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2008 Procurement Review: Contract Disputes



Contents

 

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

Jurisdiction/Standing/Timeliness/Contract Disputes Act (CDA) Issues    

In USProtect Corporation, the contractor appealed to the Board from the Contracting Officer's failure to issue a decision on a claim within the statutory time limits. The Board docketed the appeal, then suspended proceedings in part because the Government said it needed additional time to issue a decision and also to permit the parties to discuss settlement. Those discussions were unavailing so the Government finally issued a decision on the contractor's claim, and, at the same time, issued a decision on a government counterclaim. The contractor did not appeal the decision to the Board. The Government then attempted to amend its pleadings at the Board to include the counterclaim. The Board dismissed the counterclaim for lack of jurisdiction because the contractor had not appealed it (and still had time to appeal to the Court of Federal Claims). The contractor did not have to appeal the Government's belated decision on the contractor's claim--the docketing of the contractor's original appeal was enough to sustain continued jurisdiction. 

The ASBCA dismissed Valenzuela Engineering's appeal because, as a suspended corporation under California law, it lacked the capacity to maintain the appeal.

FloorPro concerns situations in which third party beneficiaries have standing and jurisdiction to pursue an appeal before the ASBCA.

In Mr. Michael Ronchetti, the ASBCA found it lacked jurisdiction over a subcontractor's claim that was not sponsored by the prime.

The Board held it (i) had jurisdiction over NSA contract disputes; (ii) lacked jurisdiction over a claim based on "humanitarian" grounds; and (iii) lacked jurisdiction over Qatar International Trading Co.'s complaint that the Government had lost the contractor's bulldozer after having towed it from an accident site (the actual facts are more complicated and more interesting than this summary). The Board also held that the Government had not extended only some services under the "Option to Extend Services" clause, but, rather, had extended the contract under the "Option to Extend the Contract Term" clause, such that elimination of some services was a partial termination for convenience or a deductive change, entitling Wackhenhut to compensation. The CBCA found it lacked jurisdiction over a claim for worker's compensation.

In Guardian Environmental Services, the contractor submitted a certified claim covering monies allegedly owed under several disputed invoices. The Government subsequently released some of the disputed sums, but withheld the remainder. The contractor appealed. The Government moved to dismiss because it was preparing a claim for liquidated damages. The CBCA, however, found it had jurisdiction over the appeal despite the Government's unfulfilled intentions.

In Qatar International Trading, the Board held that the Government's defense in tort did not divest the Board of jurisdiction over the contractor's claim (the contractor had claimed that the Government failed to pay satellite phone service charges for calls made from cell phones delivered to the Government by the contractor; the Government claimed the calls had come from cloned cell phones, i.e., had been made by tortfeasors).

In Omegaman Fireprotection, the CBCA held it lacked jurisdiction over what was essentially a bid protest because there was no contract between the claimant and the Government.

Often it's the contractor that is bitten by the release language in a termination settlement agreement. In Government Marketing Group, it was the Government's claims that were precluded by such a release. 

        Submission of Claim to Contracting Officer

In Bowers Investment Company, the CBCA dismissed an appeal for lack of jurisdiction because the contractor had failed to submit a claim to the Contracting Officer, but instead had appealed after ADR procedures had failed to completely resolve its disputes with the agency.

In Tidewater Contracting, the contractor originally submitted a claim for an extension of the contract time/period of performance. After its appeal of the denial of that claim had been docketed by the Board, the Government assessed liquidated damages against Tidewater. Tidewater argued its original appeal should cover that assessment. The Board rejected Tidewater's contention because Tidewater never submitted a claim to the Government for return of the liquidated damages. 

In KAMP Systems, the contractor appealed from a government claim. Subsequently, the contractor amended its complaint to assert related counterclaims against the government. The Board struck those portions of the complaint because the contractor's claims had not been submitted to the Contracting Officer for a decision.

         Certification

In Teknocraft, the Board dismissed a claim without prejudice after holding that typing "//signed//" in a signature block was not a defect in a certification that could be remedied at the Board.

 Request for Decision by Contracting Officer

Normally, a claim must include a request for a decision from the Contracting Officer. In Fuel Tank Maintenance Co., citing Transamerica Insurance Corp. v. United States, 973 F.2d 1572 (Fed. Cir. 1992), the Board held that the following situation satisfied this requirement:

[W]here [the contractor] submitted its REA after completion of the work, presentation of a final invoice, verbal notification of a claim, and a contracting officer request, in light of the verbal notification of a claim, to resolve all outstanding issues as expeditiously as possible, and where [the contractor] included a CDA certification, the REA requested a final decision. . . .

        Appeal to Board

In Northrop Grumman Ship Systems, the Board held that a contractor could appeal from the Contracting Officer's failure to issue a decision on a claim without asking the Board to direct him to do so: "In this case, the contracting officer neither issued a timely decision nor notified appellant when he would do so. The CDA does not require the contractor to ask the Board to direct the contracting officer to issue a decision before the contractor can appeal from the deemed denial of its claim; it merely permits the contractor to do so, at its option."                

In SUFI Network Services, the Contracting Officer returned the contractor's claim without deciding it because the Contracting Officer contended it was untimely filed. SUFI then appealed to the Board, and the Board accepted the appeal because the original claim was not untimely. 

In Corners and Edges, the ASBCA held it had jurisdiction over a notice of appeal mailed before the date the CBCA became effective but received by the ASBCA after that date.

In Devi Plaza, the CBCA held that the Contracting Officer's willingness to discuss settlement with the contractor after issuing the Contracting officer's decision tolled the  90-day appeal period even though the Contracting Officer had twice written the contractor to remind him that the original decision had included a statement of his appeal rights.                             

Costs and Cost Accounting Standards (CAS)

On reconsideration, the ASBCA reversed its prior decision in the Raytheon CAS 413 segment-closing case, which had found the contractor liable to the Government for interest for failing to make timely period adjustments to pension costs.  In the most recent Raytheon decision, the Board held that its prior inferences from an unclear record were unjustified. However, the Board also decided that further development of the record is not necessary because the "contract price or cost adjustment did not result from a CAS violation or from a failure to follow a cost accounting practice consistently, which is what the CAS statute and CAS clause require in order for [the contractor] to be liable for a contract price adjustment and interest. . . ."       

In The Boeing Co, Successor-in-Interest to Rockwell International Corp., the CBCA held that the contractor could recover its defense costs associated with those counts on which it had prevailed in a suit filed against it under the False Claims Act, even though though the contractor was found liable on other counts in the same suit.   

Delays       

The ASBCA's decision in the AEI Pacific construction case includes good, black letter discussions of accord and satisfaction; duty to cooperate; defective specifications; and compensable delays. The contractor prevailed on the theories of defective specifications and constructive acceleration. Concerning the defective design specifications, the Board noted as follows:

When government plans or specifications specify, in design detail, the precise manner or method of performance, the government impliedly warrants a satisfactory performance result if they are followed. United States v. Spearin, 248 U.S. 132, 136 (1918); Essex Electro Engineers, Inc. v. Danzig, 224 F.3d 1283, 1289 (Fed. Cir. 2000); Weststar Revivor, Inc. (formerly Westar, Inc.), ASBCA Nos. 52837, 53171, 06-1 BCA � 33,288 at 165,030. Breach of the warranty entitles the contractor to recover all of the costs proximately flowing from the breach, including costs attributable to any resulting period of delay. See La Crosse Garment Manufacturing Co. v. United States, 193 Ct. Cl. 168, 432 F. 2d 1377, 1385 (Ct. Cl. 1970). Unlike some situations in which the government has a reasonable time to make changes before it becomes liable for delay, "all delay due to defective or erroneous Government specifications are [sic] per se unreasonable and hence compensable." Essex, 224 F.3d at 1289 quoting Chaney & James Construction Co. v. United States, 190 Ct. Cl. 699, 421 F.2d 728, 732 (Ct. Cl. 1970).

The Board utilized the five-pronged test for that theory espoused in Fraser Constr. Co. v. United States, 384 F.3d 1354, 1361 (Fed. App. 2004):

(1) that [the contractor] encountered [excusable] delay . . . .; (2) that [it] made a timely and sufficient request for an extension . . . ; (3) that the government denied [its] request for an extension or failed to act on it within a reasonable time; (4) that the government insisted on completion of the contract within a period shorter than the period to which [it] would be entitled by taking into account the period of excusable delay, after which [it] notified the government that it regarded the alleged order to accelerate as a constructive change . . . ; and (5) that [it] was required to expend extra resources to compensate for the lost time and remain on schedule.

Tri-State Consultants tried almost every theory of construction contract recovery in the book, all to no avail.

The ASBCA's decision in the Fox Construction case includes a discussion of the  "loss of production" theory of recovery:

Loss of production occurs when a contractor is required by the government to change its method of performance so as to proceed in a less productive manner. Luria Brothers & Company v. United States, 369 F.2d 701, 712 (Ct. Cl. 1966). . . . To be entitled to loss of productivity costs, a contractor must established a causal link or relationship between the affected work and the increased costs due to loss of productivity. DANAC, Inc., ASBCA No. 33394, 97-2 BCA � 29,184 at 145,153 ("absent a greater evidentiary link between the described phenomenon and this project," the Board refused to accept the Corps of Engineers� guide as sufficient proof of crew overloading); Triple "A" South, ASBCA No. 46866, 94-3 BCA � 27,194 at 135,537 (impact variables rejected because they showed no causal relation to any particular changes).  

Changes/Constructive Changes/Contract Interpretation/Authority

The introduction to the opinion in the Minneapolis Community Development Agency and City of Minneapolis case is an attention-grabber: " 'Most of the disputes in the world arise from words.' Morgan v. Jones, (1773) 98 Eng. Rep. 587, 596 (K.B.). As the appeal pending before us shows, words are no less troublesome in the contract disputes of today than they were when Lord Mansfield, Chief Justice was developing common law to govern commercial transactions."

In Strand Hunt Construction, the ASBCA used the following standards to conclude that the contract was not ambiguous and that the contractor's interpretation was unreasonable:

A contract is ambiguous only if it is susceptible of two different and reasonable interpretations, each of which is found to be consistent with the contract language. Edward R. Marden Corp. v. United States, 803 F.2d 701, 705 (Fed. Cir. 1986). When the Board "steps into the shoes of a reasonable and prudent business person, aware of the situation" and a "plain reading of the contract as a whole seems to yield only one reasonable interpretation," there is no ambiguity. Id. at 706.

It is also well-established that a contract must be construed as a whole to give meaning to all of its provisions. Julius Goldman's Egg City v. United States, 697 F.2d 1051 (Fed. Cir. 1983).

In Service  Rodriguez Barragan, the Board found the contract was patently ambiguous, but the contractor still lost because it had failed to inquire about the ambiguity prior to bidding.

In interpreting an ambiguous contract, a forum may sometimes look the "prior course" of dealing between the parties, but, as the ASBCA noted in C.R. Pittman Construction, a single transaction or occurrence is not sufficient to constitute a course of dealing.  

In General Dynamics C4 Systems, the Board decided several issues relating to option contracts, including whether alleged government violations of FAR 17.202(c)(1) and 17.204(e) in exercising options entitled the contractor to relief.

In Beyley Construction Group, the ASBCA denied claims for changed conditions based on a theory of quantum meruit because there was no evidence of an implied-in-fact contract and because the contractor's evidence for its cost estimates was "incomprehensible."

After several rounds of preliminary skirmishes (SUFI I, II, and III), the ASBCA issued its decision on the merits in SUFI Network Services, and the decision is a smorgasbord of claim issues, theories, and defenses, including, inter alia, breach of duty to cooperate and duty of good faith dealing, misrepresentation, contract interpretation, contemporaneous interpretation, course of dealing, ratification, burden of proof, lost revenues, lost profits, claim preparation expenses, and consulting fees.

In Alliance General Contractors, the ASBCA rejected a defective specification claim primarily because there was no basis to interpret the drawings as the contractor wished, i.e., by giving one of them precedence over the others. As a side note, the Board found the contractor had not established a causal link between the allegedly defective drawing and the alleged harm.

Duty to Proceed 

In Second Street Holdings, the CBCA held that the contractor's compliance with the directions in the Contracting Officer's decision did not moot the claim issues on appeal.

Terminations    

In Blackstone Consulting, shortly after the contractor complained of sexual harassment by the COR's husband, the Government began taking more and more unilateral deductions for allegedly inadequate performance by the contractor, until the contractor wrote that it was being forced to exercise its right to cancel the contract within 120 days. The next yearly option exercise period came up before that 120 period expired, and the Government did not exercise the option. The contractor subsequently filed a claim for, among other things, anticipatory profits for the unexercised option year and the succeeding option year. The Civilian Board of Contract Appeals found the claim for the future option year too speculative, but the claim for the first unexercised year survived the Government's motion for summary dismissal.

The ASBCA overturned a default termination that had been based on a failure to make progress because the Board found the contractor (Kostmayer Construction) had responded satisfactorily to a cure letter.

Usually, it's the contractor that is arguing the terms of a termination settlement agreement are ambiguous. In  Government Marketing Group, however, the Government took this position and argued that extrinsic evidence must be used to interpret the document. The CBCA, however, held that (with one exception) the agreement was clear on its face, and reliance on extrinsic evidence was unnecessary.

The Postal Service Board of Contract Appeals denied an appeal by a postal delivery contractor who had been terminated for default because he refused to comply with a unilateral contract amendment requiring him to deliver mail by driving down a gravel rural driveway that he considered unsafe. He lost his appeal because, after having had the driveway inspected, the Postal Service determined it to be narrow, but, nonetheless, safe.

In Oregon Woods, the CBCA held that a Contracting Officer did not abuse his discretion in terminating for convenience a faulty contract whose specifications would require an indeterminate amount of time to review and correct.

Severin Doctrine

Under the Severin doctrine, the Government is not liable for a subcontractor's claim sponsored by the prime if the prime has no liability to the subcontractor. The doctrine is construed narrowly. In BearingPoint, the Government was unsuccessful in invoking it as a defense:

The government tells us that, inasmuch as there was no executed subcontract between BearingPoint and Custer Battles, and no formal limitation of payments to what would be allowable under FAR if a formal subcontract were in place, "BearingPoint had not obligated itself to pay for any USAID disallowed costs." The government also asserts that following a dispute between BearingPoint and Custer Battles regarding outstanding invoices, BearingPoint "denied any liability for Custer Battles costs that were deemed unallowable" by the contracting officer. (The Government�s Motion to Dismiss With Prejudice for Lack of Jurisdiction Due to A Want of Standing Or, In the Alternative, Summary Judgment (gov�t mot.) at 66-67)

We articulated the test governing successful invocation of the Severin doctrine in M.A. Mortenson Co., ASBCA No. 53761, 06-1 BCA � 33,180 at 164,439. We recognized there that the government "bears the burden to prove that the doctrine applies. It must establish that an iron-clad release or contract provision immunizes the prime contractor completely from any and all liability to the subcontractor for the government action at issue. The Severin doctrine is construed narrowly." 

Purchase Orders

In Comptech, the ASBCA went through a lengthy and detailed analysis of the legal status of unilateral purchase orders before concluding that the Government properly canceled such an order because the contractor failed to deliver conforming supplies within the required time.

Quantum 

In Southern Oregon Ecological (SOE) , the CBCA cut SOE some slack in specifying its damages because of its small business status: "SOE is appearing pro se . . . and is a small business concern, which appears to be essentially a one-man operation that hires subcontractors to perform the work. SOE is not expected to have the accounting system that a large company would have."  

L-3 Communications Corp. won bid preparation expenses (but not lost profits) at the ASBCA as a result of the Government's breach of the "fair opportunity to be considered" provision covering the solicitation for a delivery order under an ID/IQ contract.

The ASBCA found a government breach but declined to award breach damages in Total Procurement Service, Inc., because the contractor failed to prove quantum, which is putting it mildly. The Board put it this way: "However, appellant here has failed to prove the amount, reasonableness and allocability of any costs that were incurred. Because of the almost complete absence of documentation or other corroboration of these costs and indeed the destruction of pertinent records, as well as conflicts in the amounts claimed, we also do not consider that a 'jury verdict' is appropriate. The failure to maintain, preserve and promptly produce to the government fundamental accounting data and records goes to the credibility of the entire claim. Appellant's actions with respect to those records were irresponsible and militate against any award."

The ASBCA rejected the Government's attempt to charge the Southwest Marine for "overpaid REA interest" in the quantum portion of an appeal because that was a new claim introduced too late in the proceedings.

Procedure

In the Hedlund Construction case, the CBCA denied the parties' JOINT motion to vacate the Board's prior decision.

In Public Warehousing Company (PWS), the ASBCA stayed the proceedings for a limited period of time to allow the Government to wrap up pending fraud investigations against the contractor in part because "[i]t is clear to us . . .  that PWC�s primary purpose in wishing to proceed with the appeal is to use the Board�s decision to influence the direction of the on-going investigations, and to help its position in potential settlement discussions."

In Palm Springs General Trading and Contracting Establishment, however, the ASBCA denied a motion to stay an appeal pending criminal proceedings because, inter alia, the Government failed to show that there were substantial similarities of facts, issues, and witnesses between the ongoing criminal investigation and the board appeals.

Discovery

The CBCA's decision concerning the discovery disputes in LHC includes a bunch of good, black letter analysis of attorney-client privilege issues, including the analysis of situations in which one agency discloses allegedly protected documents to another agency and the "common interest" doctrine.

Equal Access to Justice Act

In Freedom NY, the Board provided guidance to the parties concerning (i) the concept of substantial justification and (ii) the calculation and apportionment of Equal Access to Justice Costs on various claims for Contract Disputes Act interest and Prompt Payment Act interest when the contractor had originally prevailed on only some of its claims and had rejected substantial settlement offers from the Government.

         

        

Court of Federal Claims

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

In Lublin Corp., the Court of Federal Claims held that 31 U.S.C. 1501(a) is not a statute of frauds that precludes the existence of an oral contract involving the federal government. 

In Harper/Nielsen Dillingham Builders, the court held that, under the Severin doctrine, a prime could not sponsor a subcontractor's delay claim,  as applicable California law interpreted the "no damages for delay" clause in the subcontract, the prime had no liability to the sub.

The CDA covers contracts with the United States. In Thomas D. Affourtit, the court held it lacked jurisdiction over a pro se suit by the President and sole shareholder of a company because it was the company that was in privity of contract with the Government, and it could only be represented by an attorney. 

In Metrotop Plaza Associates, the court held that the time limit for appealing from a Contracting Officer's decision was tolled by his willingness to reconsider his decision and that "[r]econsideration . . . was implicit in [his] offer to discuss settlement."        

What is a Claim?

Thirty years into the practice of the CDA, and we still argue about whether individual submissions are "claims" within the meaning of the statute. See, e.g., NCLN2, Inc.  In Todd Construction Co. the court held that an allegation that a contractor�s performance evaluation was issued without observing the proper procedures and was substantively erroneous constitutes a CDA claim. Similarly, in  BLR Group of America, the court held that it had jurisdiction over a complaint filed by a contractor based on the Contracting Officer's failure to decide the contractor's nonmonetary claim that a Contractor Performance Assessment Report (CPAR) was inaccurate and should be corrected. The decision is interesting and important on several levels. First, it declines to follow a line of ASBCA decisions that indicate quarrels over CPARs are not CDA claims. Secondly, it finds the requirements for a claim met when the contractor simply requested the Government to change the CPAR, without labeling the request a claim. Third, it reasons that a claim may be based on an assertion of any legal right, not necessarily a right that is explicitly expressed in the contract at issue. Finally, the court notes that recognizing such challenges to CPARs as claims (rather than requiring the contractor to wait and file a protest when the challenged CPAR actually has adverse consequences on a subsequent procurement) serves the interests of contract administration because a bid protest significantly interferes with, even disrupts, the procurement process, whereas a contract dispute under the CDA does not.   

Authority

In the Stout Road Associates case, a DLA intern made hotel reservations for herself and other interns at the site of DLA training classes. The classes were canceled; the intern canceled the reservations; and the hotel attempted to collect cancellation fees from the agency pursuant to the agreement the intern had signed. The Court of Federal Claims found the Government was not liable because the intern did not have the authority to enter into a government contract. The plaintiff also argued ratification, but the court found that the intern's superiors were not contracting officers either.

Contract Interpretation

After an interesting analysis of the scope and meaning of the Antideficiency Act and an indemnification clause in a World War II contract for the supply of aviation fuel to the Government, the Court of Federal Claims found the Government responsible for cleanup costs for which the contractors (Shell Oil, Union Oil, Atlantic Richfield, and Texaco) were found liable under CERCLA long after the war and long after the contracts had expired. 

In the Manhattan Construction Company case, the Court of Federal Claims used basic rules of  grammar to determine the meaning of the phrase "as indicated in the drawings." Specifically, the court wrote: "Rules of grammar state that the subordinate clause 'as indicated on the drawings' modifies the noun or independent clause immediately preceding it. See Frederick C. Crews, The Random House Handbook 242 (5th ed. 1987). Also, the absence of a comma before the clause denotes that it applies only to the final noun or clause. See Resolution Trust Corp. v. Nernberg, 3 F.3d 62, 65 (3d Cir. 1993). Plaintiff's interpretation might have had support if a comma set off the subordinating clause; but the disputed clause, 'as indicated on the drawings,' does not have an offsetting comma. See Id. (noting that a comma preceding a subordinate clause 'may indicate that the qualifying language [applies] to all of the previous phrases and not merely the immediately preceding phrase[].'); Demko v. United States, 44 Fed. Cl. 83, 87-88 (Fed. Cl. 1999) (using normal rules of punctuation to interpret a statute). Thus, the lack of a comma setting off the modifying phrase, 'as indicated in the drawings,' confirms that it does not apply to all of the preceding phrases."  

Changes/Defective Specifications/Breach

In Stevens Van Lines, the Court of Federal Claims found a contract on the basis of the "implied actual authority" of the Government's agents. 

In Enron Federal Solutions ("EFSI"), the contractor had a privatization contract to buy the Government's dilapidated utility services plant, make certain capital improvements to it, and then provide utility services to the Government for a 10-year period, with the monthly price designed to cover the cost of the services and gradually to pay for the original capital improvements. After EFSI completed the capital improvements and the first two years of service, it defaulted on its obligations and was terminated for default. The court denied EFSI's attempt to recoup the remaining costs of the capital improvements. The court based its decision in large part on an extensive analysis of the common law definition of a material breach and the common law consequences of such a breach.   

In  Metric Construction Co., the contractor prevailed in its claim for the costs of repairing leaks in a roof it had installed. The court found (i) the Government's design specifications for the roof support structure were defective (even though the specs for the roof, itself, were performance specifications) and (ii) the Government gave an ambiguous, misleading reply to the contractor's request for guidance how to proceed once the contractor noticed problems with the roof installation during performance. In addition, the court used an approximation method for calculating the contractor's damages: "No better method (other than the rough calculations presented in this opinion) for computing damages exists, given the perplexing nature of the origin of roof leaks, which would provide a more precise dollar amount for the [Government's] liability in this case."

          Under the constructive change doctrine, the government is liable for additional work caused by a constructive change to the contract. See Aydin Corp. v. Widnall, 61 F.3d 1571, 1577 (Fed. Cir. 1995) (�Where it requires a constructive change in a contract, the Government must fairly compensate the contractor for the costs of the change.� (citing J.B. Williams Co. v. United States, 450 F.2d 1379, 1394 (Ct. Cl. 1971))). Several categories of constructive change have been identified: �(I) disputes over contract interpretation during performance; (II) Government interference or failure to cooperate; (III) defective specifications; (IV) misrepresentation and nondisclosure of superior knowledge; and (V) acceleration.� Miller Elevator Co. v. United States, 30 Fed. Cl. 662, 678 (1994) (citations omitted).

A contractor may rely on specifications provided by the government when constructing a building according to those specifications. See Robins Maint., Inc. v. United States, 265 F.3d 1254, 1257 (Fed. Cir. 2001) (�Whenever the government uses specifications in a contract, there is an accompanying implied warranty that these specifications are free from errors.�) (citing United States v. Spearin, 248 U.S. 132, 137 (1918)); Essex Electro Eng�rs, Inc. v. Danzig, 224 F.3d 1283, 1289 (Fed. Cir. 2000) (�When the government provides a contractor with defective specifications, the government is deemed to have breached the implied warranty that satisfactory contract performance will result from adherence to the specifications, and the contractor is entitled to recover all of the costs proximately flowing from the breach.�) (citations omitted). �The test for recovery based on inaccurate specifications is whether the contractor was misled by these errors in the specifications.�8 Robins Maintenance, 265 F.3d at 1257. However, the government�s implied warranty of its specifications is generally voided if the contractor does not follow those specifications. Mega Constr. Co. v. United States, 29 Fed. Cl. 396, 418 (1993) (citing Al Johnson Constr. Co. v. United States, 854 F.2d 467, 469-70 (Fed. Cir. 1988)). �It is well-established that contractors may be entitled to an equitable adjustment for increased costs of performance due to defective specifications.� Clearwater Constructors, Inc. v. United States, 71 Fed. Cl. 25, 32 (2006) (citing L.W. Foster Sportswear Co. v. United States, 405 F.2d 1285 (Ct. Cl. 1969)); see also AAB Joint Venture v. United States, 75 Fed. Cl. 414, 429-30 (2007) (holding that when the specifications in a contract were largely inappropriate for the construction anticipated under the contract, the plaintiff could recover under a theory of defective specifications); Sterling Millwrights, Inc. v. United States, 26 Cl. Ct. 49, 88 (1992) (holding that because certain specifications, which consisted of �predominantly, if not completely, design specifications,� were defective, the plaintiff was �entitled to be paid for the extra expenses and time it incurred in trying to complete the project�). Even if a specification is defective, however, contractors must be reasonable in their conduct during construction. See Space Corp. v. United States, 470 F.2d 536, 538 (Ct. Cl. 1972) (stating that �when a contractor is faced with an obvious omission, inconsistency or discrepancy of significance, he is obligated to bring the situation to the government�s attention if he intends subsequently to resolve the issue in his own favor�) (citations omitted). Contractors have a duty to inquire as to inconsistent specifications which include patent, that is, obvious or glaring, defects. See E.L. Hamm & Assocs., Inc. v. England, 379 F.3d 1334, 1339 (Fed. Cir. 2004) (�To demonstrate that it was misled, the contractor-claimant must show both that it relied on the defect and that the defect was not an obvious omission, inconsistency or discrepancy of significance � in other words, a patent defect � that would have made such reliance unreasonable.�); NVT Techs., Inc. v. United States, 370 F.3d 1153, 1162 (Fed. Cir. 2004) (�If the ambiguity is patent, it triggers a duty to inquire. A patent ambiguity is one that is �obvious, gross, [or] glaring, so that plaintiff contractor had a duty to inquire about it at the start.�� (quoting H & M Moving, Inc. v. United States, 499 F.2d 660, 671 (Ct. Cl. 1974))). If the erroneous nature of a defective specification is not glaring or obvious, however, the contractor may recover if it has been misled by the specification. See AAB Joint Venture, 75 Fed. Cl. at 430-31.

[M]isrepresentation is another category of constructive change. This particular type of constructive change occurs when the government has misrepresented information regarding a construction specification, and the contractor has relied upon the misrepresentation to his or her detriment. See Miller Elevator, 30 Fed. Cl. at 678 (citations omitted); see also Meyers Cos. v. United States, 41 Fed. Cl. 303, 311 (1998) (��Misrepresentation occurs when the government misleads a contractor by a negligently untrue representation of fact, or fails to disclose information it has a duty to disclose.�� (quoting John Massman Contracting Co. v. United States, 23 Cl. Ct. 24, 31 (1991))). �Absent some valid basis for a contrary conclusion (e.g., an absence of detrimental reliance by a government contractor, a failure to investigate �sources which would have revealed the truth,� or the like), the government �is liable for damage attributable to misstatements of fact (in a contract or specifications) which are representations made to the contractor.�� Summit Timber Co. v. United States, 677 F.2d 852, 857 (Ct. Cl. 1982) (quoting Flippin Materials Co. v. United States, 312 F.2d 408, 413 (Ct. Cl. 1963)) (other citations omitted). �In order for a contractor to prevail on a claim of misrepresentation, the contractor must show that the Government made an erroneous representation of a material fact that the contractor honestly and reasonably relied on to the contractor�s detriment.� T. Brown Constructors, Inc. v. Pena, 132 F.3d 724, 729 (Fed. Cir. 1997); see Helene Curtis Indus., Inc. v. United States, 312 F.2d 774, 778 (Ct. Cl. 1963) (�Specifications so susceptible of a misleading reading (or implication) subject the defendant to answer to a contractor who has actually been misled to his injury.�) (citations omitted). It is of no consequence that such misrepresentations may have been innocent and inadvertent, as long as they are material and the contractor suffers increased costs of performance as a result. Summit Timber, 677 F.2d at 857 (citing Everett Plywood & Door Corp. v. United States, 419 F.2d 425, 431 (Ct. Cl. 1969) and Morrison-Knudsen Co. v. United States, 345 F.2d 535, 539 (Ct. Cl. 1965)). In addition, if the government misrepresents information regarding its specifications in its communications to the contractor during performance, the government may be liable if the contractor relies on such misinformation. See Max Drill, Inc. v. United States, 427 F.2d 1233, 1243 (Ct. Cl. 1970) (�When an official of the contracting agency is not the contracting officer, but has been sent by the contracting officer for the express purpose of giving guidance in connection with the contract, the contractor is justified in relying on his representations [and may be entitled to an equitable adjustment for such misrepresentations of fact material to contract performance].�) (citing Fox Valley Eng�r, Inc. v. United States, 151 Ct. Cl. 228, 240 (1960)).

In the Information Systems & Networks Corp. decision, the Court of Federal Claims wrote: "[T]here is at least one other significant factual kink in plaintiff's assertion that defendant hatched a scheme to terminate it for default and seize its equipment - namely, it was not terminated for default, but rather for convenience."

Bell BCI won its claim against the NIH at the Court of Federal Claims for the cumulative impact of 200 changes, but the part of the decision I enjoyed the most was this little gem regarding the Government's counterclaim for liquidated damages: "NIH did not believe that it had a factual basis to assert a liquidated damages claim against Bell. NIH asserted this claim only upon the advice of counsel to create negotiating leverage in the event Bell filed a claim. . . ." The Government's witness admitted this at trial. A Perry Mason moment.

Carr Forest Products complained that the Government failed to make a reasonable estimate of the number and types of trees available in various lots in a fixed-price timber sales contract. The judge wrote that at one point the Government's estimators did not determine the size of the trees with measuring tape but instead performed "an ocular measure." Or, as we say in Texas, they eyeballed it.

Government Breach

In Spectrum Sciences and Software, the Court of Federal Claims delivered a stinging rebuke to the Government and held that the Air Force repeatedly had improperly used proprietary information concerning a company's munitions conveyor equipment (which the company had provided under the supposed restrictions of a Cooperative Research and Development Agreement) to issue a solicitation for such equipment, reveal proprietary details of the equipment to third parties,  and award a contract to one of the contractor's competitors for equipment based on the improper disclosure of that proprietary information.

Quantum

In Enron Federal Solutions, the court delineated the very limited circumstances in which it would allow quantum meruit recovery.         

Equal Access to Justice Act (EAJA)

In Bill Hubbard, the court (as directed by the Federal Circuit) recalculated (and reduced) an EAJA award based on the standards in Hensley v. Eckerhart, 461 U.S. 424 (1983).

In International Air Response, the court scolded the Government for resisting its obligations under the EAJA.  

The EAJA permits the court to adjust the statutory cap of $125 per hour for attorney's fees to take inflation into account (the COLA adjustment). In Ace Constructors, the court used a month-by-month analysis of the incurred fees rather than a single midpoint average to determine the COLA.

In Metric Construction Co., the Court of Federal Claims found the Government's position in litigation was substantially justified and precluded an award of fees under the Equal Access to Justice Act even though (i) the contractor prevailed on the majority of its claim and (ii) the Government made almost no attempt to rebut the plaintiff's application for attorneys' fees because: "It was reasonable for the Government to have litigated this dispute to its conclusion." 

Procedure

In Ch2H Hill Hanford Group, the court decided that, because of overlapping issues, the case should be consolidated with one before the CBCA, but, because the court did not have the authority to demand of the CBCA that consolidation take place in the court, the court transferred the case to the CBCA.

In Nova Express, the court held that the owner of a sole proprietorship may bring an action in the court without benefit of an attorney.  

In Highqbpo, LLC, the  court stayed proceedings in a contract disputed pending criminal proceedings against the contractor.     

Discovery

In West Bay Builders, the Court of Federal Claims refused to permit the contractor to withdraw admissions it was deemed to have made by failing to provide a timely response to defendant's request for admissions. The plaintiff's cause was not aided by the fact that (more than seven months before plaintiff finally filed its motion requesting that its deemed admissions be withdrawn) the plaintiff had signed a joint status report to the court noting that the discovery responses were already overdue.         

The Court of Federal Claims berated the Government for attempting to withhold far too many documents under claimed work product, deliberative process, and attorney-client privileges in Chevron U.S.A., Inc. v. United States

In Northrop Grumman, Military Aircraft Division, the CoFC held that certain Claim Research Papers drafted to assist the Contracting Officer in making a decision and prepared primarily by contractual and technical staff were not privileged and were properly disclosed voluntarily by the Government, even though a government attorney had some part in their preparation and they had been stamped with a legend that they had been prepared in anticipation of litigation. Thus, the Government's disclosure of the documents was not a waiver of any claim of privilege with regard to other documents concerning the same issues.

In Multiservice Joint Venture, during a break in a deposition, a version of an exhibit containing handwritten notes mysteriously disappeared and was replaced with a "clean" version of the exhibit. After the plaintiff's deponent, representatives, and attorneys all failed or refused to explain the situation to defendant's counsel and (later) the judge, the Court of Federal Claims barred the deponent from testifying at trial and ordered the plaintiff's attorneys personally to pay the defendant's costs of filing the motion for sanctions. 

 

Court of Appeals for the Federal Circuit

Jurisdiction/Standing/Res Judicata 

Rick's Mushroom Service couldn't establish a basis for jurisdiction at the Court of Federal Claims, and now the Federal Circuit affirms the lower court's decision because the company's claims either sound in tort or are based on an agreement that does not involve a procurement of goods or services, neither of which is a proper basis for Tucker Act or CDA jurisdiction.

In Phillips/May Corporation, in a case of first impression, the court held that the CDA did not alter the normal rules governing res judicata and claim preclusion so that the outcome of nine claims filed by the contractor at the ASBCA necessitated a summary judgment in favor of the Government on a tenth claim arising under the same contract and involving the same transactional facts appealed by the contractor to the Court of Federal Claims.

Contract Interpretation/Changes/Authority/Breach

In denying General Injectables & Vaccines' petition for rehearing, the Federal Circuit held that the failure of FAR 52.212-4(f) to state specifically that a contractor is liable for unexcused subcontractor delays does not change the fact that the contractor is liable for such delays.

In International Technology Corp., the court listed four elements necessary for a differing site conditions claims to prevail:

In order to prevail on such a site conditions claim, a contractor must establish four elements. First, the contractor must prove that a reasonable contractor reading the contract documents as a whole would interpret them as making a representation as to the site conditions. See Renda Marine, 509 F.3d at 1376 ("[A] contractor must first prove, as a threshold matter, that the contract contained some identification of the conditions to be encountered at the site."); H.B. Mac, Inc. v. United States, 153 F.3d 1338, 1345 (Fed. Cir. 1998) (explaining that the court "place[s] itself into the shoes of a reasonable and prudent contractor and decide[s] how such a contractor would act in interpreting the contract documents"). This is a question of contract interpretation reviewed de novo on appeal. H.B. Mac, 153 F.3d at 1345.

Second, the contractor must prove that the actual site conditions were not reasonably foreseeable to the contractor, with the information available to the particular contractor outside the contract documents, i.e., that the contractor "reasonably relied" on the representations. Renda Marine, 509 F.3d at 1376 ("[T]he contractor must demonstrate that the conditions encountered were not reasonably foreseeable in light of all information available to the contractor when bidding[ and] that the contractor reasonably relied upon its original interpretation of the contract."). This issue is factual in nature, and review is deferential. See id. at 1378.

Third, the contractor must prove that the particular contractor in fact relied on the contract representation. See id. at 1376. Again, this is a fact issue reviewed under a deferential standard. See id. at 1378.

Fourth, the contractor must prove that the conditions differed materially from those represented and that the contractor suffered damages as a result, which is again a fact question. See id. at 1376.

 

       Most interesting, though, was the following footnoted dicta concerning a fifth element of government culpability that was sometimes listed in certain cases:

The Board held that a showing of government culpability was also required, relying on a series of decisions by the Court of Claims. See Foster Constr. C.A., 435 F.2d at 881 ("Some degree of Government culpability�either untruth or such error as is the legal equivalent�must . . . be shown, and the plaintiff's burden of proof is not satisfied merely by proof of a variation between the subsurface conditions as stated in the contract and as encountered."); C.W. Blakeslee & Sons, Inc. v. United States, 89 Ct. Cl. 226 (1939); Midland Land & Improvement Co. v. United States, 58 Ct. Cl. 671 (1923). The government has declined to defend this holding, and we are skeptical that such a showing is required. More recently, when this court listed the elements of a claim for misrepresentation in a government contract in T. Brown Constructors, Inc. v. Pena, 132 F.3d 724, 729 (Fed. Cir. 1997), we did not list any element of government culpability. Under the general law of contracts, essentially the same elements as those listed in the text above are required to establish a misrepresentation claim, and no showing of culpability is required if the representation was material. See Restatement (Second) Contracts, ch. 7, topic 1, introductory note. As discussed below, a similar approach, which also requires no showing of government culpability, applies in the context of government contract claims under the Differing Site Conditions clause. See Renda Marine, 509 F.3d at 1377. In light of our disposition of this case, however, we need not reach the issue of whether government culpability must be established.

In Northrop Grumman Information Technology, the court found that a document alleged to bind the government to a particular obligation was not expressly incorporated into the subsequent, official contract document and was, therefore, excluded by the contract integration clause.

Anti-Assignment Act  

In Delmarva Power & Light, the court recognized the Government's power to waive the prohibition against the assignment of claims against the Government in the Anti-Assignment Act, 31 U.S.C. 3727(a).

Terminations and Delays

The court upheld the ASBCA's decision sustaining a termination for default in the General Injectables & Vaccines case. The contractor could not supply flu vaccine produced by its subcontractor because the FDA found it was contaminated. The contractor argued the FDA's action was governmental action constituting an excuse for nonperformance. The court held that the underlying cause was the subcontractor's default, which was attributable to the prime, even under the controlling, commercial items, "Excusable Delays" provision (FAR 52.212-4(f)), which does not include the traditional language that the default must be without the fault of the contractor "or its subcontractors. . . "). In other words, even in contracts for commercial items, the contractor is responsible for delays and defaults attributable to its subcontractors.

Affirmative Actions Goals and Preferences

In Rothe Development Corp., the Federal Circuit held that 10 U.S.C. 2323 is unconstitutional because, in passing it, Congress did not have a "strong basis in evidence" to conclude that DOD was a passive participant in racial discrimination in relevant markets across the country and that race-conscious remedial measures were necessary. The Act (i) sets a "goal" that five percent of federal defense contracting dollars for each fiscal year be awarded to certain entities including small business concerns owned and controlled by "socially and economically disadvantaged individuals"; (ii) incorporates the Small Business Act's presumption that Black Americans, Asian Americans, Hispanic Americans, and Native Americans are socially disadvantaged individuals; and (iii) provides that the Department of Defense shall give specified forms of assistance to the listed entities and may, when practicable and necessary to achieve the five percent goal, make advance payments to those   entities and award contracts to them at prices up to ten percent above fair market cost.

Supreme Court

In the Richlin Security Service decision, the Supreme Court held that recovery by a prevailing party under the Equal Access to Justice Act may include paralegal fees billed at prevailing market rates.

In Allison Engine Co. v. United States, the Supreme Court held that, under section 3729(a)(2) of the False Claims Act,  a subcontractor can be found liable if it submits a false statement to the prime contractor, intending that the prime use the statement to induce the Government to pay the subcontractor's claim. 

        

 


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