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CBCA further limits the Federal Circuit’s decision in Maropakis

On January 5, 2016, the Civilian Board of Contract Appeals (CBCA) issued a decision that is another in a line of decisions that erodes the Federal Circuit’s holding in M. Maropakis Carpentry, Inc. v. United States, 609 F.3d 1323 (Fed. Cir. 2010). In Maropakis, the Federal Circuit held that certain contractor defenses to government claims are actually contractor claims under the Contract Disputes Act’s (CDA), meaning they must first be submitted to the contracting officer for decision and cannot be raised for the first time in litigation. Since that decision, both the Court of Federal Claims (COFC) and the boards of contract appeals have narrowed the scope of the Federal Circuit’s decision in Maropakis. See, e.g., Total Eng’g, Inc. v. United States, 120 Fed. Cl. 10 (2015) (The CDA does not require the contractor to jump through such an extra hoop and refile its defense to a government claim as a so-called contractor’s ‘claim’ where it is not seeking any separate monetary relief or contract adjustment.). For more information on the Total Engineering case, see our previous post here.

Most recently, in Jane Mobley Assoc., Inc., v. Gen. Serv. Admin., CBCA 2878, 2016 WL 73878, the CBCA explained the difference between an affirmative CDA claim and a defense to a government claim:

An affirmative CDA claim is an attempt to modify or adjust the contract to counter the liquidated damages assessment (e.g., compensable time extensions as a result of government delays). A factual defense to a liquidated damages assessment merely serves to attack the assessment itself (e.g., the government’s assessment was incorrect because the delay was excused as a result of government delays). Plainly stated, a CDA claim seeks affirmative relief under the contract through a contract adjustment; a factual defense only attempts to reduce or eliminate the liquidated damages assessment.
Id. (emphasis original) (citations omitted).

In distinguishing (and limiting) Maropakis, the CBCA stated:

In the CDA context, if we were to apply the rule of Maropakis to any defense raised by a contractor in response to a government claim that is not in the nature of an adjustment of contract terms or not seeking separate monetary relief, the “drastic consequence” could well be that the contractor’s appeal is never able to be heard on the merits. This is contrary to the intent and purpose of the CDA.
Id. (emphasis original).

This holding, and the steady departure from Maropakis, is beneficial for contractors because it promotes efficient adjudication in defending against government claims. Nevertheless, contractors should remain cognizant of the Federal Circuit’s holding in Maropakis and assess, on a case-by-case basis, whether their defense qualifies as a “claim” under the CDA.

CBCA further limits the Federal Circuit’s decision in Maropakis

DC Office to Host ABA Committee Panel on Recent Trends in Subcontractor Claims and Disputes

On Wednesday, February 11, 2015, at noon our DC office (located at 1900 K Street NW) will host a joint meeting between ABA PCLS Contract Claims and Disputes Resolution Committee and the Strategic Alliances, Teaming and Subcontracting Committee. This lunch meeting will feature a panel discussion about recent trends in subcontractor claims and disputes. The panel will be moderated by Dentons colleague John Sorrenti, and will feature the following panelists: Linda Maramba (Northrop Grumman), Lewis Wiener (Sutherland Asbill & Brennan), Beth Ferrell (Dentons), Jeff Regner (Department of Justice) and Kyle Chadwick (Trial Attorney, United States Army Legal Services Agency Contract and Fiscal Law Division). Please contact Andrea Tanner if you would like to attend in-person. If you wish to participate by phone, please use the following dial-in number: 1-888-887-4214 (access code: 584917).

DC Office to Host ABA Committee Panel on Recent Trends in Subcontractor Claims and Disputes

COFC Decision Rejects Government’s Argument That The Contractor Was Required To File A Claim To Assert An Affirmative Defense

When the Federal Circuit issued its 2010 Maropakis decision, many in the government contracts bar immediately grew concerned about the potential application and scope of that decision.  However, subsequent Court of Federal Claims (COFC) and Boards of Contract Appeals (BCAs) decisions have generally (and appropriately) placed certain boundaries on Maropakis, and provided some clarification about its scope.  The COFC’s decision in Total Engineering is no different, but presents an additional twist.

Pertinently, in Total Engineering, the contractor appealed the government’s affirmative claim seeking payment of approximately $2.3 million due to the contractor’s allegedly defective work, and asserted a “defective specifications” defense. The government filed a motion to dismiss the amended complaint for lack of jurisdiction, arguing that, under Maropakis, the contractor was required to submit an affirmative CDA claim before it could assert its defense. (The government argued that the contractor was really asserting an impracticability claim.) The Court rejected the government’s argument, and distinguished the facts in this case from the situation in Maropakis. Here, the Court found that the contractor was not seeking any separate monetary relief or adjustment to the contract’s terms based on its “defective specifications” defense.  Rather, the contractor only was arguing that the government’s design was the root of the alleged defective work, not the contractor’s workmanship – i.e., the contractor merely followed the government’s specifications which resulted in the defective work.  Further, the Court noted that “a favorable resolution of [the contractor’s] defense would not result in any separate contract adjustment or monetary relief to [the contractor],” and a result, the Court found that the contractor’s defense was not a claim as defined in FAR 2.101. (It is also worth noting that the contracting officer’s final decision considered and rejected the same “defective specifications” defense.)

Ultimately, this decision is a pragmatic one, and as the Court states, “[t]he CDA does not require the contractor to jump through such an extra hoop and refile its defense to a Government claim as a so-called contractor’s ‘claim’ where it is not seeking any separate monetary relief or contract adjustment.”  However, because the application of Maropakis generally is based on the specific facts and “defenses” presented, contractors still must consider whether or not to submit a CDA claim to the contracting officer (or how to frame a CDA claim) in order to preserve/assert certain defenses at the trial level. Total Engineering presents a somewhat unique fact pattern that will not apply in every instance.

COFC Decision Rejects Government’s Argument That The Contractor Was Required To File A Claim To Assert An Affirmative Defense

DC Office to Host ABA Committee Panel on Government Claims

On Wednesday, November 12, 2014, at noon our DC office (located at 1900 K Street NW) will host the ABA PCLS Contract Claims and Disputes Resolution Committee’s monthly meeting, which will feature a panel discussion about government claims.  Justin Ganderson will be moderating a panel comprised of Judge Lynda T. O’Sullivan (ASBCA), Beth Ferrell (Dentons, Partner), Paul Pompeo (Arnold & Porter, Partner), David Koeppel (Counsel for Procurement and Contracts at United States Department of Labor, Office of the Solicitor) and Robert Neill (Trial Attorney, Contract & Fiscal Law Division, US Army Legal Services Agency).  They will be discussing a variety of topics, including the CDA’s 6-year statute of limitations, the impact of the Federal Circuit’s 2010 M. Maropakis Carpentry decision (finding that the contractor was required to file a claim in order to raise certain defenses to the government’s liquidated damages assessment and set-off), the ASBCA’s recent Beechcraft Defense Company decision (ordering the government to file a complaint regarding its underlying claim), the factors the government reviews when deciding whether to assert a claim against a contractor.  Please contact Justin Ganderson if you would like to attend in person or by phone.

DC Office to Host ABA Committee Panel on Government Claims

No Game-Changers in the Newly Revised ASBCA Rules

Last week the Defense Acquisition Regulations System issued new revisions to the Rules of the Armed Services Board of Contracts Appeals (the “Board” or “ASBCA”) previously published on May 2011.  These Rules apply to all appeals filed on or after the July 21, 2014, and will apply to “those appeals filed before that date, unless that application is inequitable or unfair.”  Rule 24.  Per the Federal Register, the new rules “propose[] to revise and reorder the Board’s Rules for clarity and consistency and account for changes in technology, remove contradictions, resolve ambiguities, provide updated contact information to allow for some electronic communication by litigants appearing before the Board, and added two addendums: Equal Access to Justice Act Procedures and Alternative Methods of Dispute Resolution, previously not formally contained in the Rules.”

Although many of the revisions are in the vein of reordering the Rules, clarifying prior language and improving the Rules’ overall readability, there are a few noteworthy changes that practitioners before the Board should know, including:

  • Rule 2 (“Filing Documents”) provides more detailed information about how documents may be filed with the ASBCA, including electronic filings by e-mail.
  • Rule 7 (“Motions”) has been expanded to provide specific requirements to facilitate the disposition of motions generally, jurisdictional motions, summary judgment motions, and responses to these motions.
  • Rule 20 (“Motion for Reconsideration”) was revised to now expressly allow an opposing party to file a cross-motion to a motion for reconsideration (“. . . any cross-motion for reconsideration [must be filed] within 30 days of its receipt of the motion for reconsideration.”).
  • Rule 21 (“Remand from Court”) now enlarges the time in which parties have to submit individual reports to the Board from 20 to 30 days following the receipt of any Courts’ remand to the Board.

While none of these revisions are “game-changers,” practitioners should be advised to review all revisions to avoid non-compliance with the Board’s Rules.

Finally, we were slightly disappointed that the Rules were not revised to require the government to file a complaint when a contractor appeals a contracting officer’s final decision asserting an affirmative government claim – like a termination for default or defective pricing claim. Under the current framework, contractors are often left in an awkward position of filing a complaint to appeal an affirmative Government claim.  Hopefully this will be addressed in the next round of revisions.

No Game-Changers in the Newly Revised ASBCA Rules

ASBCA Decision Finds that Contractor’s CDA Claim is Not Time Barred; Serves as Useful Teaching Tool

This holiday weekend presents a good time to reflect on the recent uptick in jurisdictional decisions before the Court of Federal Claims and the Boards of Contract Appeals related to the Contract Disputes Act’s (CDA) six-year statute of limitations.  Most recently, we reported about the ASBCA’s decision in Laguna Constr. Co., Inc., ASBCA No. 58569 (May 29, 2014), which held that the government’s $3.8 million claim was time-barred by CDA’s statute of limitations.  There the ASCBA found that the government’s claim accrued when DCAA issued an audit report more than six years prior to the final decision being issued.  Now, in Zomford Company, ASBCA No. 59065 (June 10, 2014), the government argues that the contractor’s claim should be time-barred.  As will be discussed below, this decision serves as a teaching tool with respect to the CDA statute of limitations and document preservation issues.

Here the contractor performed additional work pursuant to a contract modification issued on January 5, 2007.  On January 21, 2007, the contacting officer emailed the contractor a notice terminating the contract and stating that “[n]o payments will be made” thereunder.  (Apparently the contractor never received the termination notice.)  Then in a March 9, 2007 email, the contractor informed the contracting officer that it had completed all work under the contract and attached an invoice.  Another contracting officer replied, indicating that “payment has been sent out, please allow 30 days [i.e., around April 9, 2007] for payment to post.”  Because no payment was made, the contractor submitted a claim on February 5, 2013 to recover for the work it performed.

In its motion to dismiss, the government argued that the contractor’s claim accrued on or about January 21, 2007 – when the termination notice was sent to the contractor.  Judge James disagreed, finding that although that “date of accrual was plausible,” there was no evidence that the contractor ever received the termination notice.  Instead, Judge James found that April 9, 2007 was likely the “earliest date” the claim would have accrued – 30 days after the parties exchanged emails about the work being complete and the date by which the government indicated that the contractor should receive payment.  Thus, the contractor’s claim was submitted two months prior to the end of the six-year statute of limitations period.

This case is important for a variety of reasons:

  • While many of the recent CDA statute of limitations cases involve contractors raising the jurisdictional issue, it is critical to remember that the government is equally entitled to raise this defense.  Contractors must always be cognizant of six-year window it has to file a CDA claim, and set-up internal procedures and controls to track potential CDA claims and the six-year limitations period.
  • The government’s statute of limitations defense failed because it could not prove that the contractor received the termination notice sent by email.  In a day and age when email is one of the most prevalent forms of communication, this decision reminds us that proof of receipt still can be an issue at times.  It is critical to include read receipts with important emails, and to consider sending a duplicate hardcopy via mail (with a return receipt requested).   It is also important to follow-up with your contracting party to ensure that important documents are received.
  • This case teaches about the importance of having records to support factual assertions.  The contractor prevailed on the jurisdictional dispute mostly because the government could not demonstrate that the contractor received the termination notice and the contractor had records demonstrating when the claim likely accrued.  Of course, the impact arising from a failure to maintain records is a two-way street.  Contractors must ensure that they have adequate procedures and controls in place to preserve important records.
ASBCA Decision Finds that Contractor’s CDA Claim is Not Time Barred; Serves as Useful Teaching Tool

COFC Decision Provides Valuable Lessons to Contractors About Termination for Defaults, Fixed Price Contracts and Fraud Counterclaims

Those looking for an intriguing summer read should look no further than Judge Bruggink’s 84-page opinion in Liquidating Trustee Ester Du Val of Ki Liquidation, Inc. v. United States, CoFC No. 06-465C (June 2014).  This story stems from the government’s decision to terminate for default Kullman Industries’ (Kullman) contract to build the U.S. Embassy compound in Dushanbe, Tajikstan.  After trial, the Court of Federal Claims ruled on a myriad of claims.  Pertinently, it (i) upheld the government’s termination for default decision; (ii) denied the Kullman’s $4.3 million claim for geotechnical work allegedly performed outside the terms of the contract; and (iii) granted the government’s fraud counterclaims based on the violations of the False Claims Act.  This decision provides a few valuable lessons:

  • Don’t walk off the job – Although the project experienced delays and a new completion date was not formally established, Kullman eventually stopped working on the project with no apparent intention of returning to work.  As a result, the government terminated the contract for default.  Kullman argued that its actions were justified because (i) it was experiencing financial distress and (ii) it would not have been able to complete the project due to the government not providing permanent power to the worksite as of the termination date.  The Court summarily rejected these arguments, finding that the “overwhelming evidence that [Kullman] abandoned the project . . . alone trumps any possible shortcomings in contract administration.”  A “[t]ermination for default is justified when the contractor abandons the project while there is still work to be completed.”  In other words, no matter what the government does, never walk off the job and abandon it.
  • Understand your written contract –  Kullman unsuccessfully argued that it was required to perform certain geotechnical work outside the terms of the contract, and that it was provided an allowance for this work, the price of which would be set at a later date.  Dismissing a variety of arguments, the Court’s decision focused on its review of the contract:  “a literal reading of the contract plainly supports defendant’s contention that plaintiff assumed the risk for how much the geotechnical and foundation work would cost when it agreed to a fixed price.”  The Court also found that Kullman’s apparent understanding was “merely the agency’s recognition that, only if [Kullman] could establish a differing site condition due to unusual soil condition would the agency have to face additional cost.”  Contractors must understand the implications of entering into a fixed price contract, and realize that, but for the execution of a modification increasing the contract price, there is no guarantee of payment for work performed over the contract’s firm fixed price.  In addition, contractors should carefully review the solicitation, their proposal and the statement of work to ensure the proposed price reflects that actual scope of work.
  • Carefully review certifications –  In its invoices, Kullman certified that “[a]ll payments due to subcontractors and suppliers from previous payments received under the contract have been made, and timely payments will be made from the proceeds of the payment covered by this certification . . . .”  The government argued that Kullman violated the False Claims Act (FCA) because Kullman was paid in full for all of one supplier’s work, but Kullman failed to pay in full that supplier.  At trial, Kullman explained its interpretation of the certification – that Kullman “had paid its subcontractors and suppliers as much as it could of the amounts due under the subcontract agreements, or, alternatively, that [Kullman] could make the certification so long as it had some understanding with the suppliers about paying amounts due over time.”  Although the Court found that Kullman did not “mean to deceive the government” and that Kullman truly believed its interpretation was appropriate, this “nuanced interpretation does not, however, overcome its clear inaccuracy. We remain persuaded that he should have known the statement was inaccurate and should not have signed it.”  Although this false certification did not amount to a violation of the Forfeiture of Fraudulent Claims Act, it did violate the FCA.  The Court explained: “ [t]he fact that [Kullman] thought [the certification] was accurate under a strained view of the circumstances does not make it any less false in the sense meant by the statute.”  The Court also dismissed Kullman’s argument that there was no FCA violation because the government was aware of Kullman’s financial issues and had reasons to know that it could not pay all its suppliers.  The Court found that the contracting officer did not “specifically know” or have “first hand knowledge” that the certifications at issue were “not correct.”  “[F]or government knowledge to vitiate fraud, it must approach something like specific consent or an agreed-upon interpretation of the terms of the certification such that the parties agree that the certification does not mean what it otherwise appears to mean.”  The upshot is that contractors should carefully review all certifications, and when in doubt about an interpretation, contact counsel.
COFC Decision Provides Valuable Lessons to Contractors About Termination for Defaults, Fixed Price Contracts and Fraud Counterclaims

ASBCA Provides Refresher on Negligent Estimate Claims

The Armed Services Board of Contract Appeals (ASBCA) recently issued an interesting decision about a negligent estimate claim.  In American General Trading & Contracting, WLL, ASBCA No. 56758, the contractor (AGT) argued that the Army breached the parties’ contract because it “negligently estimated its laundry needs in . . . [five military] camps [in Kuwait], which virtually emptied shortly after award due to the [2003] invasion [Iraq].”  Judge Melnick first commented that the parties’ contract (a firm-fixed unit-priced contract with total item numbers adjustment, and which contained a volume estimate) was neither an indefinite quantity contract nor a requirements contract. (The former contract-type cannot be the subject to a negligent estimate claim, while the letter can.)  And because the contract contained “neither a minimum quantity clause nor a requirements clause, it was not enforceable at its inception since the government was not obligated to take any ascertainable quantity of laundry services.” However, the contract became “definite and binding” as a result of the “conduct and performance of the parties” – AGT performed services pursuant to the contract and the Amy remitted payment. Judge Melnick then found that the volume estimates were material to the parties’ contract and could support a breach claim: “AGT has presented evidence that it relied on the government’s estimates to establish its item rates, indicating that the prices ultimately paid to it under the binding contract that was formed were driven by those representations. To the extent the estimates underlying the . . . contract’s prices were negligently prepared, and that AGT reasonably relied on them, there is no reason AGT cannot pursue a claim based on that negligence.”  This decision is important because it further cements the principal that the underlying viability of a negligent estimate claim is not based solely on the contract type, but rather on whether the estimate was material to the contract.

ASBCA Provides Refresher on Negligent Estimate Claims

ASBCA Reminds Contractors Not To Look The Other Way When An RFP Is Missing Documents or Information

When an RFP is missing an attachment or information, contractors simply should not look the other way.  This is the lesson of CAE USA, Inc., ASBCA No. 58006, where the ASBCA denied a contractor’s appeal due to its failure to inquire about missing information in an RFP before preparing and submitting its bid.

Pursuant to FAR 22.1008-2 and in compliance with Service Contract Act of 1965, 41 U.S.C. § 6707 (c)(1), the contracting officer (the “CO”) provided all bidders with a copy of a collective bargaining agreement (the “CBA”) that would apply to the contract.  The CBA indicated that the contractor’s employees would participate in a corporate benefit program, but did not provide specific details.  The CBA was missing certain relevant attachments but, rather than asking for that information, CAE USA, Inc. (“CAE”) made certain general assumptions about fringe benefits when calculating its proposed rates.  After award, the CO informed CAE that the missing attachments in the CBA required the payment of additional benefits, which CAE had to pay.  CAE submitted a claim for the cost of these additional benefits, which the CO denied, and CAE appealed to the ASBCA.

Although the ASBCA noted that “[t]here can be no reasonable doubt that pursuant to FAR [22.1008-2], it was the responsibility of the CO to provide a complete CBA,” it found that “[i]t is equally without doubt that CAE knew the CBA did not contain the complete information necessary to determine what the full wage and fringe benefit amounts necessary to comply with the SCA [Service Contract Act] and FAR were.”  Because CAE chose to “submit an offer on the basis of its own assumptions, without notice to the government of the incompleteness of the CBA or what CAE’s assumptions were, it cannot now be heard to complain that its assumptions were not correct.”  (The ASBCA analogized to those cases “dealing not with contract provisions that are difficult to interpret due to an ambiguity, but those that have relevant information missing.”)  Further, the ASBCA determined there was no language in the SCA or the FAR that would “require the government to become the indemnitor” for differences in the rates resulting from the missing attachments, or to be a “guarantor of the correctness of CAE’s assumptions when [CAE] failed to inquire regarding these assumptions.”

This decision demonstrates the importance of (i) carefully analyzing an RFP to verify that all relevant attachments have been provided and (ii) clearly stating any assumptions on which the bid is based.  Although these types of cases are highly fact dependent, the principals of CAE USA would be applicable to any bid or proposal.

ASBCA Reminds Contractors Not To Look The Other Way When An RFP Is Missing Documents or Information

Federal Circuit Clarifies That Contractors Do Not Have to Show “Specific Targeting” to Establish a Government Breach of the Implied Duty of Good Faith and Fair Dealing

Last week the Federal Circuit delivered an early valentine to contractors through its decision in Metcalf Construction Co., Inc. v. United States, 2013-5041 (Fed. Cir. Feb. 11, 2014).  This decision provides much-needed clarity regarding the standard a contractor must satisfy to prove that the Government has violated its implied duty of good faith and fair dealing.  As we previously reported, the Federal Circuit’s 2010 Precision Pine  and 2012 Scott Timber II  decisions utilized a “specifically targeted” test – instead of the previously well-established “reasonableness test” – to determine whether a breach of this duty occurred.  This arguably added a scienter requirement for determining breach of the implied duty, making it significantly more difficult for contractors to prevail on this type of claim.  Although the Scott Timber II decision provided hope to contractors, this hope hung on the balance of a single footnote in that decision, which suggested that the “specifically targeted” test might apply only in narrow circumstances.  Now in Metcalf, the Federal has confirmed this is the case, expressly holding:  (1) that a contractor did not need to show that it was the victim of “specific targeting,” except in very limited circumstances; and (2) that the Government can breach the implied duty even if its action did not violate an express term of the parties’ contract.  This decision should help resolve the inconsistent treatment this issue has received in recent decisions by the U.S. Court of Federal Claims and the boards of contract appeals, as well as the very heated debate within the Government contracting community on this issue over the last several years.  Although this decision is a major boost to contractors, because Precision Pine has not been overruled, we believe that  the Justice Department still may continue to assert that the Precision Pine standard should apply.  Thus, there will remain a need for careful and skilled analysis and briefing of the implied duty issue in future cases before the Court of Federal Claims, the boards, and the Federal Circuit.

Federal Circuit Clarifies That Contractors Do Not Have to Show “Specific Targeting” to Establish a Government Breach of the Implied Duty of Good Faith and Fair Dealing