On February 26, 2025, the Armed Services Board of Contract Appeals issued a decision allowing the government to reduce a contract by $1.1M due to a contractor’s failure to comply with the mandate to use United States-flag vessels in replacing a pier in Bahrain.

Tasked with replacing the Mina Salman Pier in Manama, Bahrain, the contractor (AICI-Archirodon JV) was required to use U.S.-flag vessels to transport materials pursuant to relevant provisions of the Defense Federal Acquisition Regulation Supplement (DFARS), including DFARS 252.247-7023. Although the contractor could—and did–seek an exception to use a foreign-flag vessel, the contracting officer denied the exception request on the basis that the contractor failed to appropriately seek an exception in a timely manner. In a 2021 decision, the Board concluded that the contracting officer was correct in its denial and that the contractor’s use of the foreign-flag vessel was in clear violation of the contract. However, the Board required the parties to convene on an appropriate adjustment to determine the potential reduction afforded to the government by the foreign-flag vessel usage.

In its February 26th decision, the Board agreed that the appropriate amount of the reduction was the $1.4M cost to use a U.S.-flag vessel, in accordance with the contract requirements, less the $278,000 payment that the contractor incurred in using the foreign-flag vessel. While the Board did not dispute the contractor’s assertion that only a single U.S.-flag was available at the time of contract performance and that using such a vessel would incur up to five times (5x) greater costs than a foreign-flag vessel, the Board held that the contractor’s only reasonable course of action was to hire the U.S.-flag vessel absent an exception issued by the contracting officer.

This case demonstrates the importance of timely and substantially supporting requests for exceptions pursuant to government requirements, particularly those for U.S.-based sourcing of materials or goods and their transportation on U.S. flag vessels, such as DFARS 252.247-7023. While the contractor demonstrated it provided similar services at reduced costs to the Government, the Board’s decision shows there is essentially no gray area in terms of complying with these domestic requirements. Contractors should bear in mind that they could face significant contract value reductions even when they think a decision ultimately benefits the Government financially.