In a unanimous decision, the U.S. Court of Appeals for the Federal Circuit (“CAFC”) dismissed a contractor’s appeal of a contracting officer’s unilateral price definitization on two undefinitized contract actions (“UCAs”). Lockheed Martin Aeronautics Co. v. Sec’y of Air Force, No. 2022-1035, 2023 WL 3064417 (Fed. Cir. Apr. 25, 2023). The relevant terms of the UCAs stipulated “the [CO] may . . . determine a reasonable price . . . subject to Contractor appeal as provided in the Disputes Clause.” Id. (emphasis added). Nevertheless, the CAFC held that unilateral price definitizations do not constitute government claims under the Contract Disputes Act (“CDA”). Accordingly, the relevant boards and Court are not authorized under the CDA to resolve such disputes absent: (1) a separate submission by the contractor of a claim objecting to the unilateral prices; and (2) a contracting officer’s final decision denying such a contractor claim.
Presumably, Lockheed Martin filed its initial appeals seeking relief from the unilateral price determinations under the CDA as a method of preserving its rights. Existing decisional law, including a scattering of decisions by the CAFC, provides some guidance to contractors but, unfortunately, a lack of clarity persists in obtaining jurisdiction of the boards or Courts for contract disputes involving government claims. This lack of clarity contributes to protective appeals, increased motions practice, and additional litigation costs all related to managing the risk of potential forfeiture of contractor rights.
Regrettably, Lockheed does not help significantly reduce the prevalence of these issues. Instead, the decision may exacerbate the problems facing contractors in seeking to preserve their day in Court or at the boards. Specifically, Lockheed highlights that contractors may not rely upon stipulated language in their contracts concerning what constitutes a dispute from which a contractor may seek immediate relief. To ensure the preservation of rights, contractors still must review all of the relevant facts and circumstances of each dispute, as well as the applicable contractual language, to assess whether there has been a government claim that must be appealed or instead whether a certified contractor claim first must be submitted, and a final decision on that claim issued, before seeking relief under the CDA from the boards or Court.
Lockheed involved two UCAs with the Air Force for upgrades to the F-16 fighter jet. The contracts contained price definitization clauses, FAR 52.216-25 and DFARS 252.217-7027, which required Lockheed Martin to begin performance while the parties worked to definitize a price by a target date. If the parties were unable to reach an agreement on price, the clauses allowed the contracting officer to determine and set a reasonable price. The parties were unable to reach an agreement after several years of negotiation, and the contracting officer unilaterally determined a price for each of the contracts. Lockheed Martin immediately appealed for relief from the price determination to the Armed Services Board of Contract Appeals (“ASBCA”), the relevant board authorized to entertain disputes arising out of these contracts, arguing the contracting officer’s established prices were unreasonable, and that the unilateral actions constituted contracting officer’s final decisions on a government claim. The ASBCA disagreed, citing Bell Helicopter Textron, ASBCA No. 35950, 88-2 BCA ¶ 20,656, which had earlier found that unilateral pricing actions are not government claims. The appeal was dismissed for lack of jurisdiction and Lockheed Martin appealed this decision to the CAFC.
The CAFC’s decision in Lockheed is centered around the question of what constitutes a government “claim” for purposes of disputes between contractors and their government customers under the CDA. Based upon its prior decisions, and the regulatory definition of the term, the CAFC reasoned that a valid claim, whether by the government or a contractor, must be a demand for something due or believed to be due. Contract price definitization actions, explained the court, are “simply following the agreed upon procedure for determining the final contract price.” Moreover, the court observed, “We do not think that the COs’ establishment of prices where none existed before can be legitimately characterized as an adjustment of contract terms.” The rationale here is that the act of unilaterally establishing a price is not adjusting anything because there was no price in the first place. Yet, a change in the price for any contract, including an initial establishment of a price for UCAs, plainly requires a modification to adjust the contract price terms. It might appear that the act of unilaterally establishing a price for a contract is an adjustment to the contract terms, but apparently, this is not the case.
Accordingly, the CAFC’s decision adds little clarity to the decisional law regarding what is and what is not a government “claim,” and seems to invite mischief in other contract dispute matters brought to the boards or Court. Perhaps all we really know now is that, in the context of the specific clauses governing unilateral price determinations for UCAs, a contracting officer’s action of setting a price is not a government claim.
From a practical perspective, Lockheed provides little guidance on the broader issue of when a dispute ripens into a government “claim” that immediately may be appealed to the boards or Court. The Lockheed decision cites various prior CAFC decisions as examples of when disputes concerning government actions constitute a claim within the meaning of the CDA but the result in each one of the examples turns on the specific facts and circumstances and the discussion does very little to clarify and/or simplify the process for contractors seeking relief. Consequently, now, as much as ever, contractors should carefully review all of the facts and circumstances relevant to any dispute with their government customers to determine if protective appeals and/or additional prerequisites should be pursued in seeking relief at the boards or Court under the CDA.