## Facts

- Boston Shipyard Corporation (BSC), a ship repair contractor in Chapter 11, contracted with the United States (Military Sealift Command) to overhaul the USNS *Mississinewa* under an “open-and-inspect” contract.
- The contract price began at about $4,997,925 with a 100-day performance period and contained Changes and Disputes clauses.
- During performance, BSC submitted hundreds of change requests; many were approved, raising the contract price to about $6.5 million.
- BSC’s finances deteriorated, and it asserted that government delays in approving and funding changes caused disruption and delay costs; BSC sought additional compensation and advance payments.
- On August 30, 1985, the parties executed “Modification 14,” under which the government paid about $500,000 and treated the modification as settling BSC’s existing delay/disruption claims through that date; BSC later alleged economic duress and lack of consideration.
- BSC failed to pay subcontractors, leading subcontractors to stop work; the government issued a cure notice demanding resumption within ten days.
- BSC did not restore adequate performance and stopped work; the government terminated the contract for default and asserted a $9.2 million reprocurement claim in the bankruptcy case.
- BSC counterclaimed, arguing the termination should be treated as one for convenience and that Modification 14 did not bar its delay/disruption claims.
- The bankruptcy court granted summary judgment to the government; the district court affirmed.

## Issues

1. Whether Modification 14 was enforceable notwithstanding BSC’s claims of lack of consideration and economic duress.
2. Whether BSC’s cessation of work was excused by alleged government-caused delay, changes, or nonpayment (including a “cardinal change” theory), or instead justified termination for default given the contract’s Disputes clause.
3. Whether summary judgment was proper because no genuine issue of material fact existed on enforceability of the modification and the default termination.

## Decision

- The First Circuit affirmed summary judgment for the government.
- The court held Modification 14 was supported by consideration and operated as a binding settlement/release of BSC’s delay and disruption claims through August 30, 1985.
- The court held BSC waived any economic duress challenge by accepting the payment, continuing performance, and failing to promptly repudiate the modification.
- The court held BSC’s work stoppage constituted an unjustified breach; the Disputes clause required continued performance while pursuing claims.
- The court rejected BSC’s “cardinal change” and related excuse theories, concluding the changes and delays were foreseeable under an open-and-inspect overhaul contract and did not fundamentally alter the bargain.

## Legal Principles

- A contract modification settling claims is enforceable if supported by consideration, including a bargained-for payment in exchange for releasing asserted claims.
- Economic duress requires wrongful or unlawful conduct leaving no reasonable alternative; financial distress alone is insufficient, particularly where the counterparty engages in permissible bargaining.
- A party that accepts benefits under an allegedly coerced agreement and continues performance without prompt repudiation may waive a duress challenge.
- Under a government contract Disputes clause, a contractor generally must continue performance pending resolution of compensation or change disputes; unilateral work stoppage may constitute default.
- Multiple changes and approval delays do not constitute a cardinal change when they are within the contract’s contemplated scope, especially in open-and-inspect work.

## Conclusion

The court enforced a modification releasing the contractor’s existing delay/disruption claims and upheld default termination after the contractor stopped work, holding that the disputes mechanism required continued performance and that the alleged changes and delays did not excuse abandonment of the contract.


In re Boston Shipyard Corp., 886 F.2d 451 (1st Cir. 1989)