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2007 Procurement Review: Contract Disputes



Contents

Boards of Contract Appeals

Court of Federal Claims

Court of Appeals for the Federal Circuit

Introduction

CDA/Jurisdiction

Jurisdiction

Procedure/CDA

Contract Interpretation

Contract Interpretation/Changes/Authority/Breach 

Changes

Changes/Defective Specs

Terminations

Costs/CAS/Accounting

Costs/CAS/Accounting

Minority Business Programs

Delays

Terminations

EAJA

Terminations

Fraud/False Claims

EAJA

Procedure

Discovery

 

Boards of Contract Appeals (ASBCA, CBCA, PSBCA, and GAOCAB)

Introduction

Effective January 6, 2007, jurisdiction was transferred from the former Boards of Contract Appeals (BCAs) for the General Services Administration (GSA) and the Departments of Agriculture, Energy, HUD, Interior, Labor, Transportation, and VA to the Civilian Board of Contract Appeals (CBCA), pursuant to the National Defense Authorization Act for FY 2006. The only other remaining boards are the Armed Services Board of Contract Appeals (ASBCA), the Postal Service Board (PSBCA), the TVA's Board, and the GAO Contract Appeals Board (GAO CAB), which hears appeals involving such agencies as the Government Printing Office (GPO) and the Architect of the Capitol (AOC).

The GAO CAB's rules of procedure may be found here.

The PSBCA issued revised rules regarding small (expedited) claims and accelerated proceedings.

Jurisdiction/Timeliness/Contract Disputes Act (CDA) Issues         

Definition of Claim

Although the Contract Disputes Act (CDA), itself, does not define a claim,  FAR 2.101, defines the term, in part, as a written demand or assertion "seeking, as a matter of right, the payment of money in a sum certain." In Lockheed Martin Aircraft Center, the Government contended that the claim was not in a sum certain because the Government could not derive that amount from the supporting documents submitted with the claim. The Board noted, however, that the contractor had stated a sum certain in the claim narrative, which was sufficient. The Board also noted that, even though the contractor's Complaint at the Board had asked for an amount "in excess of" the sum certain it had stated in its underlying claim, that claim, itself, was for a sum certain. However, in Rex Systems, the Board lacked jurisdiction over a claim for "at a minimum 15% of all transactions." In Local Communications Network, Inc., the ASBCA dismissed some unquantified claims because it disagreed with the contractor's contention that it needed access to government files to estimate the amount of the claims.

Claims need not be for money. Another part of the FAR definition of a claim states that a claim may seek "the adjustment or interpretation of contract terms, or other relief arising under or relating to the contract." The PSBCA dismissed the appeal of Hakala Transport because its request to have the Board direct that the procedures for the delivery of Registered Mail to unattended post offices be modified was not a claim within this definition. The appeals of Denise Baiamonte were dismissed for lack of jurisdiction (even though the Contracting Officer had issued decisions on them) because they were essentially protests, and she had no contracts with the Postal Service. Frank Baiamonte suffered a similar fate.         

Submission of the Claim to the Contracting Officer

Under the CDA, claims by the contractor against the Government must initially be submitted to the Contracting Officer for a decision. 41 U.S.C. � 7103(a). In Lockheed Martin, after a lengthy government delay in obtaining funding to pay a termination settlement proposal, the parties executed a bilateral modification when the funding became available that specifically reserved Lockheed's right to pursue a claim for interest on the late payment. Lockheed filed an appeal for that payment with the Board. The Board dismissed the appeal because neither the termination proposal nor the final modification  constituted a claim for interest submitted to the Contracting Officer; thus, there was no CDA jurisdiction in the Board to hear the appeal.

Certification

Claims in excess of $100,000 must be certified by the contractor, using language mandated by the CDA. Defective certifications may be "cured" on appeal. Absent certifications cannot. Doyon Properties sponsored a claim by its subcontractor. The sub certified the claim. Doyon did not. The Board held it lacked jurisdiction.         

Statute of Limitations

Claims must be submitted to the Contracting Officer "within 6 years after the accrual of the claim." 41 U.S.C. � 7103(a)(4)(A). The ASBCA found the claims of  Environmental Safety Consultants time-barred by this statute of limitations. The company argued unsuccessfully that either (i) an earlier-submitted, uncertified cost-proposal or (ii) claim allegations in an previous complaint (which the Board had stricken from it because there was no underlying claim) satisfied the requirement for a claim and tolled the statute of limitations.

The Contracting Officer's Time Limits for Deciding Claims

A Contracting Officer must issue a decision on a claim of less than, or equal to, $100,000, within 60 days. 41  U.S.C.  � 7103(f)(1). For larger claims, he must either issue a decision within that time period or notify the contractor when a decision will be issued. 41 U.S.C. � 7103(f)(2). If a Contracting Officer delays unduly in issuing a decision, the contractor may request the Board to direct him to do so. 41 U.S.C. � 7103(f)(4). The contractor may treat an unreasonable delay in issuing a decision as a "deemed denial" of the claim and appeal to the Board from that denial. 41 U.S.C. � 7103(f)(5).  In Cubic Defense Applications, the ASBCA agreed with the contractor that the Contracting Officer delayed unreasonably in issuing a decision on a claim.  

In Alutiiq, LLC, the Contracting Officer wrote to the contractor extending the period within which she predicted she would issue her decision. The contractor thought the delay unreasonable and appealed well before that period ended. It had passed, however, by the time the Board issued its decision, and the Board relied on that fact to treat it as a deemed denial. 

Appeal of a Contracting Officer's Decision to a Board

If a contractor wants to appeal a Contracting Officer's decision to a board, it must do so within 90 days of receiving that decision. 41 U.S.C. � 7104(a). In DLT Solutions, the Government argued unsuccessfully that the Board's rule extending the period for appealing a Contracting Officer's decision to the next business day when the 90th day falls on a weekend or a holiday impermissibly extends the statutory limit on such appeals. 

In the Pinnell Brown Construction case, the contractor received two, slightly differently worded decisions by the Contracting Officer about three weeks apart, each one on the same subject, and each notifying the contractor of its right to appeal  within 90 days. The contractor filed an appeal within 90 days of the second one; the agency (VA)  claimed the appeal was untimely because it was not within 90 days of the first one. The CBCA found the appeal timely because the agency's actions had created the confusion.

In KAMP Systems, the ASBCA dismissed as untimely an appeal sent by Federal Express on the 90th day after the contractor received the Contracting Officer's decision. In a separate opinion, Judge Scott noted how goofy (my word) it was to count U.S. mail from the date it was postmarked but items sent by other commercial services from the date received. He also noted the rule was procedural, not statutory, and, thus, could be changed for the sake of sanity (my word again).

Scope of Board's Authority   

The CBCA noted that, although it did not have the authority to assess monetary sanctions for the Government's discovery violations, the contractor might be able to obtain its attorneys fees associated with such violations under the EAJA if it ultimately prevailed in the appeal.      

 

Costs and Cost Accounting Standards (CAS)

Public Law 100�679 (41 U.S.C. 422) requires certain contractors and subcontractors to comply with Cost Accounting Standards (CAS) and to disclose in writing and follow consistently their cost accounting practices. 48 C.F.R. 9903.101. There are 19 standards, each of which is fertile ground for interpretation and disputes.

CAS 418 is entitled "Allocation of Direct and Indirect Costs," and its purpose is "to provide for consistent determination of direct and indirect costs; to provide criteria for the accumulation of indirect costs, including service center and overhead costs, in indirect cost pools; and, to provide guidance relating to the selection of allocation measures based on the beneficial or causal relationship between an indirect cost pool and cost objectives." 48 C.F.R. 9904.418-20. The ASBCA vacated a prior decision, which had granted summary judgment in favor of the Government on the question whether AM General�s single indirect cost pool for accumulating and allocating manufacturing overhead to its military HMMWVs and commercial HUMMERs was not homogeneous and violated CAS 418.

The Board held that Lockheed Martin's F-22 contract, as extensively repriced and "rephased" by the parties, was not an "affected contract" within the meaning of former FAR section 30.602-3 and, therefore, was not required to be included in the cost impact study evaluating the cost shifts associated with certain voluntary changes in cost accounting practices

CAS 413 is entitled "Adjustment and Allocation of Pension Cost." One of its "techniques for application" reads as follows: "If a segment is closed, if there is a pension plan termination, or if there is a curtailment of benefits, the contractor shall determine the difference between the actuarial accrued liability for the segment and the market value of the assets allocated to the segment, irrespective of whether or not the pension plan is terminated. The difference between the market value of the assets and the actuarial accrued liability for the segment represents an adjustment of previously-determined pension costs." CAS 413.50(c)(12).  In Raytheon, the ASBCA found that the contractor failed to comply with this provision, insofar as it failed to timely pay the government�s share of a pension fund surplus with respect to the sale of two business segments ("segment closings").  

CAS 409 covers the depreciation of tangible capital assets. In determining losses under CAS 409.50 and the cost principle at FAR 31.205-16 ("Gains and losses on disposition or impairment of depreciable property or other capital assets") from the sale of several parcels of land, the ASBCA (in Lockheed Martin Corp.) examined the "net amount realized" on the sale by the contractor for buildings that were on the land being sold. The Board largely agreed with Lockheed that the purchasers of the land paid nothing for the buildings.

The FAR Part 31 cost principles govern whether particular types of costs may be reimbursable under government contracts. The CBCA decided that a contractor's costs of defending against successful False Claims Act litigation instigated by a qui tam relator were unallowable under the applicable DOE FAR Supplement cost principle.

The CBCA held it had jurisdiction to consider a prime's claim against the VA for the costs of litigation/arbitration with its subcontractor.

In another interesting case, one of the issues was the extent to which attacks on the World Trade Center affected the contractor's ability to recognize cost overruns for purposes of providing notice of such overruns under the "Limitation of Costs"  clause. 

Delays                                   

Contractors often allege "excusable" delays (e.g., fire, flood, or other force majeure causes) to avoid such things as default or liquidated damages for late performance, They may also allege "compensable" delays if some action or inaction for which the Government bears responsibility not only delays their work but increases their costs of performance.

In the Paranetics case, the contractor complained that it was delayed because the only item mentioned on a government specification drawing (which the contractor characterized as a sole source item) was unavailable. The ASBCA denied the claim because the drawing did not state it was a sole source drawing. However, the ASBCA also rejected the contractor's claim that the drawing was defective for not mentioning more than one item. The Board explained that mentioning only one source was appropriate because the only other possible source was not available until long after contract award. Don't ask me to explain why the only item available in time for contract performance is not a sole source item: I'm just one old man.

There may be delays if the Government orders the contractor to "stop" or "suspend" the work (there are standard contract clauses covering each of these situations). The Board found NASA "constructively, partially suspended" one contractor's work "for an unreasonable period of time."    

Changes/Constructive Changes/Contract Interpretation/Authority

The standard "Changes" clause authorizes the Government's Contracting Officer to order certain types of changes to the work during contract performance, requires the contractor to comply with the Contracting Officer's change order, and promises the contractor will receive an equitable adjustment in the contract price and/or delivery schedule caused by the change.

The "Changes" clause authorizes the only the Contracting Officer to make changes. That usually means the warranted PCO. We need periodic reminders that the doctrine of apparent authority doesn't usually work in government contracts. In the Corners and Edges case, assurances by the Government's Project Manager were unavailing because he was not a Contracting Officer. See also the Federal Circuit's decision in Cath-dr/Balti (discussed in the Federal Circuit section below).

The "Changes" clause gives rise to express and implied duties and responsibilities of both parties. In Conner Bros. Construction, the Board held that a base closure was not a breach of the Government's implied duty not to hinder performance under the clause because it was a sovereign act.

Deciding whether particular actions constituted changes and implementing the myriad other contract clauses and specifications in a government contract may involve all sorts of interesting principles for interpreting ambiguities, but clarity trumps all. In Dick Pacific, the ASBCA wrote: "Because the contract is not ambiguous we do not reach the issues of patent ambiguity, reliance, duty of inquiry, the doctrine of contra proferentem, or the parties� other contentions."        

In Local Communications Network, Inc., the Board found a clear intent that a contract be a requirements contract despite the absence of all standard clauses related to such contracts and, therefore, held they were incorporated by law.

Baer Real Estate's claim for excess construction costs was denied because it failed to establish the required elements for a claim based on the Government's superior knowledge of subsurface conditions.  In Valley Realty, the Board interpreted the meaning of the "Minor Repairs" clause in denying the claim of the Government's lessor.

Purchase orders can be strange ducks. In Syracuse Int'l Technologies, the Government issued a purchase order, which the ASBCA found to be a unilateral contract offer, and the contractor accepted by beginning performance. However, once the deadline for delivery in the purchase order passed, it "lapsed," despite the Government's failure immediately to notify the contractor of this fact. In Wesleyan, the Board wrote: "The contract formed when [the contractor] began performance of a purchase order was an option contract, with [the contractor] as the offeree. See RESTATEMENT (SECOND) OF CONTRACTS � 45 (1981). If in response to the purchase order, [the contractor] shipped [nonconforming] items . . ., it was making a counter-offer that the government was free to reject. . . . But if the government accepted and used the items . . . , it may be bound contractually. . . ."

In Fru-Con Construction, the Board decided quantum issues for both a contractor's delay claim and the Government's claim for an 84-day deductive change due to the waiver of certain requirements.

In Hitt Contracting, the GAO BCA granted the Government's motion for summary judgment and denied the contractor's claim for excess costs because the solicitation and contract as reasonably interpreted did not support the contractor's claims that a change had occurred.  Finally, in Horizon Graphics, the same Board denied the claim of another GPO contractor basically because it failed to present any proof of excess costs.

Terminations      

The Government may terminate a contract for default if the contractor fails to meet the delivery schedule, fails to make progress so as to endanger performance, or fails to perform any other material contract requirement. The Government also may terminate a contract for convenience when it is in the Government's interests to do so. Default terminations often result in disputes over whether they were proper. Convenience terminations seldom raise this issue, but generate a respectable amount of litigation anyway, usually involving the costs the terminated contractor is entitled to receive. See, e.g., Individual Development Assocs. (Government was due a credit because prior payments to the contractor exceeded its convenience termination claim)

In  Zulco Int'l, the contractor tried to avoid a default termination by arguing that the Government had not accepted its offer until after the offer had expired by its own terms. The Board was unimpressed because the contractor had begun performance.

In another case, the ASBCA upheld a default termination because "after 113 days of the 290 day revised performance period (or almost 40% of the period) expired with little or no work accomplished by [the contractor] (i.e., clearly less than 5% of contract work completed), the [Government] terminated [the contractor] for default. While over 40% of the original performance period had passed, [the contractor] had not yet obtained necessary approvals to commence the initial item of renovation work under the contract, the performance of asbestos abatement. The lack of activity by [the contractor] with respect to the contract obviously made the [Contracting Officer] insecure about [the contractor's] timely completion of the . . .work."

In Advance Construction Services, the Government gave the contractor a 45-day cure period within which to correct deficiencies in its progress under the contract and then terminated the contract without recognizing nine days of excusable delays (Hurricane Katrina) during the cure period. The Government contended the contractor was so delinquent that granting it nine additional days would have made no difference. The Board found this issue was too factually oriented to be resolved by summary judgment motions.

In Swanson, the Board held that a contractor's timely request for an extension of time within which to file a convenience termination settlement proposal was sufficient to enable it to challenge the Government's subsequent unilateral determination of the settlement value.

Meanwhile, at the PSBCA: In Derrick Van Greene, the Board upheld one default termination but overturned another because, inter alia, the Government had acknowledged part of the schedule was impossible to meet and had not replaced it with one that was doable. The termination in Richard Jackson was upheld because the contractor's delays were far in excess of delays that could be attributed to the Government's actions. Baer Real Estate's claim for excess construction costs was denied because it failed to establish the required elements for a claim based on the Government's superior knowledge of subsurface conditions.

In Greenlee Construction, the CBCA found the contractor was scarcely in a position to complain of a convenience termination when his actions would have justified a default termination.

In Far Western Graphics, the GAO Contract Appeals Board found the GPO reasonably terminated a contract after the contractor's refusal to provide items that conformed to the contract's specifications.

         

      Courts        

Court of Federal Claims

Contract Disputes Act (CDA) / Tucker Act / Jurisdiction / Standing 

The Tucker Act, 28 U.S.C. � 1491(a)(1), grants the Court of Federal Claims �jurisdiction to render judgment upon any claim against the United States founded . . . upon any express or implied contract with the United States.�

In addition, the Contract Disputes Act (CDA) authorizes the court to entertain appeals from decisions by Contracting Officers on CDA claims: "[I]n lieu of appealing the decision of the contracting officer under section 605 of this title to an agency board, a contractor may bring an action directly on the claim in the United States Court of Federal Claims, notwithstanding any contract provision, regulation, or rule of law to the contrary." 41 U.S.C. � 7104(b)(1). Contractors must bring such actions within 12 months of the Contracting Officer's decision.

Types of Contracts Covered by the Contract Disputes Act

The CDA covers �any express or implied contract . . . entered into by an executive agency for� (1) the procurement of property, other than real property in being; (2) the procurement of services; (3) the procurement of construction, alteration, repair or maintenance of real property; or, (4) the disposal of personal property.� 41 U.S.C. � 7102. Under this standard, the court lacked jurisdiction over claims by Rick's Mushroom Services because they were not based on a government contract for the procurement of goods and services (and because they were based on an interpretation of the agreements in question that would violate the Anti-Deficiency Act, which prohibits agencies from obligating the Government in advance, or excess, of Congressional appropriations).

In American Red Ball International, Inc., the court found it lacked CDA jurisdiction because (i) "Exception Agreement" was not a contract, (ii) the contractor had not submitted a "claim" within the meaning of the CDA, and (iii) there was no Contracting Officer's decision on a claim. Three deficiencies: any one of which was fatal on its own.

Arbitraje Casa de Cambio survived the Government's motion to dismiss for lack of jurisdiction when the court found Tucker Act jurisdiction (despite the fact there was no CDA jurisdiction) over a breach claim involving an implied-in-fact contract (and a USPS agent's apparent authority to ratify the agreement). 

The Claim on Appeal versus the Claim Presented to the Contracting Officer

A CDA claim must first be presented to the Contracting Officer for a decision, and the contractor may then appeal the decision on that claim to the court. In AAB Joint Venture, the fact that a claim brought before the court was based on the same contractual provision (the "Differing Site Conditions" clause) as one considered by the Contracting Officer was not enough to establish that the court had CDA jurisdiction over the claim. Conversely, the court had CDA jurisdiction over M.A. DeAtley's claim because it was based on "the same operative facts" as those in the claim presented to the Contracting Officer, even though the theory of recovery differed.          

Phillips/May's claims were dismissed because most were based on the same transactional facts as claims previously decided by the ASBCA, while others could (should) have been presented to the Board along with the ones that were.         

The Roxco case is interesting but resists a short summary. During performance, the contractor alleged various delays and changes. The Government largely ignored these allegations. Roxco finally ran out of money and stopped work. The Government default terminated the contract, and Roxco's surety completed the work. Years later, Roxco submitted a request for equitable adjustment, which the Contracting Officer returned without any action because Roxco had not appealed the default termination. Roxco filed suit in the CoFC. The Government filed a counterclaim for liquidated damages. The CoFC dismissed the counterclaim without prejudice because it was not the subject of a Contracting Officer's decision. The Contracting Officer then issued a decision on the liquidated damages claim and (in an accompanying demand letter) noted that, since the remaining balance on the contract was less than the amount of liquidated damages, that balance would be held and applied toward the liquidated damages. Roxco then filed an amended complaint, which added counts for the contract balance and remission of the liquidated damages.  The Government filed an amended answer, adding its claim for the liquidated damages. The Government moved to dismiss the portion of the complaint concerning the contract balance because it had not first been presented to the Contracting Officer. Plaintiff noted it had submitted a claim to the Contracting Officer just a couple of days before it had amended its complaint. Later, the Government also argued that the claim for the contract balance must be dismissed because it had not been certified. Roxco advanced several different arguments in support of its contention that the court had jurisdiction over its claim for the contract balance. Only one argument worked (but that's all it takes). The court held that under Placeway Construction Company v. United States, 18 Cl. Ct. 159 (1989), affirmed in part, 920 F.2d 903, the demand letter (when read in light of the accompanying decision on the claim for liquidated damages) constituted a decision on a government claim for the contract balance, which gave the court jurisdiction to entertain Roxco's amended complaint.

Who May Sue?

In Michael Kawa, a subcontractor was concerned it would not receive payment from the prime under a government contract, so the parties agreed to the appointment of Mr. Kawa as an escrow agent to whom the Government would make all payments under the contract and who then would distribute the payments to the prime and sub as appropriate. Despite receiving repeated, clearly worded, written instructions to this effect, the Government flubbed and paid the prime, who did not pay the sub. The sub tried to sue for payment, but ran into jurisdictional problems, so Mr. Kawa brought suit. The Government raised all sorts of standing and jurisdictional challenges to his ability to maintain the suit, which he survived. All this mess because the Government, in its bureaucratic wisdom, could not follow simple instructions on a piece of paper.  Nelson Construction Co. involved a similar situation, but, in that case, the court held that the subcontractor who was not paid was entitled to sue as a third party beneficiary of the assignment of payment agreement.  

Contract Interpretation

In Alliant Techsystems, the question was the proper interpretation of the "claims" that were being released in a settlement agreement. The contractor argued the term meant Contract Disputes Act claim as that term is defined in the FAR. The Government argued for the "common meaning" of the term. The court chose the latter interpretation after an excellent recitation of the method courts use to interpret a contract.   Axion also saw certain claims barred by a release.

Northrop Grumman Information Technology is a good reminder that courts will interpret contracts to give meaning to all provisions, if possible, and will avoid interpretations that will render one clause meaningless. 

Advanced Team Concepts will be awarded damages based on the Government's breach of an implied-in-fact contract. The breach was canceling classes without rescheduling them, and the Government's efforts to use the Christian doctrine to characterize the cancellations as a termination for convenience were unavailing.          

In Arko Executive Services, the judge wrote: "This court need not paint the lily." I believe the correct metaphor is "guild the lily." The issue in the case was whether the contractor was to be paid for a contract extension under  FAR 52.217-8 or the more generous "Continuity of Services" provisions at FAR 52.237-3(d). The court chose the former option after a good analysis involving principles of contract interpretation.

In Gasa, Inc., the court found that, although a particular clause was "at best, awkwardly worded" and might support the contractor's position when read in isolation, the contract interpreted as a whole unambiguously supported the Government's position.

The Prompt Payment Act continues to be one of the Government's least favorite obligations: witness Judge Braden's lecture in Sarang Corp. v. United States.  

Changes/Defective Specifications/Breach

In order to recover excess costs as a result of defective specifications, a contractor must prove, inter alia, that it relied on the specification in preparing its bid. AAB Joint Venture satisfied this burden by means of two, unrebutted affidavits.

  "Changes" clauses require contractors to notify the Contracting Officer promptly if they consider any communications from the Government to be a change. AAB Joint Venture ran afoul of this requirement and the court was unpersuaded by the contractor's arguments that the Government should have been aware of the facts underlying the claim and was not prejudiced by the delay in providing notice.

In P.R. Contractors, the court noted that merely proving an overrun or underrun beyond the limits of the percentages in the "Variation in Estimated Quantities" clause was not alone sufficient for a claim. The contractor must also establish its excess costs associated with such variances.

Northern States Power is entitled to recover more than $100,000,000 costs of mitigation after a partial contract breach by the Government. 

Costs/Fees/Accounting/Cost Accounting Standards (CAS)

CAS 413 is entitled "Adjustment and Allocation of Pension Cost" and its purpose is to "provide guidance for adjusting pension cost by measuring actuarial gains and losses and assigning such gains and losses to cost accounting periods." 48 C.F.R. 9904-413.20.

The issue in AT&T  is whether Lucent closed a segment, pursuant to Amended CAS 413, when it transferred some, but not all, of the ATS Business Unit�s CAS-covered contracts and related assets to General Dynamics, and it was too close a call for summary judgment.

In CBS, the court found that a DCAA/DCMA Joint Guidance document "presents persuasive evidence that both the [G]overnment and its contractors expected that pension costs attributable to cost type subcontracts entered into under original CAS 413 would be included in the recovery authorized under revised CAS 413 without any need for [the downward] equitable adjustment"  requested by the Government in this case. This decision was on CBS's motion for reconsideration. Sometimes, it pays to persevere.

Some interesting CAS 412, 413, and 414 issues were addressed in a recent CoFC decision involving General Motors Corp. Specifically, the court held that CAS 413.50(c)(12) requires the use of GM�s actuarial assumptions under CAS 412.40(b)(2) to calculate GM�s actuarial liability for the segment-closing adjustment for its Allison segment.         

The ATK Thiokol saga began in 1999 when a DLA Divisional Administrative Contracting Officer issued a notice of intent to disallow the contractor's treatment of certain R&D and equipment tooling costs as indirect costs. Subsequently, the DACO made his decision final, and the contractor filed suit. The court eventually found in the contractor's favor, but things bogged down again when the Government alleged, inter alia, that (i) the court only had jurisdiction over the contract the DACO had identified as a "test case" rather than all contracts to which his interpretation might apply, (ii) awarding the contractor its damages would usurp the Government's ability to determine final indirect cost rates, and (iii) allowing the contractor to file a second amended complaint to reflect the current status of the case and to address the Government's concerns with its first amended complaint would be inappropriate. Now, the court has held that (i) it does have jurisdiction over all affected contracts (ii) because it is only deciding that the money in question should be accounted for in an indirect cost pool, it is not deciding what the final indirect rates will be, so it's not usurping any of the Government's prerogatives, and (iii) the second amended complaint complies with all applicable rules in the circumstances of the case.    

Boeing was entitled to the award fee the individuals charged with making such determinations concluded were due rather than the lower amounts that the DOE imposed in improperly overriding those determinations. The case also involved, inter alia, apparent authority.

Terminations         

The court found the default termination in Bearingpoint a nullity because the Contracting Officer who issued it did not have the authority to do so under the terms of the contract (and the Government's efforts to unilaterally and retroactively incorporate changes in the regulations which would have provided such authority were ineffectual).

In the continuing saga of the A-12 default termination, the CoFC upheld the termination on remand. In its conclusion, the court gave the following eulogy to this marathon litigation: "This case demonstrates that the contracting officer may have a de minimis role in some circumstances of government procurement, rather than the central role that most contractors assume. The contracting officer need not make termination decisions for the same reasons that a reviewing court may consider after termination. So long as information to support the contracting officer�s decision was available to the Government at termination, this is sufficient to rule whether the contracting officer reasonably terminated the contract for default for failure to make progress. . . . The law does not require the Government to help �fix the contract.� The Government can point to reasons in retrospect why plaintiffs were not making the progress that some officials hoped and perhaps expected. So long as those reasons form a rational basis for a reviewing court to uphold defendant�s decision to terminate, the court must do so."         

In Moreland, after the court found a default termination improper, the Government argued that termination should be treated as a termination for convenience in accordance with a standard "Default" clause contained in the contract (a building lease). The court, however, noted that another "Default" provision applied after the lease period began, and that one did not include the "conversion" language, so the lessor was entitled to the lost rent (less costs saved) for the portion of the lease that was terminated.

There are more termination issues than you can shake a stick at in the Keeter Trading case: CDA, duty to proceed, cardinal change, repudiation, capacity to sue, breach issues on both sides, contract interpretation, both state and federal law issues, and on and on. Because of the requirements of the "Changes" clause and the "Disputes" clause, one of the riskiest moves in government contracting is to refuse to perform in accordance with a Contracting Officer's written direction. Keeter, however, did just that and was vindicated when the court found the direction was outside the scope of the "Changes" clause and constituted a cardinal change and breach by the Government. Keeter, therefore, was excused not only from refusing to follow the direction, but also from stopping work altogether.

Both convenience terminations and deductive changes result in less work, and one issue that never dies is the distinction between the two (because the measures of recovery differ).  In Praecomm, the contractor had a fixed-price contract to deliver radio systems for use in several Iraqi cities. Because of increased violence in some cities and the desire to avoid wasteful use of two different types of radio equipment in others, the Government changed the list of cities to which the equipment was to be delivered and ended the contracts without adding other cities and equipment that the contractor had expected would be added eventually when it priced the original work. The court refused to find that any of these actions amount to breaches, cardinal changes, or deductive changes, but instead treated them as a termination for convenience despite the absence of a formal termination of convenience notice from the Contracting Officer.         

False Claims/Fraud

The Government failed to meet its burden of proving that Trafalgar House's claims were false or fraudulent.  Morse Diesel International, however, was found liable by the CoFC for various violations of Anti-Kickback Act, the False Claims Act, and the Forfeiture of Fraudulent Claims Act. In a subsequent decision, the CoFC found actions by Morse Diesel International warranted  "maximum civil penalties and damages under the Anti-Kickback Act of 1986, 41 U.S.C. �� 51-58 . . . and maximum civil penalties and treble damages under the False Claims Act, 31 U.S.C. � 3729(a)(1), (a)(2) . . . in the total amount of $7,292,213." 

Equal Access to Justice Act (EAJA)

The court denied the portion of Sweetwater's EAJA claim related to late fees that its attorneys had charged it for delayed payments and reduced another part of its claim by the 10% the court estimated had been devoted during the proceedings to an ultimately unsuccessful part of its claim. Asphalt Supply's application for attorneys fees was denied because it failed to provide requested evidence that it met the maximum net worth requirements of the statute to be eligible for such fees.

Procedure

In the Sparton case, the court excluded the proffered testimony of the eminent government contracts scholar, Professor Ralph Nash, on the question whether a clause should be incorporated into a contract under operation of law pursuant to the Christian doctrine, reasoning that to elevate him to "expert" status would usurp the province of the judge who is supposed to decide such questions of law. Maybe, something like an amicus brief would have been the better approach.

In American Renovation and Construction Co., the court retained jurisdiction over the contractor's challenge to a government assessment of excess reprocurement costs but stayed proceedings pending resolution of the underlying default termination in the ASBCA.

William Hooker d/b/a Georgia Bowhunters Supply had a contract to trap wild hogs and beavers that were damaging the Savannah River Site. He claimed he was being contaminated by radioactive waste while performing his work. He put on a bare bones case-in-chief, apparently intending to establish his claim through cross-examining the Government's witnesses--a strategy that backfired when the court directed a verdict against him at the close of his case because there was "no recognizable theory of legal recovery."

Discovery

Two AAB Joint Venture decisions covered interesting discovery issues. One focused on the Government's responsibility to preserve emails and review and recover emails from back-up tapes, as well as claims of work-product and attorney-client privilege. With regard to the latter, the court said the Government had to "provide a more complete description of each of the documents for which it wishes to assert the privilege, setting forth all of the persons who sent or received the communication, the role of each of those persons in the government or their affiliations with the government, the subject of the communication, and why it qualifies for protection under the attorney-client privilege." The other AAB Joint Venture discovery decision focused on the breadth of interrogatories and the adequacy of responses. Both contain good black letter law on the tests used to resolve these issues.

In Blue Lake Forest, the court found the Government had waived the attorney client and work product privileges by, among other things, placing privileged documents "at issue" in the suit (the "at  issue" waiver) and by filing the documents in other suits. In Deseret Management, the Government tried to invoke a "personal privacy privilege," without citing any authority for such a privilege. The court apparently was unaware of any authority either and gave the defendant additional time to see whether it could gin up any. 

Counsel violated a protective order by filing documents obtained under the order in one case on behalf of a different client in another case entirely.

Discovery can become very complicated in a case involving classified information. Witness the procedures necessary for one deposition of Darleen Druyun.

 

Court of Appeals for the Federal Circuit

Jurisdiction 

Among other things, the CAFC held in the Bianchi case that the Court of Federal Claims had Tucker Act jurisdiction to hear a claim for a breach of a settlement agreement.

In  the North Star Steel Co. case, the Federal Circuit first noted that the CDA does not apply to a contract for the provision of services by the Government but that the Court of Federal Claims, nonetheless, had Tucker Act jurisdiction over the contractor's claim for breach of a contract under which it purchased electricity from the Government. The court, however, reversed the Court of Federal Claims' determination that the Government had breached that agreement by negotiating in bad faith and using economic duress to force the contractor to sign an amendment to the contract. The Federal Circuit concluded that  the lower court had not properly applied the "failure to negotiate in good faith" standard as a test for breach of contract.  

Contract Interpretation/Changes/Authority/Breach

The Federal Circuit sent the Bath Iron Works case back to the ASBCA because the Board incorrectly concluded that faulty flushing of some pipes constituted a defect in the vessel within the meaning of the "Insurance" clause.

The "Changes" clause permits the Contracting Officer (PCO) to make certain changes in the contract, obligates the contractor to implement such changes, and entitles the contractor to an equitable adjustment in the contract price and delivery schedule as a result of the changes. The doctrine of apparent authority does not generally apply in government contracts, however, so the contractor is not wise to take directions from (or rely on statements made by) anyone other than the person specifically authorized to make such statements in the Changes clause (or any other clause). As the Federal Circuit's decision in the Cath-dr/Balti case demonstrates, one is seldom safe following directions from anyone except the warranted PCO, no matter how important that person's titles appear to be. In this case, it was the "Resident Officer in Charge of Contracts," who was also the "Project Manager." He certainly sounds like a VIP. The ASBCA was satisfied with those titles, but the court was not. The decision also addresses, inter alia, whether the real Contracting Officer's decision could ratify an earlier change after contract completion. In this case, the answer was "no."

Courts often find an "implied warranty" of the Gvernment's specifications. In order to recover costs associated with defective specifications, however, the contractor must show, inter alia, that it was not (and should not have been) aware of the defect in the specifications when it bid on the work. In Ace Constructors, the Government was unsuccessful in convincing the court that the contractor should have recognized the defects in the Government's specifications prior to bidding.       

The Government violated its duty as stakeholder in a Miller Act payment bond case by making final payment to a  contractor after being notified by the payment bond surety that it was asserting a right to contract funds after having fully discharged the debt of the contractor.   

Terminations

In International Data Products, after the Government terminated an 8(a) contract because the company lost its 8(a) status, the Government required the company to continue to provide the warranty and software upgrade services on the computers it had delivered prior to the termination, without additional compensation, because both these items were included in the price for those computers.  The court rejected every argument the contractor could think of that might entitle it to extra compensation.  

The standard "Termination for Convenience" clause requires the contractor to submit its termination settlement cost proposal within one year of the effective date of the termination. Litigants at the ASBCA have 120 days to appeal an adverse decision. How are these two statements related? Ryste & Ricas tried mightily to link them. The ASBCA converted a default termination to a convenience termination. Subsequently, the contractor argued that its one-year time limit to submit a termination settlement proposal should not have begun until 120 days after the Board's decision (i.e., after the appeal period expired) rather than when it received the Board's decision. The ASBCA disagreed.

One of the first cases they threw at me as a baby lawyer almost 30 years ago involved cross-contract setoff issues. In J.G.B. Enterprises, the Federal Circuit affirmed a holding by the Court of Federal Claims that the Government could not setoff payments owed to a subcontractor with debts owed by the prime contractor on unrelated contracts that did not involve the subcontractor. 

Minority Business Programs           

The Federal Circuit remanded a case to the Court of Federal Claims to consider a claim that  the Government's program favoring minority suppliers violates the Equal Protection Clause of the Fifth Amendment. The court also remanded another case so the CoFC could consider whether such programs improperly affected the price in the plaintiff's contracts.  

Equal Access to Justice Act (EAJA)

In Bill Hubbard, the court found an award of more than $100,000 in attorneys' fees excessive because it was disproportionate the amount of the underlying recovery ($400) and because the cost of living increase the lower court used to determine the hourly rate was based on the wrong time periods and amounted to impermissible interest on the amount due.  


This website links to resources on the web concerning government contracting. It is not intended to provide legal advice. Moreover, I do not vouch for the completeness, currency, or accuracy of the sites to which it links. If you have comments,  suggestions, or corrections, please email me