Contemporaneous Expression of Intent to Seek Additional Compensation Saves Pass-Through Claim from Bar of Severin Doctrine Despite Accord and Satisfaction Language in Change Orders

Appeal of M.A. Mortenson Company
No. 53761, 2006 ASBCA LEXIS 4 (ASBCA Jan. 26, 2006)

Appeal of M.A. Mortenson Company, No. 53761, 2006 ASBCA LEXIS 4 (ASBCA Jan. 26, 2006) held that the Severin doctrine did not prevent the prime contractor’s claims on behalf of its subcontractor where (1) there was contemporaneous evidence that the subcontractor expressed an intention to seek compensation in addition to amounts afforded via change order and (2) the prime contractor did not contend that such a claim was barred by the language of the change order.

M.A. Mortenson Company (“Mortenson”) entered into a contract with the U.S. Army Corps of Engineers (the “Corps”), pursuant to which Mortenson agreed to construct the Composite Medical Facility at Elmendorf Air Force Base. Mortenson subcontracted the mechanical portion of this scope to W.A. Bottling Company/The Poole & Kent Company, a Joint Venture (“BPK”).

During the course of the Project, the Corps issued a number of unilateral contract modifications to the mechanical work. Mortenson, in turn, issued change orders to BPK based on these unilateral modifications. Each subcontract change order provided that it was “a final and complete equitable adjustment in full accord and satisfaction for cost originating under any clause in the contract by reason of the facts and circumstances giving rise to the modification, with the exception of unforeseen cost due to multiplicity of changes or changes to unchanged work resulting from the modification.” In each case, BPK disagreed with the amount of compensation afforded by the Corps, and therefore sought to insert language in the change order that reserved its right to seek additional compensation. BPK subsequently agreed to strike this language from each change order in order to secure payment of undisputed sums. At the same time, however, BPK notified Mortenson that it intended to seek additional compensation for the changed work. Mortenson did not object or contend that such a claim would be barred by the change order.

The Severin doctrine, derived from Severin v. United States, 99 Ct. Cl. 435 (1943), precludes a pass-through claim where the prime contractor is not liable to the subcontractor. Citing this doctrine, the Corps claimed that each of the change orders executed by BPK released Mortenson from any further liability to BPK, and thus precluded Mortenson from bringing these claims on behalf of BPK. The Board disagreed.

The government cannot rely on Severin unless it establishes that an “iron-clad release or contract provision immunizes the prime contractor from any and all liability to the subcontractor for the government action at issue.” Turning to the contemporaneous actions of the parties in this case, the Board found no evidence of a release.

While the change orders referenced an accord and satisfaction, according to the Board, it was apparent that BPK’s execution of them did not reflect agreement with Mortenson that BPK was releasing its claim for additional monies. Rather, BPK was securing payment of undisputed amounts. As support for this holding, the Court relied on BPK’s contemporaneous notice to Mortenson that it intended to seek monies in addition to those reflected in the change order, and Mortenson’s failure to object or claim that the change orders barred such a claim. For these reasons, the Severin doctrine did not bar the pass-through claims.

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