Contractors should be aware of the duties and obligations placed upon them when contracting with the federal government if their contract includes FAR 52.236-7 – Permits and Responsibilities. This FAR provision includes broad language that shifts a substantial amount of risk away from the government and onto the contractor. FAR 52.236-7 is generally found in fixed-price and cost-reimbursement contracts.
FAR 52.236-7 – Permits and Responsibilities (Nov. 1991) reads as follows:
The Contractor shall, without additional expense to the Government, be responsible for obtaining any necessary licenses and permits, and for complying with any Federal, State, and municipal laws, codes, and regulations applicable to the performance of the work. The Contractor shall also be responsible for all damages to persons or property that occur as a result of the Contractor’s fault or negligence. The Contractor shall also be responsible for all materials delivered and work performed until completion and acceptance of the entire work, except for any completed unit of work which may have been accepted under the contract.
This FAR provision places two key obligations on the contractor. First, FAR 52.236-7 provides that the contractor is financially responsible for obtaining all required licenses and permits. Second, this provision makes the contractor responsible for any damage to the project that occurs during the course of construction, up until government acceptance.
CONTRACTOR IS FINANCIALLY OBLIGATED TO OBTAIN NECESSARY PERMITS AND LICENSES
FAR 52.236-7 puts the burden of obtaining any necessary permits and complying with laws on the contractor “without additional expense to the Government.” This provision assigns all risk for obtaining permits to the contractor. For example, if during the course of construction, the contractor encounters a difficult permitting process that delays the project, the contractor is solely on the hook for costs it incurs as a result of those delays. The contractor is not able to look to the government for reimbursement of these costs, even though the contractor was not at fault.
Nevertheless, while this provision is unambiguous that it is the contractor’s duty to obtain any required permits, this responsibility can be limited if there are other provisions in the contract restricting the scope of the contractor’s responsibilities. For the contractor’s liability to be limited, however, these other contract provisions must contain specific language limiting the scope of the contractor’s obligation to obtain licenses and permits. In other words, the contractor is going to bear the exclusive burden of dealing with any costs of permits, including those associated with an onerous permitting process, unless there is another specific provision in the contract stating that responsibility is on the government.
One potential exception to this rule is where the government misinforms the contractor about the applicable laws during the bidding process. For example, the government may be liable for damages for the contractor having to pay higher wages than anticipated if the government told potential bidders that a specific labor law was not applicable. Likewise, if during procurement the government misrepresents that certain tax laws are not applicable, the contractor potentially may be able to recover for its increased tax costs if it relied on those government misrepresentations.
CONTRACTOR RESPONSIBLE FOR DAMAGE BEFORE GOVERNMENT ACCEPTANCE
FAR 52.236-7 provides that the contractor will be responsible for its own negligence, as well as for all damage to the work itself, until the government accepts the work.
Regarding its own fault or negligence, unsurprisingly, the contractor will normally be responsible for all damage to the property. However, FAR 52.236-7 further provides that the contractor is responsible for damage to materials and work performed where the damage was not necessarily caused by the contractor. This means that when the contract includes FAR 52.236-7, the contractor is usually liable for all damage that occurs during construction up until government acceptance. This includes damage resulting from natural causes or “acts of God,” as well as damage caused by third parties.
For example, if the contract contains FAR 52.236-7 and during construction lightning damages electrical equipment installed by the contractor, or heavy rain causes substantial flood damage, the contractor is likely solely responsible for repair costs even though the contractor was not the cause of the damage.
IMPORTANCE OF GOVERNMENT ACCEPTANCE
It is important to keep in mind that this risk shifts back to the government only upon government acceptance. A contractor may have substantially completed the job (or even fully completed it), but the contractor will likely still be responsible for any damage to the work it performed that occurs up until full government acceptance.
There is an exception to this rule. If the government is the cause of the damage to the work, the contractor may not be responsible for the damage even though it occurred prior to government acceptance of the work. For example, in Anthony P. Miller, ASBCA 6383, 60-2 BCA ¶ 2836, the ASBCA found that the cause of frozen pipes was due to faulty design provided to the contractor by the government, and therefore the contractor was not responsible for the resulting damage.
KEY TAKEAWAYS
Prudent contractors should keep in mind the risks that they are undertaking if their contract contains FAR 52.236-7 – Permits and Responsibilities. If their contract contains this provision, contractors should be aware of all local, state, and federal laws that will affect their contract, and should remember that they will likely be responsible for any delays resulting from any difficult permitting process they may encounter.
Contractors should also remember that FAR 52.236-7 makes the contractor generally responsible for damage that occurs to the property up until government acceptance, even if the contractor is not at fault. Presumably, the contractor has insurance that may cover the damage caused by weather events or other natural occurrences, but regardless, FAR 52.236-7 makes it clear that all liability remains with the contractor – not the government.
Smith Currie Oles provides comprehensive legal services to all parts of the construction industry across the nation. Smith Currie lawyers have decades of demonstrated success representing construction and federal government contracting clients “From the Ground Up,” including procurement matters, contract formation and negotiation, project administration, claims prosecution and, when necessary, in litigation and other forms of dispute resolution.
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