When is it appropriate to consider “extrinsic evidence” of the parties’ intent when interpreting a contractor’s release of claims? A new decision out of the Armed Services Board of Contract Appeals (“ASBCA”), Sonabend Company (ASBCA No. 63359), sheds new light on this important question, denying the government’s motion for summary judgment because the release language it relied on was ambiguous and thus raised an issue of fact.

Signing Releases—An Area Fraught with Risk

Releases are typically presented to the contractor as routine. Simply sign the modification and new work scope or new funding will be added to your contract! But when a contractor signs a modification, it might waive its ability to later pursue a cost claim, even for prior changes not impacted by the modification itself. Thus, it is important to identify modification language that may bar a future claim.

The government typically seeks to bar recovery based on at least one of two legal theories: (1) a release and (2) accord and satisfaction.

• Release—a unilateral act by which one party disclaims a contract right or obligation.
• Accord and Satisfaction—a bilateral agreement or an accord, where the parties agree to altered performance and the acceptance of such altered performance is satisfaction of the accord, which discharges the claim.

In practice, these theories may apply even though a modification does not announce itself as a release or an accord and satisfaction or a bar to a future claim.

Read and Understand the Modification

For unilateral modifications, the contractor’s signature is not required and generally these modifications do not release a contractor’s claims. See FAR 43.103(b) (“A unilateral modification is a contract modification that is signed only by the contracting officer.”) However, practice can complicate this otherwise clear rule. In Odyssey Int’l, Inc. ASBCA Nos. 62062 & 62279, 21-1 B.C.A. ¶ 37,902 (July 29, 2021), the government issued a unilateral modification, which provided some money and delay time for a previously submitted request for equitable adjustment. Subsequently, the contractor signed a bilateral modification that (1) converted the previous modification into a bilateral modification and (2) contained a release of claims, which the ASBCA determined barred the contractor’s recovery of the remaining money and time requested. By contrast, in Hamilton Pacific Chamberlain, LLC v. Dep’t of Veterans Affairs, CBCA No. 4957 (Feb. 2016), the CBCA permitted a claim to proceed where the contractor signed a modification that the contracting officer characterized as unilateral and contained a release because the contractor did not intend to release the claim.

With regard to bilateral modifications, a contractor’s signature is required, which adds risk to waiving future claims. FAR 43.103(a). The Court of Federal Claims has acknowledged that such modifications for altered performance, even without an express provision regarding discharge, can form an accord and satisfaction to bar a contractor’s claim. Kanag’Iq Constr. Co. v. United States, 51 Fed. Cl. 38, 47 (2001); Cygnus Corp. v. United States, 63 Fed. Cl. 150, 156-157 (2004), aff’d, 177 Fed.Appx. 86 (Fed. Cir. 2006) (“Cygnus cites no authority for its counter-intuitive proposition that the government should be required to make a contractor whole for changes to a contract agreed to by the contractor.”) Thus, contractors need to carefully review the terms of modifications—scanning a modification for the word “release” is insufficient.

Can Extrinsic Evidence Be Considered?

Typically, the Boards and Courts decline to consider extrinsic evidence when interpreting a release—i.e., information beyond the four corners of the document containing the release. This is because releases are contractual in nature and thus, the board or court may only consider extrinsic evidence where the release language is ambiguous. See Bell BCI Co. v. United States, 570 F.3d 1337 (Fed. Cir. 2009).

But in Sonabend, the government maintained an expansive interpretation of the release language the contractor signed—contending that it covered not just the task orders and time periods covered by the two modifications containing the release language, but also 12 prior task orders under the contract and prior time periods under the two task orders to which the modifications related. The Board found that the language of the releases did not unambiguously support the government’s broad interpretation. Nor did the fact that the government required Sonabend to agree to two separate releases; after all, if each release covered all task orders and time periods to date, why was more than one release required?

Ultimately, the Board determined that an examination of extrinsic evidence regarding the parties’ intent was appropriate due to this ambiguity. The extrinsic evidence included affidavits from Sonabend personnel and e-mail correspondence with the contracting officer.

Best Practices in Light of Sonabend

Does the fact that the Board permitted consideration of affidavits and e-mail correspondence mean that those documents are sufficient to override unfavorable release language? Despite the favorable outcome for the contractor in Sonabend, in most cases, the answer is no. Such documents will only be considered if the scope of the release is found to be ambiguous.

So how can contractors protect their right to pursue a claim in the face of the government’s assertion that a contractor must sign a release? Contractors should:

• Review the modification to determine if they are required to sign it. Not all modifications require a contractor’s signature. A modification via an SF-30 will specify whether a signature is required in Box 13.E. If no signature is required, do not sign the modification.

• Understand the authority for the modification. The SF-30 should state the authority for the modification in Box 13. For instance, the change order clauses give the government the authority to issue unilateral modifications and do not require bilateral modifications. The contractor may (and probably should) request that a modification be converted to a unilateral modification if it cannot reach an agreement with the government on a price adjustment in advance of signing the modification.
• Understand that FAR 43.204(c)(2) encourages release language for modifications that include an equitable adjustment, but the sample release language expressly provides for defining the scope of the release and reserving claims into the modification itself.
• Consider negotiating a narrow scope for the release instead of a broad unconditional release. Instead of a broad statement disclaiming “any and all claims whatsoever, whether known or unknown, arising out of events or actions occurring prior to Jan. 1, 2024,” limit the scope of the release to the subject of the modification.
• Consider sending a reservation of rights letter prior to execution of a general release. In some cases, the ASBCA has looked to extrinsic evidence and reservation of rights notices to preserve claims. See Sonabend, supra; NMS Management, Inc., ASBCA No. 61519, 19-1 BCA ¶ 37,305 (denying government summary judgment where the contractor reserved its rights to a claim via email accompanying the executed modification).