January 19, 2016
In this Government Contracts Litigation Update, Gibson Dunn examines trends and summarizes key decisions of interest to government contractors during the second half of 2015. This publication covers the waterfront of the most important opinions issued by the U.S. Court of Appeals for the Federal Circuit, U.S. Court of Federal Claims, Armed Services Board of Contract Appeals, and Civilian Board of Contract Appeals, among other tribunals.
The second half of the year yielded five government contracts-related opinions from the Federal Circuit. From July 1 through December 31, 2015, the U.S. Court of Federal Claims issued 252 Orders and Opinions, the Armed Services Board of Contract Appeals ("ASBCA") published 65 substantive decisions, and the Civilian Board of Contract Appeals ("CBCA") issued 50 substantive decisions. The cases discussed herein address a wide range of issues with which government contractors should be familiar as we begin 2016, including issues of contract interpretation, jurisdictional requirements, limitations on the remedies available to contractors, and the various topics of federal common law that have developed in the government contracts arena. Broadly speaking, these decisions can be grouped into six main categories: (1) jurisdictional cases; (2) cases addressing available remedies; (3) terminations; (4) common law principles; (5) issues of contract interpretation; and (6) issues relating to small business determinations. But before addressing each of these areas in turn, we briefly discuss the tribunals that adjudicate government contracts disputes.
Under the doctrine of sovereign immunity, the United States generally may not be sued unless it has waived its immunity and consented to suit. Pursuant to statute, the Government has waived immunity over certain claims arising under or related to federal contracts through the Contract Disputes Act, 41 U.S.C. §§ 7101–7109 ("CDA"), and through the Tucker Act, 28 U.S.C. § 1491. Under the CDA, any claim arising out of or relating to a government contract must be decided first by a contracting officer. A contractor may contest the contracting officer’s final decision either by filing a complaint in the U.S. Court of Federal Claims or by appealing to a board of contract appeals. The Tucker Act, in turn, waives the Government’s sovereign immunity with respect to certain claims under statute, regulation, or express or implied contract, and grants jurisdiction to the Court of Federal Claims over such claims as well as claims under the CDA.
The Court of Federal Claims thus has jurisdiction over a wide range of monetary claims against the U.S. Government, including, but not limited to, contract disputes and bid protests pursuant to both the CDA and the Tucker Act. For example, if a contractor’s claim is founded on the Constitution or a statute instead of a contract, there is no CDA jurisdiction in any tribunal, but the Court of Federal Claims would have jurisdiction under the Tucker Act as long as the substantive source of law granted the right to recover damages. Thus, the Court of Federal Claims’ jurisdiction is broader than that of the boards of contract appeals.
The CDA establishes four administrative boards of contract appeals: the Armed Services Board, the Civilian Board, the Tennessee Valley Authority Board, and the Postal Service Board. See 41 U.S.C. § 7105. The ASBCA hears and decides post-award contract disputes between contractors and the Department of Defense and its military departments, and NASA. In addition, the ASBCA determines contract disputes for other departments and agencies by agreement. For example, the U.S. Agency for International Development has designated the ASBCA to decide disputes arising under USAID contracts. The ASBCA has jurisdiction pursuant to the CDA, its Charter, and other remedy-granting contract provisions. The CBCA hears and decides contract disputes between contractors and civilian executive agencies under the provisions of the CDA. The CBCA’s authority extends to all agencies of the federal government except the Department of Defense and its constituent agencies, NASA, the U.S. Postal Service, the Postal Regulatory Commission, and the Tennessee Valley Authority. In addition, the CBCA has jurisdiction, along with federal district courts, over Indian Self-Determination Act contracts.
The U.S. Court of Appeals for the Federal Circuit hears and decides appeals from decisions of the Court of Federal Claims, the ASBCA, and the CBCA, among numerous other tribunals. Significantly, the Federal Circuit has a substantial patent and trademark docket, hearing appeals from the U.S. Patent and Trademark Office and federal district courts, that by volume of cases greatly exceeds its government contracts litigation docket. Money suits against the United States made up a relatively minor portion of the Federal Circuit’s docket, representing only 10.8% of appeals filed in FY 2015. Of those, contracts cases represented only 4% of the Federal Circuit’s docket. Nevertheless, the Federal Circuit is the governing authority for most government contracts disputes.
The ASBCA, U.S. Court of Federal Claims, and the U.S. Court of Appeals for the Federal Circuit each publish annual reports that provide statistics regarding each tribunal’s activity and caseload during a given fiscal year. The Federal Circuit ended FY 2015 with a substantially higher number of pending cases than the number at which it started the year, with a net increase of 198 pending appeals. In contrast, the ASBCA had a net increase of only 21 appeals in FY 2015. Both the Federal Circuit and the ASBCA ended FY 2015 with well over 1,000 pending cases. Unlike the ASBCA and the Federal Circuit, the number of pending cases before the U.S. Court of Federal Claims decreased by sixteen, but the Court nevertheless has well over 1,000 pending cases.
As noted in the 2015 Mid-Year Government Contracts Litigation Update, the Federal Circuit bench returned to full strength in 2015 with the 95-0 Senate confirmation of Kara Farnandez Stoll to the bench on July 7, 2015. The Court of Federal Claims remains comparatively understaffed, with only one of six vacancies filled during 2015–Lydia Kay Griggsby (a former Assistant U.S. Attorney and Senate Judiciary Committee counsel) began her active service on the Court on January 5, 2015. President Obama re-nominated candidates to fill the five remaining vacancies on the Court of Federal Claims on January 7, 2015. In July 2015, Senator Tom Cotton (R-Ark.) blocked an effort to vote on the confirmation of the five nominees, arguing that the court’s caseload does not justify expending additional taxpayer dollars to fill the vacancies. The Senate has yet to act on the pending nominations. In September 2015, J. Reid Prouty was appointed to the ASBCA. Judge Prouty previously served as a member of the Air Force JAG Corps and as Senior Trial Counsel for the National Courts Section, Commercial Litigation Branch, Civil Division of the Department of Justice.
Jurisdictional issues continued to dominate the landscape of key government contracts decisions during the second half of 2015.
As discussed above, suits brought pursuant to the Tucker Act and the CDA represent limited waivers of the Government’s sovereign immunity. A series of Federal Circuit decisions from the second half of 2015 underscore just how limited this waiver is.
Astornet Technologies Inc. v. BAE Systems, Inc., 802 F.3d 1271 (Fed. Cir. 2015)
In an appeal straddling the Federal Circuit’s patent and government contracts dockets, the Federal Circuit considered the jurisdiction of federal courts to hear patent disputes arising from government contracts. Astornet Technologies filed suit against three private contractors that were either awarded or pursuing contracts with the Transportation Security Administration for the provision of boarding pass scanning technology. Astornet Technologies claimed the use of the boarding pass scanning technology would infringe upon its validly held patents. A few months after contract award, Astornet Technologies’ owner, the inventor of the patent, sued the U.S. Government in the Court of Federal Claims and concurrently sued the private contractors in the U.S. District Court for the District of Maryland. However, because under 28 U.S.C. § 1500 the Court of Federal Claims cannot maintain jurisdiction when another case with the same facts is pending in another court, the suit against the Government in the Court of Federal Claims was dismissed. The district court then dismissed the suits against the private contractors, finding it lacked subject matter jurisdiction to hear the case.
The Federal Circuit affirmed the district court’s dismissal on the basis that Astornet Technologies’ sole remedy was to pursue its infringement action against the United States, not the private contractors, in the Court of Federal Claims. Pursuant to 28 U.S.C. § 1498(a), when a patented invention is used "by or for the United States" without permission, including the use of a patented invention by a contractor authorized by the Government, the patent owner’s sole remedy is to sue the Government in the Court of Federal Claims. Accordingly, the Federal Circuit affirmed the lower court’s dismissal.
Dourandish v. United States, – Fed. App’x – (Fed. Cir. Oct. 20, 2015)
Quimba Software, Inc. entered into a cost-plus-fixed-fee contract with the Air Force. Co-owner Robert Dourandish signed the contract in his capacity as one of the company’s officers. After the completion of contract performance, the Air Force disputed the allowability of certain costs, and the contracting officer issued a final decision seeking the recovery of approximately $92,000 from the contractor.
Quimba Software challenged the Government’s claim in a lawsuit initiated in the Court of Federal Claims. Dourandish separately filed suit against the Air Force in the same venue in his individual capacity, alleging breach of contract and interference with his constitutional right to seek federal contracts. The Court of Federal Claims dismissed the Dourandish action for lack of subject matter jurisdiction. The Federal Circuit affirmed the dismissal on the basis that Dourandish, as an owner of Quimba Software, was not a party to the contract between the company and the Air Force. Therefore, the court had no jurisdiction under the Tucker Act to adjudicate his suit.
Fidelity and Guaranty Ins. Underwriters, Inc. v. United States, – F.3d – (Fed Cir. Nov. 6, 2015)
Gibbs Construction, L.L.C. entered into a contract with the U.S. Postal Service in 1984 for the abatement of asbestos, among other services. After the insurance lapsed and the rate of insurance increased, the Postal Service agreed to indemnify Gibbs for any injuries sustained by others in connection with the asbestos work. United States Fidelity and Guaranty Co. ("USFGC") was Gibbs’ general liability insurer during that period.
In 2010, a former Postal Service police officer sued Gibbs, alleging that he contracted mesothelioma as a result of being in proximity to Gibbs’ asbestos removal work performed under the contract. Gibbs demanded that the Postal Service defend the suit and defend the company. The Postal Service refused to do so, and Gibbs, through USFGC, ultimately settled the suit. USFGC thereafter filed an action in the Court of Federal claims to recover the settlement sum from the Postal Service. In a decision affirmed by the Federal Circuit, the Court of Federal Claims dismissed the suit for lack of subject matter jurisdiction. The Federal Circuit strictly construed the Government’s waiver of sovereign immunity under the Tucker Act, highlighting as the dispositive issue the fact that there was no contract between the Postal Service and USFGC. The Federal Circuit rejected USFGC’s argument that USFGC was subrogated to Gibbs’s contract for the purpose of establishing Tucker Act jurisdiction.
Four recent board cases address the CDA jurisdictional requirement of timely filing an appeal after receipt of a contracting officer’s final decision. Under the CDA, a board has jurisdiction only over appeals that are taken within 90 days of receiving the contracting officer’s final decision (as opposed to the one-year statutory clock applicable to appeals filed in the Court of Federal Claims).
Safe Haven Enterprises, LLC v. Dep’t of State, CBCA No. 3871, 3912 (Sept. 29, 2015)
Safe Haven Enterprises, LLC entered into two contracts with the State Department to perform construction work at U.S. embassies in Guyana, Yemen, and Bahrain. Safe Haven submitted claims related to each of its contracts on June 27 and July 25, 2012, respectively. Both claims were denied; one on August 27 and the other on September 18, 2012. Safe Haven did not appeal the denial of its claims to the CBCA until May and June 2014, long after the 90-day time limit for filing a notice of appeal. However, during the intervening time period, Safe Haven engaged in numerous conversations with the contracting officer related to the denial of its claims that extended into March 2014. Thus, when the Department of State moved to dismiss the appeals for lack of jurisdiction, the CBCA considered whether the filing limitations clock had been tolled as a result of those conversations and, if so, for how long.
The CBCA (Lester, A.J.) reasoned that the appeals period is necessarily tolled if the contracting officer is reconsidering her decision, because the prior decision cannot be final at the same time it is being reconsidered. Furthermore, the Board determined that the contracting officer need not formally withdraw her prior decision in writing (or otherwise) for it to be clear that the previous decision is no longer final as the result of the reconsideration. The CBCA emphasized that whether the contracting officer has chosen to reconsider her decision is a fact-based inquiry that requires the CBCA to assess whether the contracting officer’s actions would reasonably lead the contractor to believe that previous decision was no longer final. The CBCA indicated that the contracting officer can reopen consideration at any point prior to the conclusion of the 1-year appeals period for the Court of Federal Claims. Furthermore, the CBCA announced that the CBCA appeals-period clock is reset to 90 days once a decision following reconsideration again becomes final (or 1 year in the case of an appeal to the Court of Federal Claims). Here, the CBCA found that the conversations tolled the limitations clock, and that Safe Haven’s appeals in May and June of 2014 were timely because they were both filed within 90 days of March 21, 2014, when the State Department affirmatively indicated it was no longer reconsidering the earlier decisions.
LRV Environmental, Inc., ASBCA Nos. 58727, 58728 (July 14, 2015)
The ASBCA tackled issues of timeliness and jurisdiction in this pricing dispute between LRV Environmental and the Army Corps of Engineers. In 2002, the Corps awarded LRV a contract to dredge a channel through a peninsula in Puerto Rico. After the work was completed, the parties disagreed over whether the contract required LRV to be paid for the amount of material originally estimated to be dredged (LRV’s interpretation) or for the actual quantity of material ultimately dredged (the Corps’ interpretation). Before the ASBCA, the Corps moved to dismiss LRV’s appeals on the grounds that they were barred by the CDA’s six-year statute of limitations and by the rule that an appeal must be brought within 90 days of the contracting officer’s final decision.
The ASBCA (Hartman, A.J.) acknowledged that the Corps’ contracting officer initially rejected LRV’s core claim in 2007, which prompted LRV to file an earlier appeal that it subsequently withdrew. But the ASBCA further observed that the Corps subsequently reconsidered aspects of the 2007 decision on its own initiative, so that decision was not truly final and did not start the 90-day clock for appeal. Although the ASBCA went on to grant summary judgment to the Government on the merits, this decision establishes that a contracting officer’s unsolicited reconsideration of a seemingly final adverse decision can create a new opportunity for appeal.
Bahram Malikzada Constr. Co., ASBCA Nos. 59613, 59614 (Oct. 8, 2015)
Bahram Malikzada Construction Co. ("BMCC") contracted with the U.S. Joint Contracting Command-Iraq/Afghanistan Bagram Regional Contracting Center to construct buildings for the military. In a final decision issued on September 25, 2013, the contracting officer denied BMCC’s contract claim for additional costs incurred. The final decision advised BMCC of its right to appeal to the ASBCA within 90 days. In a September 27, 2013 email, BMCC responded to the contracting officer stating: "This is the acknowledgement of your poor decision . . . my claim’s will remain as it is, and with the Evidence that I have for a LAW Suit, will start my Appeal . . . ." In response to an email from the Government offering to assist BMCC in learning about the claim appeals process, BMCC stated: "we [BMCC] are trying to find the right chain of command in order to recover our los[s] and as an [A]fghan company based in Afghanistan we are unable to appeal [through] the US legal system." The Government responded by noting once again BMCC’s right to appeal to the ASBCA and providing the Board’s email and mailing addresses. BMCC made several attempts to resolve the dispute locally, including attempting to apply "political pressure." On October 6, 2014, the Board finally received a letter from BMCC, dated September 22, 2014, titled "[BMCC] Appeal."
The ASBCA (Younger, A.J) granted the Government’s motion to dismiss for lack of jurisdiction, holding that BMCC’s September 2014 letter appealing the September 2013 final decision was not filed within the 90-day period set forth in the CDA, 41 U.S.C. § 7104(a). The ASBCA further held that BMCC’s September 27, 2013 email to the contracting officer did not constitute an effective notice of appeal. Although "filing an appeal with the contracting officer is tantamount to filing an appeal with the Board," BMCC did not demonstrate the requisite intent to appeal in the September 27, 2013 email. Examining its precedents, the ASBCA noted: "To be an effective notice of appeal, a writing filed within the requisite time period must express dissatisfaction with the contracting officer’s decision and indicate an intention to appeal the decision to a higher authority." BMCC, however, stated in the September 27, 2013 email that it "will start [its] Appeal," and later noted that it believed it was "unable to appeal [through] the US legal system." Thus, absent the intent to appeal, the September 27, 2013 email to the contracting officer was not an effective notice of appeal, but the September 22, 2014 letter to the ASBCA, which did express the intent to appeal, was untimely.
Although BMCC was clearly not within the CDA’s prescribed 90-day timeline, a recent CBCA case demonstrated that even close calls may run afoul of the CDA’s jurisdictional requirements.
Estes Bros. Constr., Inc. v. Dep’t Transp., CBCA No. 4963 (Nov. 17, 2015)
Estes Brothers Construction, Inc. appealed a contracting officer’s final decision denying its claim under a contract with the Federal Highway Administration ("FHA"). Estes’s claim was denied on June 22, 2015, and the company received electronic notification of that decision at 1:27 p.m. on that date. The company submitted its notice of appeal by e-mail exactly 90 days later, on September 9, 2015, but not until 4:35 p.m., after the Board’s offices were officially closed for the day. Upon the FHA’s challenge to the CBCA’s jurisdiction, the CBCA (Daniels, A.J.) determined that the appeal was untimely.
The CBCA focused on a key distinction between regular and electronic mail. When a filing is mailed, it has been made (for the purpose of filing deadlines) on the day that it enters the care of the U.S. Postal Service. When a filing is made by e-mail, however, pursuant to the Board’s Rules of Procedure, such a filing is not made until it has been received. CBCA Rule 1(b)(5)(ii) stipulates that only email’s received prior to 4:30 p.m. will be considered as having been filed on that date. The CBCA therefore found that Estes appeal was untimely and that it therefore lacked jurisdiction to hear the appeal.
Walker v. Dep’t of Agric., CBCA No. 4735 (Dec. 3, 2015)
The U.S. Forest Service contracted with Bob L. Walker in February 2006 to perform timber-cutting, logging, and related services. The parties, during performance of the contract, disputed the contract requirements with respect to logging in winter conditions. The contracting officer terminated the contract for default on February 8, 2013, when the parties were unable to resolve the ongoing dispute. Following an unsuccessful attempt to rebid the contract, on February 20, 2014, the contracting officer issued a final decision assessing damages for Walker’s alleged breach. The final decision informed Walker that he could either appeal to the CBCA within 90 days of the final decision, or to the Court of Federal Claims within 12 months of the final decision.
Walker challenged the final decision by writing to the contracting officer on May 9, 2014. On July 10, 2014, the contracting officer responded by informing Walker that she viewed his May 9 letter as an appeal, and directed Walker to the passage in her final decision informing him of his appeal rights. Several months later, in January 2015, Walker received notice that the contract was officially closed. He responded to that notice by writing to the contracting officer on February 12, 2015, rehashing his arguments with respect the termination of his contract. Walker was again directed to the passage in the final decision discussing the available procedures for initiating an appeal.
On May 4, 2015, Walker filed a notice of appeal with the CBCA, and the Forest Service subsequently moved to dismiss for lack of jurisdiction based on Walker’s late notice. The CBCA (Sullivan, A.J.) found that it did not have jurisdiction because (1) Walker failed to file a notice of appeal within 90 days of the February 20, 2014 order, and (2) the January 2015 notice of contract closeout did not constitute a final order from which Walker could appeal. Notably, this decision highlights a critical distinction between ASBCA and CBCA precedent: the ASBCA deems appeals filed with the contracting officer to be the functional equivalent of appeals filed with the ASBCA, whereas the CBCA interprets its jurisdictional powers more narrowly to require that appeals be filed with the CBCA itself.
Although the majority of timeliness cases heard by the boards dealt with the timely filing of a notice of appeal under the CDA, the ASBCA also emphasized that timeliness deadlines in the ASBCA’s Rules would be strictly construed.
Kellogg Brown & Root Servs., Inc., ASBCA No. 58175 (Aug. 18, 2015)
In an earlier decision, the ASBCA denied KBR’s motion for summary judgment, and granted the Government’s cross-motion for summary judgment, holding that the Government’s claim was not barred by the CDA’s six-year statute of limitations. On June 26, 2015, KBR moved for reconsideration of this ruling, but the ASBCA noted, sua sponte, that the motion for reconsideration appeared to be untimely because it was filed more than 30 days after the date of the receipt of a copy of the original decision. After inviting the parties to express their views on the motion’s timeliness, the ASBCA (Scott, A.J.) ruled that the motion was indeed untimely and dismissed it. Noting that the 30-day time limit prescribed in the ASBCA’s Rules for such motions is "strictly construed," the ASBCA rejected KBR’s argument that it did not actually receive the mailed copy of the original decision because of a mishap in KBR’s law firm’s mail delivery system. According to the Board, KBR "bears responsibility for the flaws in its system."
Another common issue before the boards remains whether the contractor submitted a valid CDA claim. FAR 52.233-1, Disputes, defines a "claim" as "a written demand or written assertion by one of the contracting parties seeking, as a matter of right, the payment of money in a sum certain, the adjustment or interpretation of contract terms, or other relief arising under or relating to this contract." See also FAR 2.101, Definitions. In cases from the second half of 2015, the ASBCA considered the "who, what, and where" of a valid claim.
Bell Helicopter Textron Inc. & The Boeing Co., ASBCA No. 59561 (Sept. 16, 2015)
In this case, the ASBCA considered who is eligible to certify a CDA claim against the Government. Bell and Boeing formed a joint venture, Bell-Boeing Joint Program Office, that contracted to build aircraft for the U.S. military. As part of this joint venture, Bell and Boeing executives granted Bell’s Manager of U.S. Government Contracts authority to negotiate and execute various instruments and documents related to the work. The manager later certified a claim brought by both companies for over $8 million, but the Government argued that the ASBCA lacked jurisdiction because the manager did not have authority to certify such a claim.
The ASBCA (O’Connell, A.J.) disagreed, concluding that the claim had been properly certified, and that the Board therefore did have jurisdiction. Although the ASBCA construed the claim as having been filed by the Bell-Boeing Joint Program Office, it held that Bell’s manager had the proper authority to certify it. The ASBCA found the manager’s general authority to execute documents on behalf of the Joint Program Office was sufficient to establish his authority to certify the claim, and there was no need for Bell and Boeing to produce contemporaneous documents specifically authorizing the manager to certify this specific claim. In sum, the ASBCA rejected the Government’s effort to impose more stringent certification authorization requirements going beyond the terms of the CDA.
Soap Creek Marina, LLC, ASCBA No. 59445 (Aug. 18, 2015)
The ASBCA again raised a jurisdictional issue sua sponte when it considered the question of what constitutes a valid claim to confer jurisdiction under the CDA. Under the CDA, a claim for more than $100,000 must be certified, and a lesser claim that is increased to over $100,000 will not be allowed if the information causing the increase should have been known to the contractor when it submitted the original claim to the contracting officer. Here, Soap Creek initially filed a claim for $95,000, but increased its claim to about $1 million upon filing its complaint with the ASBCA. The ASBCA (Delman, A.J.) held that it lacked jurisdiction over all but Soap Creek’s $95,000 claim because the additional claim had not been properly certified.
Air Servs., Inc., ASBCA No. 59843 (Oct. 22, 2015)
In Air Services, the ASBCA confronted once again the question of what constitutes a CDA claim. Air Services contracted with the U.S. Army Mission & Installation Contracting Command for the renovation of a building at Fort Belvoir, Virginia. On March 7, 2014, Air Services emailed a contracting officer seeking a 36-week extension for performance and an equitable adjustment of $247,900 for extended general conditions costs. The contracting officer responded by requesting that Air Services either submit a "claim" under FAR 52.233-1, Disputes, or a Request for Equitable Adjustment ("REA") under DFARS 252.243-7002, Requests for Equitable Adjustment. By letter dated May 22, 2014, Air Services submitted an REA alleging 26 weeks of Government-caused delay and seeking an equitable adjustment of $155,733 in extended general conditions costs. The REA was certified in accordance with DFARS 252.243-7002(b) and signed by an Air Services official. After a number of inquiries by Air Services’ president regarding the status of the REA, on January 13, 2015, the company’s counsel wrote to the contracting officer stating that Air Services would "deem the claim denied" if it did not receive a final decision by a specified date. After additional delays, a contracting officer finally issued a "Final Decision to Request for Equitable Adjustment" on February 13, 2015, denying Air Services’s request without prejudice. On appeal before the Board, the Government argued that the contractor’s REA is not a claim because it failed to request a final decision from a contracting officer.
The ASBCA (Melnick, A.J.) denied the Government’s motion to dismiss for lack of jurisdiction. Acknowledging that "[t]he linchpin of the Board’s jurisdiction over a contractor claim is the contractor’s submission of a proper claim to the CO for a decision," the Board reasoned nonetheless that there is "no bright-line distinction between an REA and a CDA claim." Whether a contractor’s submission is a CDA claim must be determined on a case-by-case basis, applying a "common sense analysis," and an REA may satisfy the requirements for a claim. The ASBCA concluded that Air Services’s REA was a claim because (1) although it did not expressly request a contracting officer’s final decision, the totality of the contractor’s correspondence–including its counsel’s letter–"unmistakably indicated that [Air Services] was seeking a final decision on its REA"; and (2) Air Services’s DFARS 252.243-7002(b) certification, submitted with the REA, was defective but correctable under the CDA, because it makes two of the attestations required for a CDA claim and thus was not so defective that it was tantamount to the absence of a certification.
ARI Univ. Heights, LP v. GSA, CBCA No. 4660 (Aug. 31, 2015)
On June 26, 2014, the General Services Administration ("GSA") entered into a long-term lease with ARI University Heights, LP ("ARI") for office space that required ARI to pay for "all utilities necessary for base Building and tenant operations as part of the rental consideration." ARI alleged that during the life of a previous lease with GSA, which included the same provision, GSA had always directly paid the electric utility expenses. However, under the new lease, GSA expected that ARI would render performance consistent with the written terms of the agreement (i.e., ARI was expected to cover utilities). ARI thereafter submitted two claims to recover its costs for the utility bills. After the claims were denied and ARI appealed, GSA moved to dismiss on the basis that neither claim was for a sum certain.
ARI’s first claim was for a dispositive interpretation of the disputed contract term and its second claim was for "payment of a minimum of $268,533 for the diminution of the property’s value as a result of the inclusion of the cost of electrical service in the rental consideration." ARI’s figure was derived from a variable formula that was included as part of its claim made to the contracting officer. The CBCA (Somers, A.J.) agreed with GSA that neither claim complied with the CDA, inasmuch as the first claim did not request a monetary sum and the second claim, by employing the language "of a minimum of" and including a variable formula, was not for a sum certain. The Board therefore dismissed the appeal.
Ahjar Shat Alarab Albidhaa Co., ASBCA No. 59868 (Nov. 4, 2015)
In this case, the ASBCA addressed where a valid claim may be sent. On July 12, 2009, Ahjar Shat submitted an invoice to the Government for the price of refrigerated containers it claimed to have delivered to the Government, but for which it never received payment. On December 9, 2014, after having no email or letter communication with the Government for five years, Ahjar Shat emailed the Army Corps of Engineers asking for a review of the contract. The contract specialist at the Army Contracting Command ("ACC") at Rock Island, to whom Ahjar Shat was referred, replied stating the Corps did not have a record of the contract and could not provide any assistance. At the same time, Ahjar Shat was exploring assistance from three other contract specialists at ACC at Rock Island. One of those contract specialists provided Ahjar Shat with the ACC’s "general mailbox," to which Ahjar Shat was invited to direct any further inquiries about the contract. Ahjar Shat sent an email to that general mailbox on December 10, 2014 asking for payment and attaching, among other things, a CDA claim certification and invoice.
The ASBCA (Delman, A.J.) concluded that Ahjar Shat’s email sent to the general mailbox provided by the ACC constituted a claim in a sum certain satisfying the FAR 2.101 definition of a claim. In moving to dismiss on the basis that Ahjar Shat never submitted a claim, the Government maintained that it did not receive the December 10, 2014 email. In support, it submitted a declaration by contracting officer Thomas A. Petkunas stating: "To the best of my knowledge, ACC-RI did not receive any emails from the contractor which contained a certification of claim." The ASBCA found this declaration inadequate to support the Government’s claim that it did not receive the claim certification; the ASBCA concluded that, "[w]hile it relies upon ‘the best of [Petkunas’] knowledge,’ the declaration fails to demonstrate Petkunas’ connection to the ACC general mailbox in December 2014." The ASBCA further noted that, with respect to the contract specialists who were in contact with Ahjar Shat, "there is no indication in the declaration that Petkunas contacted these persons to see whether they received the email claim, nor did the Government provide any declarations from these persons." The ASBCA also found "no legal significance" in the fact that Ahjar Shat produced the December 10, 2014 email only after the Government filed a motion to dismiss. According to the ASBCA, "[o]ur rules do not require a contractor to reference or attach its claim to the notice of appeal or complaint."
The ASBCA continued to grapple with cases addressing the Federal Circuit’s holding in Sikorsky Aircraft Co. v. United States, 773 F.3d 1315 (Fed. Cir. 2014), that the CDA’s six-year statute of limitations is not jurisdictional.
Alion Science and Tech. Corp., ASBCA No. 58992 (Nov. 10, 2015)
Alion submitted a final indirect cost rate proposal for FY 2005 on March 31, 2006. On November 13, 2006, the Defense Contract Audit Agency ("DCAA") notified Alion that it could not begin its audit of Alion’s FY 2005 cost proposal because Alion failed to provide certain cost schedules to support the calculation of the proposed rates. Alion submitted the requested schedules on or about September 7, 2007, but the Government found that supplemental submission inadequately detailed. Alion resubmitted the requested schedules on February 8, 2008. It also provided additional information regarding its salary related costs to DCAA in June 2008.
Alion’s contracts contained FAR 52.242-3, Penalties for Unallowable Costs, which provides for penalties if "the Contracting Officer determines that a cost submitted by the Contractor in its [final indirect cost rate] proposal is expressly unallowable." An administrative contracting officer issued a final decision dated August 21, 2013 asserting a claim for penalties against Alion for the alleged inclusion of expressly unallowable costs in its FY 2005 final indirect cost rate proposal. Alion moved for summary judgment on the ground that the Government’s claim was asserted more than six years after it accrued and was therefore time-barred under the CDA. The Government claimed that it was not able to identify certain costs as expressly unallowable until it received Alion’s supplemental submissions in February and June 2008.
Construing the facts in the light most favorable to the Government as the non-movant, the ASBCA (Melnick, A.J.) found a genuine issue of material fact as to when the Government knew, or reasonably should have known, that Alion’s indirect cost rate proposal for FY 2005 contained allegedly unallowable costs.
Because Sikorsky provides that the CDA’s statute of limitations is not jurisdictional, it is no longer appropriate to raise the issue at the motion to dismiss stage. As the above cases demonstrate, however, it may be difficult to prevail on a statute of limitations defense even in a motion for summary judgment.
The tribunals that hear government contracts disputes issued a number of decisions concerning the types of relief available to contractors bringing suit under the CDA.
Honeywell International, Inc., ASBCA No. 57779 (Sept. 24, 2015)
An implied-in-law contract can give rise to quantum valebant, a remedy that grants monetary compensation, in the interest of justice, for the reasonable value of goods provided. (It is analogous to quantum meruit, which involves compensation for services rather than goods.) In this case, the ASBCA considered the availability of quantum valebant to federal contractors. Honeywell entered a contract with the Department of Energy to provide "energy conservation measures" and in return receive a share of the value of the energy savings generated. Pursuant to one delivery order, Honeywell furnished the Government with two solar panel arrays, but in 2013 the Board decided that the payment calculation provisions of that delivery order were invalid. Honeywell therefore returned to the Board with a claim that it was entitled to payment in quantum valebant for the value of the solar arrays.
In ruling that Honeywell was entitled to be paid reasonable value, the ASBCA (Melnick, A.J.) rejected the Government’s argument that the contract did not cover the purchase of solar arrays, because the arrays were the sort of conservation measures contemplated by the contract. The ASBCA also held that the Government’s refusal to fully implement one of the arrays as part of a power grid system was irrelevant because "the government may [not] avoid [quantum valebant] liability by simply retaining delivered goods while refusing to officially accept them." The ASBCA thus granted summary judgment to Honeywell on quantum valebant liability.
International Automotriz, ASBCA No. 59665 (Nov. 16, 2015)
International Automotriz, a Salvadoran car rental company, sought compensation for damages to four vehicles it rented to the Army. The Government admitted it damaged the vehicles but disputed the contractor’s damages calculation. According to the Government, FAR 52.228-8, Liability and Insurance – Leased Motor Vehicles, limits its liability to direct damages to the leased vehicles–i.e., the direct cost of vehicle repair–but not consequential damages such as lost rental income. Relying on the terms in its standard rental agreement, International Automotriz claimed entitlement not only to direct damages but also rental income lost during the period the vehicles were being repaired. Alternatively, International Automotriz claimed that under the common law of bailment, it was entitled to damages proximately caused by the Government’s damages to its vehicles, which may include the "loss of income resulting from the inability to use the property."
The ASBCA (Newsom, A.J.) declined to decide which damages theory applied. The ASBCA concluded instead that under any of these theories, International Automotriz had not proved its consequential damages, and was therefore entitled only to compensation for direct damages to the vehicles, which the Government had already paid. The ASBCA considered it significant that "when [International Automotriz] had opportunities to repair the vehicles and rent them to other clients, it did not do so." Furthermore, International Automotriz did not present credible evidence that it actually lost any rental opportunities. Accordingly, the ASBCA concluded that, even under International Automotriz’s own theory of damages, it did not demonstrate that the Government was the but-for cause of any loss in rental income it may have suffered.
Military Aircraft Parts, ASBCA No. 59978 (Nov. 17, 2015)
The ASBCA sustained an appeal by Military Aircraft Parts ("MAP") of a termination for default by the Defense Logistics Agency ("DLA"). MAP applied thereafter for expenses pursuant to the Equal Access to Justice Act ("EAJA"), 5 U.S.C. § 504, which provides that an eligible party that prevails against an agency in an adversary adjudication is entitled to fees and expenses unless the agency was "substantially justified" or special circumstances make such an award unjust. Eligible parties are limited to individuals with a net worth of $2 million or less, companies with a net worth of $7 million or less and not more than 500 employees, or 501(c)(3) organizations.
The ASBCA (Clarke, A.J.) relied on the Supreme Court’s conclusion in Pierce v. Underwood, 487 U.S. 552 (1988), that "a position can be justified even though it is not correct, and . . . can be substantially (i.e., for the most part) justified if a reasonable person could think it correct, that is, if it has a reasonable basis in law and fact." After examining the substantive issues raised in the case, the ASBCA concluded that DLA had taken an unreasonable position with respect to one of the four issues in dispute. In the ASBCA’s view, however, "DLA does not have to be ‘justified’ in all four of the areas of dispute to be substantially justified." Accordingly, the ASBCA concluded that the Government was not liable for EAJA damages because it "was substantially justified in three of the four areas of dispute."
Entergy Nuclear Palisades, LLC v. United States, 122 Fed. Cl. 225 (2015)
In September 2012, Entergy Nuclear Palisades, LLC filed suit in the Court of Federal Claims, alleging that the Government breached the parties’ contract by failing to store and dispose of nuclear waste, and claiming $36.4 million in damages suffered. The Government did not deny the breach, estimating that it owed the company $20.6 million. Entergy moved for partial judgment on the uncontested amount in May 2015, which the court granted. The Government subsequently moved for reconsideration with respect to the immediate payment of the $20.6 million, on the grounds that the partial judgment amount should not have been severed from the total damage claim.
The Court of Federal Claims (Firestone, J.) ruled in favor of Entergy, rejecting as overly restrictive the Government’s argument that plaintiff’s entire complaint was one single "claim" for breach of contract, and that partial judgment could not be granted until the entire claim is fully litigated. Judge Firestone explained that the Government did not dispute the $20.6 million in damages, and all that remains to be resolved is the "disputed portion of the damages over and above what the Government has agreed to pay or has been finally ordered to pay." Moreover, because Entergy cannot claim interest on damages, delayed payment by the Government on the undisputed amount would be "particularly problematic," especially in light of the lengthy appeals process that may follow the trial regarding the disputed amount, further delaying payment to Entergy.
In a pair of procedurally complex decisions involving SUFI Network Services, Inc., the Court of Federal Claims addressed two important damages-related issues: (1) whether the Government may challenge an ASBCA award of damages under the Wunderlich Act; and (2) whether a contractor can recoup lost profit and overhead damages in connection with an award of attorneys’ fees.
SUFI Network Services Inc. v. United States, 122 Fed. Cl. 257 (2015)
SUFI was awarded a contract in 1996 to install and operate telephone systems at numerous Air Force facilities in Europe, and the contract provided that SUFI would recoup its costs by charging customers for calls made from SUFI phones. In a 2004 appeal to the ASBCA, the contractor alleged that the Air Force allowed customers to avoid incurring SUFI charges, claiming more than $130 million in damages. The ASBCA initially awarded SUFI only $7.4 million, leading the company to pursue a new lawsuit in the Court of Federal Claims in November 2011. The Court of Federal Claims awarded SUFI an additional $114 million. On appeal in 2014, the Federal Circuit vacated the award and remanded the case to the ASBCA for additional fact-finding. In February 2015, the ASBCA awarded SUFI $113 million. SUFI subsequently filed a notice in the Court of Federal Claims indicating its full satisfaction with the ASBCA’s February 2015 award on remand. The Air Force filed a notice of dissatisfaction, presenting the court with the question of whether the Government had any legal basis to seek further review of the ASBCA’s decision given that the litigation concerned a non-appropriated fund activity, and the contract at issue included the disputes procedures of the Wunderlich Act, 41 U.S.C. §§ 321-22, under which only the contractor has the right to appeal an ASBCA decision.
The Court of Federal Claims (Wheeler, J.) purported to bring finality to this "twelve-year saga," concluding that the Air Force was barred from challenging the ASBCA’s final damages decision. Judge Wheeler noted that although under the CDA "there would be no doubt that Defendant could request further review in this Court and the Federal Circuit," under the Wunderlich Act, "only the contractor has the right to appeal from a Board decision." Judge Wheeler further noted that the Wunderlich form of disputes clause provides an efficient administrative remedy wherein the contractor cedes the right to seek immediate judicial redress for grievances and the "trade-off is that the United States agrees to be bound by board decisions favorable to the contractor." Judge Wheeler explained that "the Air Force designated the ASBCA as its authorized representative for disputes arising under the contract," and can neither reject the Board’s decision nor challenge the merits of the Board’s remand decision, its dissatisfaction with the result notwithstanding.
SUFI Network Service, Inc. v. United States, – Fed. Cl. –, No. 11-453C (Dec. 7, 2015)
Less than six months after Judge Wheeler’s opinion on the Air Force’s ability to challenge the ASBCA’s award of damages, the court issued a second decision pertaining to SUFI’s ability to collect lost profit damages with an award of attorneys’ fees. In April 2015, the Federal Circuit upheld the award of $725,000 in attorney’s fees to SUFI in connection with an earlier ASBCA award of approximately $112 million against the Air Force for breach of SUFI’s 15-year contract for long-distance telephone services. In upholding the award of attorney’s fees, however, the Federal Circuit asked the Court of Federal Claims to review its prior calculation of the date from which interest should accrue, and vacated and remanded the Court of Federal Claims’ prior denial of profit and overhead, finding that the FAR provision relied upon by the lower court in denying the profit and overhead would not have applied to SUFI during the relevant time period. On remand, the Court of Federal Claims (Wheeler, J.) denied SUFI’s request to add overhead costs and profits to an award of attorneys’ fees it will collect following the decade-long breach of contract suit.
On remand to the Court of Federal Claims, the court (again, Wheeler, J.) found that even without applying the FAR, there was no appropriate justification to award profit and overhead. The court reasoned that profit is normally a reward for having assumed a business risk, and that SUFI did not assume any risk in having a law firm prepare a contract claim on a contingent fee basis. The court also noted that SUFI did not play a significant role in its legal teams’ work to justify an award for increased overhead costs. Moreover, the court found that no precedent supported an overhead and profit mark-up on an outside law firm’s fees, and SUFI failed to provide any.
Additionally, the court agreed with the Government’s position that the interest for the attorneys’ fee award began to run on the date that SUFI filed its claim with the contracting officer and formally put the Air Force on notice.
CDM Constructors, Inc., ASBCA No. 59524 (Aug. 27, 2015)
In this case, the ASBCA set an important precedent regarding the scope of relief it is empowered to provide and the availability, if any, of injunctive or declaratory relief. The Department of the Navy awarded CDM a contract to design and construct a water treatment facility at Marine Corps Base Camp Pendleton in California. Four years later, CDM requested that the contracting officer issue a final decision terminating the task order on the basis that it was impossible to complete. CDM appealed to the ASBCA from a deemed denial of its claim, and the Government moved to dismiss for lack of jurisdiction.
The ASBCA (McIlmail, A.J.) held that CDM’s complaint was subject to dismissal to the extent that it requested relief beyond the Board’s authority to order. For example, the ASBCA said that it had jurisdiction to decide whether performance of the task order was impossible, but not to order the Government to terminate the order for convenience. Similarly, the ASBCA had jurisdiction to declare that the Government had effected a change to the contract, but not to order the Government to issue a modification to the contract. The ASBCA held that it did not have jurisdiction to grant monetary relief because CDM had not made a claim to the contracting officer that was either (1) in a sum certain or (2) susceptible to being "determined from a simple mathematical calculation." Along the same lines, the ASBCA held that it lacked jurisdiction to consider CDM’s "differing site condition" claim because CDM had not presented to the contracting officer the "operative facts" needed to articulate such a claim.
The ASBCA also issued several important decisions during the second half of 2015 arising from contract terminations for default.
Capy Machine Shop, Inc., ASBCA Nos. 59085, 59133 (Oct. 8, 2015)
In a pair of October decisions, the ASBCA rejected the Government’s argument that a termination for default may be predicated on a party’s performance under previous unrelated contracts. Capy entered into two different contracts with DLA to supply aircraft parts to the agency. Following the award of the contracts, Capy’s subcontractor added one-time tooling charges that Capy claimed were erroneously not included in the contract prices. Capy therefore requested that each contract be terminated for convenience. DLA rejected Capy’s request. According to DLA, termination for default was justified because (1) Capy anticipatorily repudiated the contract, and (2) DLA was adversely impacted by Capy’s history of obtaining contracts by quoting low prices and requesting no-cost cancellations when it could not perform at the low contract price.
The ASBCA (Tunks, A.J.) rejected DLA’s anticipatory repudiation argument. The ASBCA concluded that Capy only requested that the contracting officer grant no-cost cancellations of the contracts. Capy did not evince the "positive, definite unconditional and unequivocal" refusal to perform required to prove anticipatory repudiation. The ASBCA was similarly unpersuaded by the Government’s public policy argument. DLA argued that it was adversely impacted each time Capy requested no-cost cancellations, because the agency had to "issue a new solicitation for the item, review quotes, and make a new award, then wait for a new delivery period to pass." The ASBCA noted that there was no precedent justifying a termination for default under one contract based on a history of performance under other contracts. According to the ASBCA, DLA’s concern about Capy’s practices "is best addressed in the process of the award of contracts, not the termination of contracts once awarded."
Terraseis Trading Ltd., ASBCA Nos. 58731, 58732 (Nov. 19, 2015)
Terraseis contracted with the Department of Defense to provide seismic data collection and processing in Afghanistan. The Government terminated the contract for default because Terraseis failed to meet the data collection delivery date. Terraseis appealed the termination on the grounds that (1) security problems at the worksite in Afghanistan excused its failure to meet the delivery date, and (2) the Government waived the delivery date. Terraseis also filed a separate claim arguing that, before the Government terminated the contract, Terraseis had incurred delay costs caused by the Government’s delay in transporting Terraseis’s equipment to the worksite, a service the Government had agreed to perform as part of the contract.
The ASBCA (McIlmail, A.J.) sustained in part Terraseis’s appeal of the contracting officer’s denial of its claim for compensation due to the equipment delivery delay, finding that there was a period of Government-caused delay. With respect to the contracting officer’s termination of the contract for cause, the ASBCA denied Terraseis’s appeal. After the initial Government-caused delays, Terraseis’s workers fell under several further attacks in Afghanistan. The Afghan government, with which Terraseis contracted for security, did not provide additional security and issued an August 17, 2010 presidential decree disbanding all private security companies. Because of the attacks and its inability to ensure the security of its workers, Terraseis delayed performance. The contracting officer eventually terminated the contract for cause on March 16, 2013. The ASBCA reasoned that (1) the Government terminated the contract within a reasonable time after Terraseis’s default, and (2) Terraseis had ceased performance a month before the March 9, 2013 delivery date and thus did not continue performance based on a reasonable reliance on the Government’s failure to terminate the contract, as required for a waiver claim. The ASBCA also rejected Terraseis’s claim that its default was excused by the security problems at the worksite in Afghanistan.
Nelson, Inc., ASBCA Nos. 57201, 58166 (Dec. 15, 2015)
Nelson contracted with the U.S. Army Corps of Engineers for the construction of stone dikes at four Mississippi River sites. The contract called for Nelson to commence work after the date it received a notice to proceed ("NTP") for each work site. After several delays, a contracting officer terminated the contract for default for "failure to perform the required work in a timely and acceptable manner."
The ASBCA (Peacock, A.J.) sustained Nelson’s appeal of the contracting officer’s decision. First, the ASBCA considered whether portions of the contract were severable, because when "a contractor is delinquent as to a separable part of the contract work, it is improper for the contracting officer to terminate for default the entire contract." The ASBCA concluded that two of the four work sites were severable, because "separate NTPs and performance periods were prescribed for each site." Furthermore, each project could be accepted and paid for separately, and commencement of work at each site was not dependent on the completion of work at any other site. The ASBCA concluded, however, that Nelson’s performance on the other two work sites must be considered together because work at those adjacent sites was intertwined for practical reasons. Second, applying different analyses for the separate portions of the contract, the ASBCA concluded that the termination for default was improper at all four sites. With respect to the two severable work sites, the ASBCA found no NTP was ever issued and thus "the time for performance of the work at those sites never commenced and there was no completion date or ‘delay’ in performance at either site." With respect to the other two intertwined sites, the ASBCA concluded that "Nelson was unfairly pressured by the Government to perform the work because of perceived lack of progress at these sites despite the presence of excusable causes of delay."
The boards addressed a number of issues arising out of the body of common law that has arisen in the context of government contracts.
CP of Bozeman, Inc., ASBCA No. 58491 (July 8, 2015)
CP contracted with the Air Force to operate two food concessions on Malmstrom Air Force Base in Montana–one, at a community center, the other, at a bowling alley. Prior to receiving the contract, CP’s owner submitted a list of questions regarding the respective capacity, inventory, and income of the two facilities, among other things. CP received answers and accepted the contract, but the enterprise did not go well, and CP shut down its operations at the bowling alley within a year. This prompted the contracting officer to terminate the entire contract for default. CP then filed a claim for about $160,000 in losses under the contract, alleging that the Government’s responses to its list of questions had been misleading. After a final decision denying the claim, CP appealed to the ASBCA.
The ASBCA (Clarke, A.J.) characterized CP’s claim as arising under the doctrine of superior knowledge and, accordingly, asked whether the Government had breached its "duty to disclose critical information to potential contractors to prevent them from pursuing a ruinous course of action." The ASBCA answered that question in the negative. The ASBCA found that, although the Government neglected to provide data for the time period in which CP was interested, the Government could not be held liable based on the doctrine of superior knowledge because its omission had not induced CP to bid on the contract. The ASBCA also excused the Government’s failure to provide the data, in large part because CP had "made serious misinterpretations and mistakes with regard to the data supplied." The ASBCA’s decision indicates that, even if the Government’s disclosures to potential contractors are flawed, the Government has not breached its duty unless such error actually causes the contractor to bid.
DynPort Vaccine Company LLC, ASBCA No. 59298 (Aug. 12, 2015)
Pursuant to a unilateral modification of a cost-reimbursement contract, the U.S. Army Medical Research Acquisition Activity ("USAMRAA") ordered DynPort to perform corrective work at no cost to the Government. As reported in our 2015 Mid-Year Government Contracts Litigation Update, DynPort appealed the contracting officer’s determination and the ASBCA denied USAMRAA’s motion to dismiss, directing the Government to file a complaint.
Here, the ASBCA (James, A.J.) considered DynPort’s motion to dismiss USAMRAA’s claim that DynPort had breached its duty of good faith and fair dealing. DynPort argued that the Government needed to prove its entitlement to no-cost work in accordance with two specific provisions in FAR 52.246-8, Inspection of Research and Development – Cost-Reimbursement, and that the Government could not turn to the implied duty of good faith and fair dealing claim as an alternative means to obtain its desired relief–the performance of no-cost corrective work. The ASBCA rejected DynPort’s argument, however, holding that nothing in the FAR restricted the USAMRAA’s ability to bring such a claim because the USAMRAA’s claim arose from the "same operative facts," and claimed "essentially the same relief" as the claim that was originally put before the CO.
Afghanistan Trade Transportation Co., ASCBA No. 59782 (Aug. 18, 2015)
At Bagram Airfield in Afghanistan, the Government employed various Afghan trucking companies to perform delivery and hauling services for the military. These companies each entered into a blanket purchase agreements ("BPA") with the Government, pursuant to which each company would provide trucking services when called upon. One of the companies, the Afghanistan Trade Transportation Co. ("ATT"), entered a BPA and then allegedly bribed the official responsible for assigning work under the trucking BPAs to assign ATT one extra day of trucking service per month. After the contracting officer denied a claim by ATT, the Government argued before the ASBCA that any nonpayment by the Army under the BPA was excused by ATT’s bribery, which was a breach of the duty of good faith and fair dealing.
The ASBCA (Hartman, A.J.) rejected this argument, however, holding that ATT’s misconduct was relevant only as to the specific service orders affected by the misconduct, not the BPA as a whole. Because the BPA did not actually impose binding obligations on the parties to make or accept service orders, the particular orders, not the BPA, were the relevant contracts. And since the Government’s nonpayment pertained to service orders unaffected by ATT’s bribery, the ASBCA denied the Government’s motion for summary judgment.
PAW & Associates, LLC, ASBCA No. 58534 (Aug. 20, 2015)
PAW contracted with the Army National Guard Bureau ("NGB") to provide "subject matter expert support services." Although the contract did not explicitly require the NGB to safeguard PAW’s proprietary information, PAW often included a restrictive legend on its work product purporting to bar the Government from disclosing PAW’s data. After the contract expired, the NGB posted a public solicitation that included some data related to PAW’s work. PAW filed a CDA claim alleging that the NGB had improperly released its proprietary information, which claim the contracting officer rejected.
The ASBCA (James, A.J.) agreed with the NGB. First, the Board observed that PAW could not rely on the FAR provision on which the restrictive legends on its task order submissions were modeled, because that provision pertains to and protects information contained in unsolicited proposals, not task order submissions. Second, the Board noted that PAW had repeatedly disclosed the allegedly proprietary data in other NGB filings without including the restrictive legend. And finally, the ASBCA found that at least some of the data at issue was not actually proprietary to PAW, but instead had been publicly revealed by a third party years earlier. The ASBCA therefore denied PAW’s appeal, and thereby set an important precedent for contractor claims related to the release of proprietary information by the Government.
The boards also issued two decisions concerning the requirements for a prime contractor to sponsor a claim of its subcontractor against the Government. Because subcontractors are not in privity of contract with the Government, a prime contractor must "sponsor," or pass through, the subcontractor’s claim. A contractor sponsors the subcontractor’s claim by bringing an appeal on the subcontractor’s behalf, or by allowing the subcontractor to bring an appeal in the prime contractor’s name. Sponsored claims are allowed only if the prime contractor can make a claim against the Government based on the subcontractor’s theory of recovery.
Freedom Systems, LLC, ASBCA Nol. 59259 (Sept. 3, 2015)
One important limitation on a subcontractor’s right to have its claim sponsored is the Severin doctrine, which provides that a prime contractor cannot sponsor a subcontractor’s claim against the Government if the prime contractor has no liability to the subcontractor for the costs or damages at issue. Although the doctrine has been limited in scope and generally is applied only when the prime contractor has received an "unconditional iron-clad release" from the subcontractor, the ASBCA found it applicable here.
The Government retained Freedom Systems to provide support for a series of events designed to assist soldiers and their families in transitioning to civilian life. The contracting officer received complaints about the quality of service provided by Freedom’s hotel subcontractor, causing some of the events to be shifted from the subcontractor’s hotels to other hotels. Freedom filed a claim against the Government for subcontract cancellation damages, but the subcontractor then sent Freedom a letter releasing Freedom from liability for all claims related to the Government’s cancellation. The ASBCA (Thrasher, A.J.) concluded that the Severin doctrine applied because (1) the subcontractor’s release was sufficiently absolute and unconditional, (2) Freedom was seeking to sponsor subcontractor’s claim rather than asserting its own claim, and (3) there was no evidence that the Government breached the prime contract. The ASBCA therefore entered summary judgment in favor of the Government.
Aurora, LLC v. Dep’t of State, CBCA No. 2827 (Dec. 21, 2015)
The U.S. Department of State contracted with Aurora in July 2007 for the design and construction of a consulate in Jeddah, Saudi Arabia. Aurora then engaged a principal subcontractor, which was required to issue letters of credit in satisfaction of the contract’s performance bond. Following multiple project delays, the State Department informed Aurora that it had defaulted on its obligations. The Government then terminated the contract, and sought payment of the performance bonds ($10.7 million) from the subcontractor. The subcontractor thereafter initiated this appeal in Aurora’s name, after first seeking Aurora’s authorization and sponsorship.
The Department of State moved to dismiss the appeal for lack of jurisdiction. The CBCA, as a preliminary issue, was called upon to determine whether the subcontractor was properly authorized to bring the appeal on Aurora’s behalf. Aurora initially agreed to sponsor the subcontractor and to authorize the appeal. Aurora, however, reserved its right to rescind its authorization if the parties were unable to agree to the specifics of the arrangement in a formal, secondary agreement. Aurora and the subcontractor were unable to agree to terms in the secondary agreement, but Aurora nonetheless confirmed that its initial email was still valid, when queried by the Department of State during the course of this appeal. The CBCA (Hyatt, A.J.) held that the appeal presented no jurisdictional issues because Aurora was the party properly before the Board under the long-settled rules of sponsorship, and the subcontractor was not required to have an independent subcontractor claim in order for the Board to have jurisdiction.
Another important common law limitation on contractors’ ability to sue the Government is the sovereign acts doctrine, as illustrated in the case below.
Garco Construction, Inc., ASBCA Nos. 57796, 57888 (Sept. 22, 2015)
In a sequel to a 2014 decision in the same matter, the ASBCA elaborated on the "sovereign acts" doctrine, under which certain government actions cannot trigger a contractor’s right to monetary compensation. Garco’s subcontractor was hired to work on housing construction on Malmstrom Air Force Base in Montana. In October 2007, the Government promulgated a memorandum clarifying its base access policy. The memorandum provided that individuals with "outstanding wants or warrants, sex offenders, violent offenders, those who are on probation, and those who are in a pre-release program" would be denied access to the installation.
Garco then submitted a request for an equitable adjustment on the ground that its subcontractor had planned to use some individuals with criminal records on its work at Malmstrom, and that base access restrictions before and after the October 2007 memorandum had made it more difficult for it to complete performance. Garco appealed the contracting officer’s deemed denial of the claim, and in 2014 the ASBCA ruled that the memorandum was a sovereign act and Garco could not recover for the burdens imposed on its performance by that act. Lacking sufficient evidence regarding the Government’s conduct before October 2007, however, the ASBCA delayed consideration of whether Garco had a right to compensation as to that time period.
On a more developed record, the ASBCA (Clarke, A.J.) here concluded that the Government’s conduct from the contract award up to the October 2007 memorandum also constituted a sovereign act entitled to immunity. First, the ASBCA determined that documents predating the memorandum had established similar base access policies, and because these policies were "public and general in nature," "intended to preserve the physical security of the installation," and not "intended to nullify contract rights" or give "the government an economic advantage," the policies qualified as sovereign acts. The Board further held that the Government’s nonenforcement of its access restrictions before the spring of 2007 did not waive its sovereign protection because there was no evidence that anyone with authority (e.g., the base commander) had decided not to enforce the policies. Thus, the ASBCA rejected Garco’s arguments and denied its appeals, noting that "[t]he government can act in its sovereign capacity without warning."
Sikorsky Aircraft Corp. v. United States, 122 Fed. Cl. 711 (2015)
In a reprise of a prior dispute between Sikorsky and the Government with respect to the company’s accounting practices for various aircraft and spare parts contracts, the Court of Federal Claims considered whether the Government could raise an additional claim against Sikorsky arising out of substantially the same set of facts as were relied upon for its initial claim. At issue in the first litigation was whether, between 1999 and 2005, Sikorsky violated Cost Accounting Standard ("CAS") 418 by allocating its materiel overhead costs by using a direct labor base. In a decision affirmed by the Federal Circuit, the Court of Federal Claims rejected the Government’s $80 million CAS noncompliance claim. The second litigation is premised on a slightly different theory of recovery by the Government–that the change Sikorsky adopted to its accounting for materiel overhead in 2006–to correct the alleged noncompliance–should have been processed as a unilateral change, triggering a $34 million adjustment.
The Court of Federal Claims (Lettow, J.) again ruled in favor of Sikorsky, finding that the Government’s claim was precluded by the prior litigation. Judge Lettow concluded that there was significant factual overlap between the two claims. Notwithstanding the fact that the legal theories of recovery were distinct, the Government was aware of the alternative claim at the time of the first litigation and was required to pursue it at the same time. The court found unavailing the Government’s position that because the first claim alleged a noncompliant practice and the second claim alleged a unilateral change, that they were based on different transactional facts, regulations, and calculations for compensation.
A number of noteworthy decisions from the second half of 2015 articulate broadly applicable contract interpretation principles that should be considered by government contractors. Those decisions issued at the summary judgment stage underscore the difficulty in succeeding on issues of contract interpretation on summary judgment.
The Public Warehousing Co., ASBCA No. 56022 (Aug. 5, 2015)
Kuwaiti-based Public Warehousing Company (PWC) contracted with the Government in 2003 to deliver food via truck to U.S. military sites throughout Iraq. The contracting officer rejected PWC’s claim because it sought compensation beyond the terms of the contract, which the Government claimed provided that it would only pay for up to 29 days of each PWC truck’s time spent in Iraq.
In rejecting PWC’s interpretation of the 29-day cap provision, the ASBCA (Ting, A.J.) invoked the principle that if a contracting party "knows the meaning that the other intended to convey by his words, then he is bound by that meaning." Because the ASBCA found that substantial evidence demonstrated PWC’s general manager was aware of the Government’s strict understanding of the 29-day cap, the ASBCA ruled for the Government. This decision is important because it suggests that contractors may be held to their knowledge of the Government’s interpretations of contracts. The decision is currently on appeal before the Federal Circuit. Agility Public Warehousing Co. KSCP v. Carter, appeal docketed, No. 16-1265 (Fed. Cir. Nov. 30, 2015).
Kellogg Brown & Root Services, Inc., ASBCA Nos. 59357, 59358 (Aug. 13, 2015)
In 2003, KBR contracted with the Army Corps of Engineers to repair and maintain Iraq’s oil infrastructure. During KBR’s performance of the contract, some KBR and military personnel were exposed to sodium dichromate, a hazardous substance, at a water treatment plant in Iraq. After exposed individuals began taking legal action against KBR, the company sought indemnification from the Government for over $30 million in legal expenses under FAR 52.250-1, Indemnification Under Public Law 85-804, incorporated in its contract to indemnify KBR for losses arising from "unusually hazardous risks." The contracting officer rejected the indemnification claims, and KBR appealed to the ASBCA.
The ASBCA (Delman, A.J.) granted KBR partial summary judgment on the question of whether KBR was entitled to indemnification for the sodium dichromate claims. First, the ASBCA held that sodium dichromate exposure had given rise to KBR’s claims and that this was exactly the type of "unusually hazardous risk" covered by the contract’s indemnification clause. Then the ASBCA rejected the Government’s invocation of an exclusion to the indemnification clause providing that the Government would not indemnify a contractor whose own misconduct caused the losses claimed. Even if KBR had committed misconduct, the ASBCA pointed out, this exclusion only barred indemnification for costs related to (1) Government claims against the contractor or (2) damage to the contractor’s own property, not third-party claims like the ones at issue here. The ASBCA therefore held that the contract granted KBR an unambiguous right to indemnification for the sodium dichromate claims.
Agility Defense & Government Services, Inc. v. United States, 122 Fed. Cl. 677 (2015)
Agility claimed that the Government owed it $6.9 million in increased costs arising from a firm-fixed-price contract for the disposal of surplus military property in Iraq, Afghanistan, and Kuwait.
The Court of Federal Claims (Wheeler, J.) denied Agility’s claim for an equitable adjustment, concluding that the company voluntarily assumed the risk of higher than expected costs in entering the firm-fixed-price contract. The court rejected Agility’s argument that the clause at issue was so "patently confusing and useless that it should be ignored," reasoning that Agility expressly agreed to the clause and even referenced it in its proposal, despite it being "difficult to employ and potentially unhelpful." Judge Wheeler further noted that the Government provided accurate historical data from which prospective offerors could make their estimates, and was not negligent in doing so, "[e]ven though the estimates proved to be low in comparison to the actual quantities encountered during contract performance." The decision is currently on appeal before the Federal Circuit. Agility Defense & Government Services, Inc. v. United States, appeal docketed, No. 16-1068 (Fed. Cir. Oct. 20, 2015).
Weston/Bean Joint Venture v. United States, 123 Fed. Cl. 341 (2015)
This action, brought by Weston/Bean Joint Venture ("WBJV"), arose out of a contract with the Army Corps of Engineers for dredging of the Miami River and disposal of contaminated sediments. Plaintiff’s $12.4 million claim alleged that it performed work that was outside the scope of the contract, arguing that although the contract was for "maintenance dredging" for removal of sediments, the job required "new work dredging" for disposal of a substantial volume of rock. Additionally, WBJV alleged that the Government provided defective specifications for a project; this caused WBJV to perform work that resulted in the collapse of a seawall, which WBJV incurred costs to repair.
The Court of Federal Claims (Kaplan, J.) entered post-trial judgment in favor of the Government on all claims, finding that WBJV was aware of the conditions in the Miami River prior to executing the contract. WBJV relied on the Army Corps of Engineers’ use of the phrase "maintenance dredging" in the "Description of Work" clause to argue that removal of significant quantities of rock was outside the scope of the agreement. Although the contract itself did not define "maintenance dredging," Judge Kaplan reasoned that this clause should not be isolated from the contract as a whole, which contained specific language in other clauses regarding the work to be performed. The court also concluded that WBJV failed to establish that the collapse of the seawall was caused by a faulty specification with respect to the dredging operation.
ECCI-C Metag, JV, ASBCA No. 59031 (Oct. 22, 2015)
The Army Corps of Engineers awarded to ECCI a contract to design and construct an Afghan National Police facility in Kunduz Province, Afghanistan. ECCI in turn subcontracted with Arvin Kam Construction Company to perform some of the construction work required. Because the United States Central Command determined that Arvin Kam was actively supporting the insurgency in Afghanistan, a contracting officer for the Corps directed ECCI to terminate Arvin Kam or else its own contract would be terminated for default. ECCI terminated Arvin Kam as directed, but submitted a claim for $3.25 million and 61 days of delay resulting from the termination. The Government denied this claim, maintaining that the contract required ECCI to terminate Arvin Kam’s subcontract at ECCI’s own expense, because the subcontractor’s alleged conduct violated provisions of the contract requiring both contractor and subcontractor personnel to comply with the laws of the host country. ECCI claimed, however, that the applicable contract clause cited by the Army states that "contractor employees may be ordered removed . . . for acts that . . . violate applicable laws," but it does not permit removal of entire subcontractor entities. The parties cross-moved for summary judgment.
The ASBCA (Dickinson, A.J.) acknowledged that the term "contractor employee" was not expressly defined in any clause in the contract, but decided that there were numerous other clauses in the contract which expressly applied to both the conduct of contractor employees as well as subcontractor employees. These clauses, in the ASBCA’s view, "demonstrate that the government knows how to draft a clause that applies with equal effect to both contractors and subcontractors either directly or pursuant to flow-down provisions in subcontracts." The ASBCA therefore interpreted the relevant clause "to mean exactly what it says–‘contractor employees, ‘not ‘subcontractor employees.’"
The ASBCA also rejected the Army’s argument related to the interpretation of another clause obligating a contractor to "ensure that its . . . subcontractors and their employees, at all tiers, are aware of and obey all [applicable laws, regulations, orders, instructions, policies, or directives]." First, the ASBCA noted that parties did not brief the issue of whether ECCI’s failure to ensure its subcontractors’ obedience of all applicable laws would amount to a material breach of the contract. Second, noting its own unfamiliarity with the laws of Afghanistan, the Board determined that "[w]here, as here, the government asks us to consider the law of a foreign country, the government bears the burden of producing appropriate evidence of the foreign law and demonstrating its application to the matters before us." The ASBCA found inadequate the Government’s "bald contention" that supporting an insurgency was a violation of Afghan law. Accordingly, the ASBCA denied both parties’ motions for summary judgment on the ground that the record required additional development and there were important issues that had not been addressed by the parties.
Korte-Fusco Joint Venture, ASBCA No. 59767 (Nov. 5, 2015)
In Korte-Fusco, the ASBCA decided that an ambiguity in a contract modification required resolution at trial, mandating denial of the Government’s summary judgment motion. Korte-Fusco contracted with the Army Corps of Engineers to design and construct an Armed Forces training building, including two retaining walls to be constructed by a subcontractor. A bid protest delayed the project from August 31 to November 29, 2011. Accordingly, on September 13, 2013, Korte-Fusco and the Government executed a bilateral modification extending the time for the completion of the contract by 72 days. The contract modification stated: "Time extension includes all delays incurred by the contract[or] up to the date of issuance of this modification" and "[i]t is further understood and agreed that this adjustment constitutes compensation in full . . . for all costs and markups directly or indirectly attributable for the change ordered, for all delays related thereto." On May 12, 2014, Korte-Fusco submitted a claim seeking $1.97 million (this included $1.75 million for the retaining-wall subcontractor) and a 389-day time extension as a result of the Corps’ delay in approving the construction of the retaining wall. Relying on the specific language of the contract modification, the Corps denied Korte-Fusco’s claim arguing that the contracted modification released it from compensating Korte-Fusco for any future monetary claims based on delays in the project.
The ASBCA (O’Connell, A.J.) found the modification ambiguous. According to the Board, "these sentences, in isolation, could be read to provide for a broad release of delay claims, at least through the date of the modification." Upon "close examination," however," the ASBCA concluded "the release given may not be as broad as the government contends." The release covered "all costs and markups directly or indirectly attributable for the change ordered," but the modification fails to clearly describe the "change ordered." The Government claimed this language provided a broad release from delay-related claims, whereas Korte-Fusco provided evidence, including affidavits of its officials, "that tell a plausible story that [the modification] was intended only to address delays due to the bid protest and weather delays." Accordingly, the ASBCA concluded that "[r]esolution of this issue would require the weighing of extrinsic evidence, which we will not do summary judgment."
Chloeta Fire, LLC, ASBCA No. 59211 (Nov. 9, 2015)
The Army Corps of Engineers awarded a contract to Chloeta to perform a prescribed burn on approximately 650 acres of federal land at Fort Randall, South Dakota. The performance work statement stated the objective of the burn was to "suppress and control invasive eastern red[ ] cedar" on the land. The contract called for Chloeta to perform "a complete burn of all the vegetation and downed cedar piles located within the 650 acre unit." The contract also provided for a point of contact ("POC") who had the authority to inspect the burn and accept Chloeta’s performance if he deemed it satisfactory. Only 60% to 70% of the Eastern Red Cedars on the land were destroyed during the burn. Chloeta claimed this was a "complete burn" by industry standards and submitted expert testimony to that effect. Alternatively, Chloeta claimed that the POC, who inspected the burn after it was completed, accepted Chloeta’s performance as satisfactory and permitted Chloeta to demobilize from the work site. The Government argued Chloeta’s performance was not a "complete burn," but offered no evidence to rebut the expert testimony. The Government also claimed that the POC did not accept the performance, but it did not offer the POC’s testimony or any other documentation, nor did it indicate that the POC was unavailable to rebut Chloeta’s claim that he accepted the performance.
The ASBCA (Thrasher, A.J.) found Chloeta’s performance-acceptance claim dispositive and declined to weigh in on Chloeta’s claim that it had performed a "complete burn" by industry standards. The Government did not dispute that the POC had the authority to accept Chloeta’s performance and disputed only whether acceptance factually occurred. The ASBCA found credible and persuasive two sworn affidavits from Chloeta employees testifying that the POC accepted the performance as satisfactory, and concluded that Chloeta had met its burden of proving acceptance. The burden of production therefore shifted to the Government to rebut Chloeta’s proof on this issue. In attempting to satisfy this burden, the Government relied solely on findings of fact in the contracting officer’s final decision as evidence that the POC did not accept Chloeta’s performance. The ASBCA noted, however, that "COFD findings of fact have no presumptive evidentiary weight and are not binding on the parties or the Board. The parties have the burden of proving their case de novo." Because the Government did not produce the testimony of the POC himself or explain its failure to do so, the ASBCA drew an adverse inference against the Government reasoning that the POC’s testimony would have been expected to be favorable to the Government. Accordingly, the ASBCA held that the Government failed to rebut Chloeta’s evidence of Government acceptance.
McHugh v. Kellogg Brown & Root Services, Inc., – F. App’x – (Fed. Cir. Sept. 15, 2015)
The Federal Circuit remanded to the ASBCA the Army’s challenge to $44 million in security costs claimed by KBR, finding that KBR had not adequately demonstrated that the costs were allowable. KBR’s contract with the Army prohibited KBR and its subcontractors from arming their employees. KBR subcontractors, however, contracted with private security contractors in order to address the deterioration of security conditions in Iraq during contract performance. The Army ultimately questioned this practice as a violation of the anti-arming provision of the KBR contract, and the contracting officer issued a final decision refusing payment of KBR’s claims relating to the use of private security contractors between 2003 and 2006. The contracting officer also directed KBR to repay $12 million that the Army had already paid KBR for the provision of private security contractor services.
On appeal at the ASBCA, the Board found in favor of KBR on both issues. First, the Army should not have denied KBR’s claims because the contract prohibited only KBR employees and its dining facility services subcontractors from carrying weapons, whereas it did not explicitly prohibit KBR’s subcontractors from utilizing the professional services of private security contractors to help perform the contract in a safe environment. Second, the Army could not recover its previous payments because the statute of limitations for the Army to make its demand had already lapsed.
The Federal Circuit affirmed the ASCBA decision with respect to the statute of limitations issue, but reversed the Board with respect to whether the contract provision prohibiting the use of firearms by KBR subcontractors applied to private security contractors who were not performing the primary services considered by the contract. The Federal Circuit remanded the case to the ASBCA so that the Board could consider in the first instance whether KBR’s use of private security contractors was an allowable remedy to the Army’s prior breach with respect to its obligation to provide adequate security.
The Federal Circuit issued an important opinion regarding the Small Business Administration ("SBA")’s affiliation rules of which contractors should be aware, especially in light of the SBA’s proposed revisions to the "performance of work" requirements set forth in 13 C.F.R. § 125.6.
Tinton Falls Lodging Realty, LLC, v. United States,– 800 F.3d 1353 (Fed. Cir. 2015)
In this business size appeal from the Court of Federal Claims, Tinton Falls was unsuccessful in its bid to win a lodging and transportation contract with the Navy. The initial awardee was later disqualified for not meeting the small business requirements because the company (along with Tinton Falls and two of the other bidders) was owned and operated by a large parent company that did not qualify as a small business. The Navy awarded the contract to another contractor, DMC Management Services, LLC ("DMC"). Tinton Falls then filed a size protest with the contracting officer, alleging that DMC also failed to qualify for the small business set-aside because it would not perform the "primary and vital requirements" of the contract by subcontracting 80% of the value of the contract to hotels that did not qualify as small businesses, thereby violating the SBA’s "ostensible subcontractor rule." The contracting officer rejected the appeal. Tinton Falls appealed to the SBA, and then to the Court of Federal Claims, before it appealed to the Federal Circuit.
The Federal Circuit first considered whether Tinton Falls had standing to pursue its claims, and second, whether DMC’s relationship to its subcontractors violated the "ostensible subcontractor rule." In order to establish standing, an aggrieved bidder must demonstrate that they are (1) an interested party, and (2) that they were prejudiced by the award of the contract to another bidder. DMC asserted that Tinton Falls could not demonstrate prejudice because it was already disqualified as not being a small business, and therefore was incapable of winning the contract. The Court of Federal Claims reasoned that, assuming all the bidders were disqualified, Tinton Falls would have had a substantial chance of winning the contract if the contract were rebid on an unrestricted basis, and therefore it was prejudiced by the award. The Federal Circuit found that the Court of Federal Claims’ reasoning was not clearly erroneous. With respect to the underlying merits of Tinton Falls’ appeal, the Federal Circuit upheld the SBA’s determination on the rational basis standard of review. Specifically, the court agreed with the SBA’s finding that the contract required more than the mere delivery of hotel rooms. The contract also included the coordination of hotel and transportation services, and therefore DMC was performing the primary and vital requirements of the contract.
Although our year-end update focuses on government contracts litigation arising out of the Boards of Contract Appeals, Court of Federal Claims, and Federal Circuit, three particular cases of note are currently pending before the United States Supreme Court.
Menominee Indian Tribe of Wisconsin v. United States, No. 14-510
This case presents the Supreme Court with an opportunity to clarify when late-filed contract claims warrant equitable tolling of the CDA’s statute of limitations. In 2005, the Menominee Indian Tribe of Wisconsin filed claims with a contracting officer to recover funds allegedly owed by the federal government under contracts entered pursuant to the Indian Self-Determination and Education Assistance Act (ISDA). The contracting officer decided that all claims arising before 1999 were barred by the CDA’s six-year statute of limitations, which is incorporated into the ISDA. The Tribe then sought review in U.S. District Court, arguing that it was entitled to equitable tolling of the statute of limitations. The Tribe contended that its failure to file earlier should be excused because (1) it had previously thought that it would be able to receive relief through a class action filed by another tribe without having to file claims of its own; (2) it had assumed that filing an administrative claim would be pointless because the contracting officer would reject it; and (3) the complexity of the litigation and the Tribe’s "government-to-government" relationship with the United States made equitable tolling especially appropriate.
In Holland v. Florida, the Supreme Court reaffirmed that equitable tolling of a statute of limitations is available when a litigant has been "pursuing his rights diligently" and an "extraordinary circumstance" prevents a timely filing. Applying Holland, the United States Court of Appeals for the District of Columbia Circuit ruled, contrary to the Federal Circuit’s holding in a similar case, that the Menominee Tribe was not entitled to equitable tolling because it had failed to show that any extraordinary circumstance had prevented it from filing its claims on time. The issue before the Supreme Court, then, is whether justifications like those offered by the Tribe–none of which amounts to a true external impediment to timely filing–are sufficient to support equitable tolling of the CDA’s statute of limitations.
Kingdomware Technologies v. United States, No. 14-916
In an effort to spur the Government to provide contracting opportunities to small businesses owned by veterans, Congress passed the Veterans Benefits, Health Care, and Information Technology Act in 2006. A key provision of the Act requires the Secretary of Veterans Affairs to set annual goals for participation in VA contracts by veteran-owned businesses, and a related provision–sometimes called the "Rule of Two"–specifies that, "for purposes of meeting [those] goals," the VA must restrict bidding to such businesses when there is a "reasonable expectation that two or more" veteran-owned businesses will make reasonable bids. The VA took the position that the Act did not require it to apply the Rule of Two in placing orders under preexisting Federal Supply Schedule ("FSS") contracts, under which businesses provide indefinite delivery of goods and services at set prices. After the VA applied this understanding with respect to procurements involving emergency notification services for VA facilities, Kingdomware Technologies, a veteran-owned small business, filed suit in the Court of Federal Claims.
The Court of Federal Claims and the Federal Circuit sided with the Government on the ground that the VA’s understanding of its obligations was at least a reasonable interpretation of the Act. Before the Supreme Court, the main point of contention is whether, assuming the Rule of Two imposes a nondiscretionary obligation upon the VA, this duty applies when the VA is making an FSS order rather than awarding an entirely new contract. Although the Court delayed oral argument to receive briefing on whether the case is moot because the procurements in question have been performed, the parties agree that the controversy is "capable of repetition," and the Court has rescheduled argument for February 22, 2016.
United States ex rel. Escobar v. Universal Health Services, No. 14-1423
As discussed extensively in Gibson Dunn’s 2015 Year-End False Claims Act Update, the Supreme Court granted certiorari last month to review the validity of the so-called "implied certification" theory of falsity under the False Claims Act (and to assess the bounds of the theory if the Court holds that it is viable). Under this expansive theory, government contractors may be liable under the Act for accepting government funding while in knowing violation of statutes, regulations, rules, or contractual provisions to which government contractors are subject. According to some–but not all–circuits, government contractors impliedly certify compliance with applicable statutes, regulations, rules, and contractual provisions when they seek government reimbursement and those certifications may be false for purposes of the False Claims Act. Depending on how the Supreme Court resolves this split, the decision may reshape the current and future landscape of False Claims Act litigation.
We will continue to keep you informed on these and other related issues as they develop.
The following Gibson Dunn lawyers assisted in preparing this client update: Karen L. Manos, John W.F. Chesley, Lindsay M. Paulin, Kevin J. Barber, David H. Glanton, Shannon Han, Said O. Saba, Jr., and Naomi Takagi.
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