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    Government Contracting Database

    Commercial Impracticability

    “The doctrine of impossibility does not require a showing of actual or literal impossibility of performance but only a showing of commercial impracticability” Seaboard Lumber Co. v. United States, 308 F.3d 1283, 1294 (Fed. Cir. 2002). “A contract is commercially impracticable when performance would cause extreme and unreasonable difficulty, expense, injury, or loss to one of the parties.” Raytheon Co. v. White, 305 F.3d 1354, 1367 (Fed. Cir. 2002). “A finding of impracticability excuses a party from performing unless the party has assumed the risk of the event.” Id. “In government contracting, impracticability has also been treated as a type of constructive change to the contract; because a commercially impracticable contract imposes substantial unforeseen costs on the contractor, the contractor is entitled to an equitable adjustment.” Id. The contractor who succeeds in proving commercial impracticability is entitled to recover costs incurred in attempting to perform the commercially impracticable contract.  

    There are two recognized types of commercial impracticability: 1) supervening impracticability and 2) existing impracticability. See Short Bros., PLC v. United States, 65 Fed. Cl. 695, 783 n. 65 (2005). To prove supervening impracticability, the contractor must prove that:  

    1. A supervening event made performance impracticable
    2. The non-occurrence of the event was a basic assumption upon which the contract was based
    3. The occurrence of the event was not the contractor’s fault
    4. The contractor did not assume the risk of occurrence 

    Seaboard Lumber Co., supra; see also United States v. Winstar Corp., 518 U.S. 839, 904, 116 S. Ct. 2432, 2469, 135 L. Ed. 2d 964 (1996) (“Where, after a contract is made, a party’s performance is made impracticable without his fault by the occurrence of an event the non-occurrence of which was a basic assumption on which the contract was made, his duty to render that performance is discharged, unless the language or the circumstances indicate the contrary.”). 

    To prove existing impracticability, the contractor must prove that: 

    1. At the time of the contract, an existing fact made performance impracticable; 
    1. The contractor was not at fault for the existence of this fact; 
    1. The contractor had no reason to know of this fact; and 
    1. The non-existence of this fact is a basic assumption upon which the contract was made.  

    Massachusetts Bay Transp. Auth. v. United States, 254 F.3d 1367, 1374 (Fed. Cir. 2001) (“Where, at the time a contract is made, a party’s performance under it is impracticable without his fault because of a fact of which he has no reason to know and the non-existence of which is a basic assumption on which the contract is made, no duty to render that performance arises, unless the language or circumstances indicate the contrary.”); see also Short Bros., PLC, supra. 

    In addition, the contractor “has the burden to prove that it explored and exhausted alternatives before concluding the contract was legally impossible or commercially impracticable to perform. Massachusetts Bay Transp. Auth., supra; see also Blount Bros. Corp. v. United States, 872 F.2d 1003, 1007 (Fed. Cir. 1989); Jennie–O Foods, Inc. v. United States, 580 F.2d 400, 409 (1978). 

    To prove impracticability of performance, the contractor must show more than just that “costs have become more expensive than originally contemplated.” Jennie–O Foods, Inc., supra. “The Federal Circuit continues to apply rigorous standards to such claims.” Short Bros., PLC supra at 784. For example, in Raytheon Co., the Federal Circuit stated that a potential cost overrun of 57% did not “by itself establish commercial impracticability.” Raytheon Co., supra at 1368; see also Gulf & W. Indus. Inc., 87–2 B.C.A. (CCH) ¶ 19,881, at 100,575 (1987) (finding a contract with a claimed 70 percent overrun not commercially impracticable).  

    Proving commercial impracticability often requires a showing of an extreme cost overrun. See Soletanche Rodio Nicholson (JV), 94–1 B.C.A. (CCH) ¶ 26,472, at 131,774 (1993) (finding commercial impracticability when compliance with the specification would have taken more than 17 years at a cost of more than $400 million, rather than 720 days and $16.92 million); Numax Elecs., Inc., 90–1 B.C.A. (CCH) ¶ 22,280, at 111,916 (1989) (finding commercial impracticability when the contractor obtained a yield of only 300 acceptable units out of 8000, or 3.75 percent); Whittaker Corp., Power Sources Div., 79–1 B.C.A. (CCH) ¶ 13,805, at 67,688–89 (1979) (granting relief where what the parties thought would be a seven-month production contract turned into an unsuccessful four-year development effort with a 148 percent cost overrun).  

    Two factual issues are determinative of which party has assumed the risk of impossibility: 

    1. Which party had the greater expertise in the subject matter of the contract? and  
    1. Which party took the initiative in drawing up specifications and promoting a particular method or design? 

    Foster Wheeler Corp. v. United States, 513 F.2d 588, 598 (Ct. Cl. 1975); see also Short Bros., PLC, supra. Consequently, when “the parties’ contract contained performance specifications with some design specification features, the risk of any difficulty with performing the contract is assumed by the contractor.” Short Bros., PLC, supra at 778. 

    “That a contractor is a small business may be a factor in assessing . . . whether the contractor assumed the risk of commercial impracticability of performance.” Appeal of Blaze Const. Co., Inc., 91-3 B.C.A. (CCH) ¶ 24071 (June 6, 1991); see also Numax Elecs., Inc., supra; Tyroc Construction Corp., EBCA 210-3-82, 84-2 BCA 17,308 (1984); Johnson Electronics Inc., ASBCA No. 9366, 65-1 BCA 4,628; General Dynamics Corporation, Convair Division, ASBCA No. 13001, 71-2 BCA 9161. 

    Updated: June 5, 2018

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