In re Boston Shipyard Corporation

886 F.2d 451 (1989)

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In re Boston Shipyard Corporation

United States Court of Appeals for the First Circuit
886 F.2d 451 (1989)

Facts

Boston Shipyard Corporation (BSC) (plaintiff) entered into a contract with the United States Military Sealift Command (MSC) (defendant) to overhaul a naval ship. The contract was an open-and-inspect contract, meaning that BSC would open up the ship and then determine, as work progressed, exactly what was needed to complete the overhaul. BSC was required to submit proposed change orders to MSC. Under the contract’s changes clause, BSC was bound to perform in accordance with any nonmaterial changes MSC made to the contract’s terms. The contract’s disputes clause required BSC to continue performance even in the event of disputes. BSC was in the middle of a Chapter 11 bankruptcy proceeding when it entered into the contract with MSC. As work progressed, BSC submitted hundreds of proposed change orders, 86 of which were implemented by MSC. MSC’s approval of the remaining proposed change orders was delayed, causing BSC to incur additional costs. BSC ultimately ceased operations, citing financial incapacity. BSC claimed it was owed approximately $250,000; at the time of termination, the modified contract was worth $6.5 million. MSC terminated the contract for default and filed a $9.2 million reprocurement claim in BSC’s pending bankruptcy proceeding. The bankruptcy court granted MSC summary judgment, holding that BSC abandoned the contract without justification. BSC appealed to the First Circuit, arguing that (1) MSC’s delayed payments caused BSC’s financial incapacity; and (2) MSC’s 86 changes together amounted to a material change in contract terms.

Rule of Law

Issue

Holding and Reasoning (Torruella, J.)

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