed change orders, and these have included Is Payment a Condition Precedent to Release Language in a Settlement Change Order? (April 2003), Signed Change Orders May Act as Releases (Oct. 2001) and Ambiguous Reservation Language in Change Orders Could Not Save Later Impact Claims (Sept. 2000).

This month we turn to the issue of whether these might be circumstances under which strong "accord and satisfaction" language in a change order might not be applied. That was the question in England v. The Sherman R. Smoot Corp., 2004 U.S. App. LEXIS 22968 (Fed. Cir. Nov. 3, 2004).

Case Involves Military

The Smoot Corp. case involved construction at a U.S. Navy shipyard. The owner issued three requests for changes. The changes, in combination, extended the duration of contractor's work, according to the contractor.

After issuance of the change order requests but before issuance of any official "change orders" - the contractor requested a 51-day extension and $462,931 (after various amendments) in extended duration damages, above what was requested for the changed work itself.

The owner issued change orders ("modifications," in the parlance of this contract) for two of three change order requests. No time extension and no extended duration damages were granted in these change orders. The change orders read as follows:

"Acceptance of this modification by the contractor constitutes an accord and satisfaction and represents payment in full for both time and money and for any and all costs, impact effect, and for delays and disruptions arising out of, or incidental to, the work as herein revised."

The contractor signed the change orders but then submitted a formal written claim to the contracting officer under the contract, requesting the same 51-day time extension and extended duration damages. Thereafter, the owner issued another change order with the identical language to address the last change order request (but not the claim, at least not expressly).

The contracting officer considered the contractor's claim and, in a letter explaining what he planned to do, said he would grant an extension for the entire claimed 51-day period of delay.

However, the contracting officer found that the owner was responsible only for 21 days of delay, approximately 40 percent of the total claimed delay (and, therefore, of the extended duration compensation).

Objecting to the contracting officer's letter, the contractor contended the 51-day time extension was fully compensable.

Thereafter, the owner issued a unilateral change order, this time on the contractor's claim, granting the full requested time but no money. Six days later, the owner issued another unilateral change order, this one increasing the contract price by $80,000.

Ten months later, the contracting officer issued another unilateral change order, this one modifying the earlier $80,000 change order to increase the contract price by $203,776. These last two change orders apparently conformed to the contracting officer's letter that said the owner was responsible to compensate for 21 days of the delay. The owner then paid that increased compensation.

Still seeking compensation for the full 51 days, the contractor amended its written claim to $179,155, reflecting the owner's payments, and asked for a final decision from the contracting officer. Receiving no decision within 60 days, there was a "deemed denial" under the governing federal procurement law and contractor appealed to the Board of Contract Appeals.

The owner opposed the contractor's appeal, arguing that, by accepting the three original change orders upon which the claim was based, the contractor was bound to the "accord and satisfaction" language in the three change orders. The Board held the contractor was entitled to full compensation regardless of the issuance of the three change orders.

The Board reasoned that the owner had continued to consider contractor's claim after the contractor had signed the change orders containing the "accord and satisfaction" language. In such a circumstance, the Board said, the parties' conduct demonstrated that they did not consider the change orders to be any accord and satisfaction.

An Appeal Made

The owner appealed. The Court of Appeals for the Federal Circuit agreed with the Board on the accord and satisfaction argument. (The court disagreed with the Board, and agreed with the owner, on another issue not important to this article.)

The owner argued that the fact that the contracting officer considered the contractor's claim after the contractor had signed two change orders had no significance. According to the owner, the contracting officer, by law, was required to consider the claim.

The court disagreed with the owner's reasoning. The court found it to be significant that the contractor had submitted its written claim before the owner issued the last of the three change orders. By continuing to consider the claim thereafter, the owner contradicted any right to rely on the language of the change orders.

Beyond that, after issuing the three change orders, the owner "not only 'continued to consider [contractor's claim], but it actually paid [the contractor] compensation on the claim as well,'" Smoot Corp., 2004 U.S. App. LEXIS 22968, *16.

The owner paid the compensation after the issuance and signing of the last of the three change orders. Therefore, the court concluded "the payment on [contractor's claim] after the issuance of [the change orders] manifested the parties' intent not to construe the accord and satisfaction provision in these modifications as a release of [contractor's claim]," Smoot Corp., 2004 U.S. App. LEXIS 22968, *16.

We do not know whether, if the owner simply had denied the contractor's claim, the owner could have relied on the "accord and satisfaction" language in the change orders. By continuing to consider the contractor's claim, and then paying part of it, the owner gave the contractor an argument it otherwise would not have had.

John S. Mrowiec is a partner with Chicago-based Conway & Mrowiec, a construction and public contracts law and litigation practice. He may be reached at (312) 658-1100. For information, go to the firm's Web site at www.cmcontractors.com.