If the state DOT does not terminate the contract but suspends the work temporarily due to a pandemic, then the contractor may be entitled to additional compensation. The primary remedies available to the contractor would be a time extension (and thus relief from liquidated damages that would otherwise accrue) as well as compensation for the contractor’s suspension-related delay costs³²⁶ (such as idle equipment during the suspension³²⁷). The contractor might also seek compensation for other costs arising out of the suspension, such as the increased cost (e.g., due to price inflation) of performing the work later in time. These remedies are not automatically granted to the contractor. The contractor bears the burden of requesting a contract adjustment if the contractor believes that the suspension was “for an unreasonable period of time (not originally anticipated, customary, or inherent to the construction industry) and the contractor believes that additional compensation and/or contract time is due as a result of such suspension or delay.”³²⁸ In such cases, the contractor would be entitled to a contract adjustment reflecting the increased time and/or cost of performance as a result of the suspension, to the extent the cause of the suspension was beyond the control of the contractor.³²⁹

It is less clear whether the contractor has a remedy where the work is not formally terminated or suspended, but the state DOT or other governmental agency orders that the work be performed according to restrictive protocols as a result of a pandemic.³³⁰ Generally speaking, in public construction contracts, the owner has broad latitude to expect the contractor to comply with governmental orders relating to health, safety, and environmental concerns, and the contractor on a fixed-price contract is expected to factor into its price such orders as are foreseeable.³³¹ However, restrictive protocols such as social distancing, staggered work crews, quarantine periods for infected workers, and the use of personal protective equipment can delay the work and also increase the cost of performance.³³² The contractor would be entitled to some remedy if the state DOT imposes restrictions that limit the contractor’s discretion as to means and methods of completing the work, beyond what the contractor should have reasonably anticipated at the time of contracting.³³³ The contractor’s best vehicle for pursuing additional compensation in the event of restrictive protocols would be to contend that the order “significantly change[s] the character of the work under the contract.”³³⁴ If it is determined that the protocols were outside the bounds of what the contractor should have reasonably anticipated, so as to “significantly change the character of the work under the contract,” then the contractor could be entitled to a time extension (and remission of liquidated damages), plus compensation for the delay due to compliance, plus the increased cost of compliance.³³⁵

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³²⁶ 23 C.F.R. § 635.109(a)(2)(ii) (2023) (“If the engineer agrees that the cost and/or time required for the performance of the contract has increased as a result of such suspension . . ., the engineer will make an adjustment (excluding profit) and modify the contract in writing accordingly.”); see also Osman & Ataei, supra note 7, at 06521004-4 (observing that if work is suspended under Illinois State Toll Highway Authority specifications, “the contractor may claim for both time and compensation if an act of God is encountered . . ., to which COVID-19 is conceivably applicable”); Salami et al., supra note 5, at 1197 (“In the events of serious delay to contractual obligations, . . . the contractor is entitled to lost time . . . and loss and/or expenses (money) . . .. Many scenarios are responsible for this specific event and a possible trigger is the Covid-19 pandemic, where many stop-work decisions are taken leading to extension of time and its loss and/or expense.”).

³²⁷ See, e.g., Ford Contracting, Inc. v. Kentucky Transp. Cabinet, 429 S.W.3d 397, 409-10 (2014) (holding that contractor is entitled to idle equipment damages for suspension).

³²⁸ 23 C.F.R. § 635.109(a)(2)(i) (2023).

³²⁹ 23 C.F.R. § 635.109(a)(2)(ii) (2023); see also Oregon Std. Spec. § 00180.70(c) (“Compensation and allowance of additional Contract Time due to suspension of any portion of the Work will be authorized only for Agency-initiated suspensions for reasons other than the Contractor’s failure or neglect.”); Fru-Con Corp. v. State, 50 Ill. Ct. Cl. 50, 67 (1996) (“The [contractor] must show a delay of an unreasonable length of time, that the delay was proximately caused by the Department’s actions, that the delay resulted in some injury to the contractor, and that the government was the sole proximate cause of the delay.”).

³³⁰ McGeehin & Spangler, supra note 4, at 18 (“For the foreseeable future, jobsites will continue to operate with additional safety protocols in place, creating added layers of complexity, reduced efficiency, increased project risks, and higher costs. These factors are causing projects to take longer to build and be more costly to construct. Contractors incurring added costs as a consequence of COVID-19 face significant challenges in seeking to recover some of their added costs from project owners.”).

³³¹ See, e.g., North Carolina Std. Spec. § 107-1 (“The Contractor shall keep himself fully informed of all Federal, State and local laws, ordinances and regulations, and all orders and decrees of bodies or tribunals having any jurisdiction or authority which may in any manner affect those engaged or employed in the work or which in any way affect the conduct of the work. He shall at all times observe and comply with all such laws, ordinances, regulations, orders and decrees . . .. If during the course of the contract any such laws, ordinances and regulations, and all orders and decrees may be changed, the Contractor shall comply fully with the same.”); see also McMillan et al., supra note 135, at 45 (“Health, safety, and environmental provisions often require work to stop when there is a real and present, or imminent, risk to safety. Often such provisions play in the owner’s favor because they exclude claims for damages in cases in which there is a requirement to stop the work for safety reasons.”).

³³² Kisi & Sulbaran, supra note 168, at 04522024-1.

³³³ Han & Kim, supra note 154, at 54 (“[I]t will ultimately depend on the language of the contract and its construction whether or not a change to work procedures or methods (due to Covid-19 or otherwise) may constitute a variation.”).

³³⁴ 23 C.F.R. § 635.109(a)(3)(ii) (2023).

³³⁵ Id.

³³⁶ Phelps, supra note 21, at 665-66 (observing “the utter lack of pre2020 caselaw examining force majeure invocation in pandemics”).

³³⁷ Kisi & Sulbaran, supra note 168, at 04522024-6 (“The scenario of the blame game from owner to the general contractor, general contractor to the subcontractor, and subcontractor to vendor or

In the survey of state DOTs conducted as part of this research project, no survey respondents reported any cases that had yet been elevated to a court or claims board, with most COVID-related claims having been resolved at the project level. For example, PennDOT reported that it had “settled” almost all (205 out of 214) requests for additional compensation arising out of COVID-related project suspensions: “There currently are no case citations or docket numbers related to just requests for additional payment resulting from the temporary work suspension.” Most pandemic-related construction case law involves federal government contracts rather than state DOT contracts; however, those federal decisions would be persuasive authority in addressing pandemic-related disputes on state DOT contracts.³³⁸

A. Time Extension Requests by Contractor

As discussed throughout this report, a time extension will be the primary remedy available to state DOT contractors impacted by an unanticipated pandemic. A time extension excuses the contractor’s failure to complete contract work within the milestone dates or deadlines established in the contract. This allows a contractor to avoid being terminated for default (and thus subject to monetary damages for breach of contract) or, more likely, to avoid being subject to assessment of liquidated damages for late completion. In the survey of state DOTs conducted as part of this research effort, nineteen of the twenty-eight survey respondents (68%) reported receiving time extension requests from contractors due to the COVID-19 pandemic. Survey respondents reported that the time extensions were generally granted to the extent that the project work was impacted by the pandemic, with multiple state DOTs citing the reference to “epidemics” in their force majeure provision as the basis for the extension.

The potential difficulty in obtaining a pandemic-related time extension is illustrated by the Appeal of Ace Electronics Associates, Inc.³³⁹ Ace Electronics Associates, Inc. (Ace) entered into a supply contract with the government that was later terminated for default due to Ace’s prolonged failure to meet a delivery deadline, despite notices and cure opportunities provided by the government. Ace contested the termination for default, contending that its failure to timely perform should have been excused due to “a flu epidemic that had ‘passed through‘ its plant causing a 30% to 40% rate of absenteeism over a period of several weeks.”³⁴⁰ The Armed Services Board of Contract Appeals noted that under the “Default” provision in federal supply contracts, “Illness occasioned by the onset of a flu epidemic is in general an excusable cause for delay provided it can be shown that performance was in fact delayed by reason of such epidemic.”³⁴¹ However, Ace had not presented any evidence to demonstrate whether or to what extent the epidemic actually caused a delay in Ace’s work. Ace did not explain how the epidemic impacted its work (e.g., unanticipated absences) and did not describe any mitigation measures taken by Ace (e.g., overtime work). Notably, Ace failed to even specify the date on which epidemic arose, or how long it lasted. It also appears that Ace did not provide timely notice, asserting excusable delay only after the contract was terminated for default. The Board upheld the termination for default, due to Ace’s failure to prove that it “was delayed by such flu epidemic.”³⁴²

A similar fact pattern is seen in the Appeal of Asa L. Shipman’s Sons, Ltd.,³⁴³ where a contractor failed to deliver products by a contract deadline, and only after the missed deadline did the contractor assert that a flu epidemic caused its failure to perform. The contractor appealed its termination for default to the Government Printing Office Board of Contract Appeals. Unlike in Ace Electronics, the Board observed that the contractor did prove that there was a flu epidemic during its contract performance period, and that three of its principals were infected with the flu in the weeks leading up to the missed deadline. However, as in Ace Electronics, the contractor failed to show how the epidemic impacted its work and failed to show any mitigation measures taken. In denying the contractor’s appeal for failure of proof, the Board observed, “Although listed in the Default clause as one of several causes of excusable delay, such enumeration does not make the occurrence of an epidemic an excusable cause per se.”³⁴⁴ Also, critically, the contractor admitted that it could not have completed the work on time even in the absence of the pandemic, because it had not received the necessary materials from its own supplier. The Board noted that “the failure of a supplier to deliver the supplies to the contractor on time is not an excuse for the contractor’s default unless the supplier’s failure was beyond the supplier’s control and without its fault or negligence.”³⁴⁵ Here, the contractor made no attempt to show that its supplier’s delay was due to the flu epidemic or other excusable delay, so the contractor’s delay was not excused.

As discussed in this report, although pandemic-related delays are likely excusable on state DOT projects, the mere occurrence of a pandemic will not entitle a contractor to a time extension. The contractor must demonstrate that the pandemic actually caused the work to be delayed, and that the delay was beyond the contractor’s control (i.e., the contractor was not responsible for concurrent delays, and the contractor could not have mitigated the pandemic-related delay by taking reasonable measures). The contractor will also need to comply with con-

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suppliers has not been in the news, which may be because of the unprecedented pandemic effect that is not under the control of any party involved in the project.”).

³³⁸ See, e.g., Silberman, supra note 20, at 16 (“Public agencies often use, or at least borrow from, the Federal Acquisition Regulation (FAR) . . .. Where there are no state law decisions that directly involve the termination of contractors by public agencies, state courts will likely find federal decisions persuasive.”).

³³⁹ Appeal of Ace Electronics Associates, Inc., Armed Services Board of Contract Appeals Nos. 11781, 11496, 67-2 B.C.A. (CCH) ¶ 6456 (July 18, 1967).

³⁴⁰ Id.

³⁴¹ Id.

³⁴² Id.

³⁴³ Appeal of Asa L. Shipman’s Son’s, Ltd., Government Printing Office Board of Contract Appeals No. 06-95 (Aug. 29, 1995).

³⁴⁴ Id.

³⁴⁵ Id.

tractual notice requirements in the force majeure or excusable delay provision.

B. Price Adjustment Requests by Contractor

As discussed throughout this report, state DOT contractors will have more difficulty obtaining a contract price adjustment than a time extension as a result of a pandemic. As discussed in Section III.A.2, the most common types of price adjustment requests will be for additional compensation for delays and extra work resulting from a pandemic, price escalation due to significant changes in the character or quantities of work (e.g., due to contract termination), and price escalation as a result of supply chain disruptions associated with the pandemic. These are examined in turn.

1. Additional Compensation for Delays and Extra Work

The difficulty for contractors to obtain a price adjustment for pandemic impacts is illustrated by the case of Pernix Serka Joint Venture v. Department of State.³⁴⁶ In September 2013, Pernix Serka Joint Venture (PSJV) contracted with the Department of State to construct a rainwater capture and storage system in Freetown, Sierra Leone for a fixed-price of $10,864,047. The work was 65% complete as of August 2014, at which point Freetown began to be impacted by the Ebola epidemic. PSJV sought direction from the government on how to proceed with the project, but the government declined to provide direction. On August 8, 2014, the WHO declared the Ebola epidemic an “international public health emergency,” and PSJV shut down the work, evacuating its project personnel. In response to PSJV’s notice that it was stopping work, the government immediately responded, “Since you are taking this action unilaterally based on circumstances beyond the control of either contracting party, we perceive no basis upon which you could properly claim an equitable adjustment from the Government with respect to additional costs you may incur in connection with your decision to curtail work on this project.”³⁴⁷ A PSJV representative later testified, “We felt we were cornered to make a unilateral decision to save our people’s lives essentially, and it felt like it was a chicken game with the Government. They waited us out until we had to leave, and then immediately you get a response that says this is unilateral.”³⁴⁸

Seven months later, in March 2015, PSJV remobilized to the project site. Due in part to its concerns that “no safe local medical treatment could be relied upon in a city and country trying to recover from an Ebola epidemic that killed hundreds of people,” PSJV implemented certain health and safety provisions for on-site personnel, including providing an on-site medical facility with medical personnel.³⁴⁹ In the summer of 2015, PSJV submitted two requests for equitable adjustment: one request for a $907,110 price adjustment for the cost of the added health and safety provisions, and a second request for $844,402 for other “time and cost impacts” related to the Ebola epidemic. (In part for the benefit of the government, PSJV had maintained power, lighting, and security at the project site during the shutdown period.) Although both price adjustment requests were denied, the government did issue a time extension including all of the additional time requested by PSJV. After its requests for a price adjustment were denied, PSJV submitted a certified claim, reducing its request to $608,891 for the cost of the added health and safety provisions, and $646,868.88 for its duration-related costs and its demobilization/remobilization expenses. PSJV pursued multiple legal theories that it was entitled to additional compensation, including alleging that the epidemic resulted in a constructive change and/or cardinal change, and that its work was constructively suspended as a result of the epidemic.

The Civilian Board of Contract Appeals denied PSJV’s claim for a price adjustment, largely due to the government’s inaction. Despite observing that the government had “internal discussions about whether [it] should issue a suspension of the work,” the Board found that the government “did not give [PSJV] directions or orders to evacuate the project site,” and in fact “repeatedly stated that it would not give directions to the contractor on how it should respond to the ongoing outbreak, instead leaving the decisions solely in the hands of the contractor.”³⁵⁰ Neither the contractual scope of work nor PSJV’s obligations to the government ever expanded as a result of the Ebola pandemic. Noting that the contract incorporated the FAR excusable delay clause, the Board held, “The contract . . . and the referenced FAR clause 52.249-10 explicitly addresses how acts of God, epidemics, and quarantine restrictions are to be treated. A contractor is entitled to additional time but not additional costs.”³⁵¹ The Board’s decision was upheld by the U.S. Court of Appeals for the Federal Circuit on June 9, 2021.³⁵²

Although Pennix Serka is a federal contracting decision and not a state DOT contract claim, the contract language at issue is nearly identical to most state DOT contracts and the decision reflects how courts are likely to handle state DOT contractor claims for price adjustments related to pandemic circumstances. To the extent the contract provides any express relief for a pandemic, epidemic, or quarantine, the relief is likely in the nature of a time extension, not additional compensation. Absent an express order from the state DOT suspending the work or imposing special work protocols in response to the pandemic, the contractor is probably not entitled to additional compensation, regardless of the legal theory under which the claim is asserted.

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³⁴⁶ Pernix Serka Joint Venture v. Dep’t of State, Civilian Board of Contract Appeals No. 5683, 20-1 B.C.A. (CCH) ¶ 37589 (Apr. 22, 2020), available at http://cbca.gov/files/decisions/2020/SOMERS_04-22-20_5683__PERNIX_SERKA_JOINT_VENTURE%20(Decision).pdf.

³⁴⁷ Id.

³⁴⁸ Id.

³⁴⁹ Id.

³⁵⁰ Id.

³⁵¹ Id.

³⁵² Pernix Serka Joint Venture v. Sec’y of State, 849 Fed. App’x 928 (Fed. Cir. 2021).

2. Price Escalation for Significant Changes in Character of Quantities of Work

Adjustment of unit prices or line-item prices is examined in OWL, Inc. v. Department of Veterans Affairs.³⁵³ Prior to the onset of the COVID-19 pandemic, OWL, Inc. entered into several multi-year contracts with the Department of Veterans Affairs to provide patient transportation services. The contracts provided estimated quantities of services to be performed by OWL, and prices per job or per hour for OWL’s services. OWL alleged that as a result of the COVID-19 pandemic, the government encouraged patients “to conduct telehealth appointments,” resulting in reduced use of OWL’s transportation services during calendar year 2020. OWL filed several claims for additional compensation, effectively seeking its lost profits for trips not made during calendar year 2020, calculated as anticipated revenue based on the estimated quantities in the contracts minus savings due to lower-than-anticipated labor and fuel expenses due to the reduction in trips. However, the Civilian Board of Contract Appeals found that the contracts did not require the government to purchase the quantities estimated in the contract, and there was no contractual basis to adjust OWL’s prices based on a deviation in actual quantities from the contractual estimates. In order to receive an award of damages from the government based on the reduction in quantities, OWL would have “to prove that the government acted in bad faith” rather than “for valid business reasons.”³⁵⁴ The Board held that OWL was not entitled to a price adjustment: “The legitimate reason for the reduction was the pandemic. The risk of a decrease in the number of required trips falls on OWL, not the VA.”³⁵⁵

The OWL cases do not involve fixed-price contracts, and one could envision a somewhat different outcome under a state DOT fixed-price contract. As discussed in Section III.A.2.a, most state DOT contracts (unlike the federal contract in OWL) provide for price adjustments for significant deviations in estimated quantities. If the state DOT contractor’s scope of work is significantly reduced as a result of a pandemic, unit prices could be adjusted to compensate the contractor for its cost of the quantities furnished. However, as in OWL, the state DOT contractor would generally not be entitled to recover its anticipated profits on quantities of work not performed.

As in Pennix Serka, the OWL Board observed that the FAR excusable delay provision did not provide monetary relief to OWL, notwithstanding the provision’s express application to epidemics and quarantine restrictions. Like the force majeure or excusable delay provision in most state DOT contracts, the FAR excusable delay provision only prevents the contractor from being liable for default for nonperformance due to occurrences beyond the contractor’s control, and the government did not declare OWL in default.³⁵⁶

OWL’s lack of recovery could be attributable in part to poor claim preparation. In addition to alleging a reduction in quantities, OWL alleged that the government made its work less cost-effective by, among other things, “not allowing OWL to transport more than one patient per trip” and “requiring OWL’s drivers to perform COVID-19 screenings.”³⁵⁷ However, OWL only sought monetary compensation for its lost profits on quantities not performed. OWL did not assert a claim for increased cost of work performed as a result of changes directed by the government, and thus did was not compensated for it.³⁵⁸ As discussed in Section III.B.5, a state DOT contractor facing extra-contractual work protocols resulting from a pandemic could be entitled to additional compensation, particularly if the protocols “significantly change the character of the work under the contract” or interfere with the contractor’s legitimate discretion as to means and methods to accomplish the contract work.

Further, in at least one case, OWL apparently failed to include a claim for compensation for the quantities of work that it actually performed.³⁵⁹ As discussed in Section III.B.5, a state DOT contractor terminated for the state DOT’s convenience would be entitled to compensation for quantities of work performed.

3. Price Escalation for Supply Chain Disruptions

The question of price adjustments due to supply chain disruptions and inflation in the wake of the COVID-19 pandemic is explored in Appeal of Heart & Core LLC.³⁶⁰ Heart & Core LLC (H&C) contracted with the Air Force to supply bathrobes and comforters (among other items) at fixed prices over a period of five years, with the prices escalating each year by a nominal amount set forth in the contract. In April 2022, H&C requested an equitable adjustment, seeking a 30% price increase for com-

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³⁵³ OWL, Inc. v. Dep’t of Veterans Affairs, Civilian Board of Contract Appeals No. 7183, 22-1 B.C.A. (CCH) ¶ 38012 (Dec. 20, 2021), available at http://cbca.gov/files/decisions/2021/BEARDSLEY_12-20-21_7183__OWL_INC.pdf; OWL, Inc. v. Dep’t of Veterans Affairs, Civilian Board of Contract Appeals No. 7184, 22-1 B.C.A. (CCH) ¶ 38013 (Dec. 20, 2021), available at http://cbca.gov/files/decisions/2021/BEARDSLEY_12-20-21_7184__OWL_INC.pdf; OWL, Inc. v. Dep’t of Veterans Affairs, Civilian Board of Contract Appeals No. 7208, 22-1 B.C.A. (CCH) ¶ 38023 (Jan. 13, 2022), available at http://cbca.gov/files/decisions/2022/BEARDSLEY_01-13-22_7208__OWL_INC%20(Decision).pdf.

³⁵⁴ OWL, Inc. v. Dep’t of Veterans Affairs, Civilian Board of Contract Appeals No. 7184, 22-1 B.C.A. (CCH) ¶ 38013 (Dec. 20, 2021), available at http://cbca.gov/files/decisions/2021/BEARDSLEY_12-20-21_7184__OWL_INC.pdf.

³⁵⁵ Id.

³⁵⁶ Id.

³⁵⁷ OWL, Inc. v. Dep’t of Veterans Affairs, Civilian Board of Contract Appeals No. 7208, 22-1 B.C.A. (CCH) ¶ 38023 (Jan. 13, 2022), available at http://cbca.gov/files/decisions/2022/BEARDSLEY_01-13-22_7208__OWL_INC%20(Decision).pdf.

³⁵⁸ Id.

³⁵⁹ OWL, Inc. v. Dep’t of Veterans Affairs, Civilian Board of Contract Appeals No. 7183, 22-1 B.C.A. (CCH) ¶ 38012 (Dec. 20, 2021), available at http://cbca.gov/files/decisions/2021/BEARDSLEY_12-20-21_7183__OWL_INC.pdf.

³⁶⁰ Appeal of Heart & Core LLC, Armed Services Board of Contract Appeals No. 63403, 23-1 B.C.A. (CCH) ¶ 38265 (Jan. 11, 2023), available at http://www.asbca.mil/Decisions/2023/63403%20Heart%20&%20Core%20LLC%202.1.23%20Decision.pdf.