2016 Year-End Government Contracts Litigation Update

February 2, 2017

In this Government Contracts Litigation Update, Gibson Dunn examines trends and summarizes key decisions of interest to government contractors from the second half of 2016.  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.

This second half of the year yielded 5 government contracts-related opinions from the Federal Circuit, excluding decisions related to bid protests.  From July 1 through December 31, 2016, the U.S. Court of Federal Claims issued 37 substantive government contracts-related Orders and Opinions, the Armed Services Board of Contract Appeals ("ASBCA") published 47 substantive government contracts decisions, and the Civilian Board of Contract Appeals ("CBCA") issued 64 substantive decisions.  The cases discussed herein address a wide range of issues with which government contractors should be familiar, including issues of contract interpretation, jurisdictional requirements, and the various topics of federal common law that have developed in the government contracts arena.  Broadly speaking, these decisions can be grouped into five main categories: (1) jurisdictional matters; (2) terminations; (3) contract interpretation issues; (4) damages; and (5) common law principles.  Before addressing each of these areas in turn, we briefly discuss the tribunals that adjudicate government contracts disputes.

I.      THE TRIBUNALS THAT ADJUDICATE GOVERNMENT CONTRACT 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 by either filing a complaint in the U.S. Court of Federal Claims or 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 to hear such claims.  The CDA waives the Government’s sovereign immunity with respect to claims arising under or relating to an executive agency contract. 

The Court of Federal Claims thus has jurisdiction over a wide range of monetary claims brought 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.

In addition to establishing jurisdiction for certain causes of action in the Court of Federal Claims, 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, as well as NASA.  In addition, the ASBCA adjudicates 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 certain 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 outside the area of government contract disputes.  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.  Of 1,524 cases pending before the Federal Circuit as of December 2016, 12 were appeals from the boards of contract appeals and 119 were appeals from the Court of Federal Claims – cumulatively comprising roughly 8.6% of the appellate court’s docket.  Nevertheless, the Federal Circuit is the court of review for most government contracts disputes. 

The ASBCA saw additional new appointments to its bench during the second half of 2016.  Judges Donald E. Kinner and James R. Sweet were appointed to the ASBCA in July 2016 and December 2016, respectively.  Both new appointees hailed most recently from the U.S. Department of Justice’s Civil Division, which represents the Government before the Court of Federal Claims.  Additionally, Judge John J. Thrasher, who has served on the Board since February 2011, was appointed Chairman of the ASBCA effective December 5, 2016.

There are currently six vacant judgeships on the U.S. Court of Federal Claims, the most recent resulting from the retirement of Judge Lawrence Block in January 2016.  The Court lost an additional judicial officer with the death of Senior Judge James F. Merow on December 23, 2016.  In September 2016, Senator Tom Cotton (R-Ark.) objected (again) to a unanimous consent request to confirm Court of Federal Claims nominees put forward by Senator Chris Coons (D-Del.), arguing that appointing additional judges to the Court would waste taxpayer money. Senator Cotton had previously blocked an effort to vote on the confirmation of then-pending five nominees in July 2015 on the same basis. These six vacancies are among the approximately 103 total federal judicial vacancies inherited by the new Trump Administration.

II.      JURISDICTIONAL ISSUES

As they frequently do, jurisdictional issues dominated the landscape of key government contracts decisions during the second half of 2016.

      A.      Requirement for a Valid Contract

In order for the ASBCA or CBCA to exercise jurisdiction over a claim, there must be a contract from which that claim arises.  See FAR 33.201 (defining a "claim" as "a written demand or written assertion by one of the contracting parties seeking. . . relief arising under or relating to this contract").  The Court of Federal Claims and boards of contract appeals issued numerous decisions during the second half of 2016 addressing what constitutes a valid contract from which a claim may arise. These decisions addressed two primary issues: (1) the types of agreements to which the CDA applies; and (2) whether a valid agreement exists so as to confer CDA jurisdiction.

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In a trio of cases decided this year, the Court of Federal Claims looked to the policy rationales behind the CDA to determine whether particular types of contracts were subject to the CDA, and thus whether the Court had jurisdiction over the disputes.

                      Anchor Tank Lines, LLC. v. United States, 127 Fed. Cl. 484 (July 15, 2016)

In February 2011, plaintiffs signed a purchase agreement to acquire Old Anchor, an oil and transportation company owned and operated by the Government, following the indictment of the company’s shareholders and managers.  The purchase agreement identified Old Anchor as the Seller and the United States as Old Anchor’s sole shareholder following the criminal forfeiture of the stock to the Government.  Prior to this sale, several pension funds had obtained judgments for Old Anchor’s required pension fund contributions that had not been paid while the Government operated Old Anchor.  These funds sued the plaintiffs to collect on these judgments, and the plaintiffs in turn sought indemnification from the Government under the purchase agreement.  The Government moved to dismiss the indemnification claim, in part, on the basis that the CDA barred the claims because they "were not first submitted to and denied by a ‘contracting officer.’"

The Court of Federal Claims (Lettow, J.) disagreed, noting that the CDA does not apply to "contracts that do not comport with the ‘cost and competition’ policy considerations underlying the CDA’s enactment by Congress, and where applying the CDA would not ‘do justice to the realities of the situation.’"  The purchase agreement at hand, executed in the context of an ongoing federal investigation, did not fit within the meaning of the "disposal of personal property" in the CDA.  Further, the sale of Old Anchor did not appear to occur in the context of a competitive sale.  Instead the agreement contemplated that the business would be run with certain portions of the profits going to the fines imposed on the embezzling prior shareholder.  On this basis, the Court denied the Government’s motion to dismiss.

                      Lee v. United States, 127 Fed. Cl. 734 (Aug. 24, 2016)

In this case, the Court of Federal Claims (Lettow, J.) similarly determined that an implied breach of contract claim did not constitute the type of contract to which the CDA applies.  Plaintiffs consisted of individuals who worked for an organization within the Broadcasting Board, an independent government agency, and claimed their contracts should have been classified as personal service contracts that would have entitled them to greater pay and benefits.  Specifically, plaintiffs claimed, in part, that the Government breached implied contracts "to compensate them in the same manner as contractors performing under actual personal service contracts."

The Government argued the CDA barred this claim because plaintiffs did not submit and have their claim rejected by a contracting officer.  The Court resolved the issue on other grounds, but nonetheless commented in a footnote that the CDA’s requirements did not apply because plaintiffs’ argument was that the contract did not arise from the Government’s normal procurement efforts and as such, it "would not ‘comport with the cost and competition policy considerations underlying the CDA’s enactment.’"  Further, plaintiffs did not make a claim for a sum certain, instead making the broader argument that under the implied contracts they were entitled to a different, to-be-determined compensation.  This further precluded their claim from the Court’s consideration under the CDA.

                      Calif. Dept. of Water Res. v. United States, 128 Fed. Cl. 603 (Oct. 4, 2016)

The California Department of Water Resources ("CDWR") manages certain joint state & federal water projects.  The federal and California governments entered into a various agreements regarding shared responsibility for CDWR water plants, the most important of which was a Joint Use Agreement.  CDWR claimed that these agreements entitled CDWR to recover for "scheduling coordinator charges" that it incurred on behalf of the federal government.  CDWR submitted a certified claim to the contracting officer of the United States Bureau of Reclamation ("USBR"), which the USBR rejected on January 7, 2015.

CDWR brought suit in the Court of Federal Claims and the Government moved to dismiss for lack of subject-matter jurisdiction and for failure to state a claim.  The Court (Griggsby, J.) granted the Government’s motion to dismiss, finding that the agreements CDWR entered into with the federal government were "cooperative agreement[s] that the Court has traditionally found to fall outside the scope of the CDA."  Judge Griggsby rejected CDWR’s arguments that the contracts were contracts for procurement of property, services, or the construction, alteration, repair, or maintenance of real property.  Instead, the contracts clearly contemplated that the federal government and state government would "both be substantially involved in carrying out the activities" and therefore claims arising under them could not be brought under the CDA.

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The CBCA addressed whether the contract underlying the dispute was a "valid" contract in two separate decisions.

                      Acad. Partners, Inc v. Dep’t of Labor, CBCA No. 4947 (Aug. 11, 2016)

The Department of Labor ("DOL") awarded API an order to provide computer server maintenance services at several locations.  The order had a 9-month base period and two 1-year option periods.  Although DOL never exercised the options in writing, API continued to provide services at the request of DOL employees into the second option year.  After a dispute arose, API filed suit alleging that there was an "oral, implied-in-fact contract to issue renewal options."

On appeal to the CBCA, DOL moved to dismiss for lack of jurisdiction or, alternatively, for failure to state a claim, arguing that API failed to allege facts sufficient to show the existence of a contract, a requirement for CDA jurisdiction.  The Board (Kullberg, A.J.) rejected this argument, stating "the determination of whether or not a contract in fact exists is not jurisdictional; it is a decision on the merits."  API’s complaint alleging the existence of either an implied-in-fact or oral contract was thus sufficient to establish jurisdiction; whether API could later prove the existence of such a contract was a merits determination with no bearing on the jurisdictional issue.  The Board further noted that "a contractor can allege the existence of a contract with the Government for the continued performance of an expired contract when the Government fails to timely exercise an option," as was the case here. 

                      Sylvan Orr v. Dep’t of Agric., CBCA No. 5299 (Oct. 18, 2016)

In another case from the CBCA concerning whether the agreement at issue constituted a valid contract, Sylvan Orr appealed the contracting officer’s denial of several "claims" submitted to the U.S. Forest Service ("USFS").  Among other things, Orr asserted that he should have been awarded a certain work order pursuant to an Incident Blanket Purchase Agreement ("IBPA"),  and that USFS failed to conduct a proper performance evaluation under the IBPA.   

The CBCA held that it lacked CDA jurisdiction to hear Orr’s challenge.  With respect to USFS’s decision not to award him certain work under the IBPA, the Board (Lester, A.J.) concluded that the IBPA did not constitute a binding and enforceable contract, but rather was an "illusory promise" lacking in mutuality of obligation.  With respect to Orr’s challenge to USFS’s deficient performance evaluation, the Board observed that although a non-monetary dispute can be the subject of a "claim" for CDA purposes, "any defect in a performance evaluation must have a prejudicial effect upon the contractor if a board is to exercise jurisdiction to entertain a challenge to it."  In this case, USFS had cancelled Orr’s adverse evaluation, which mooted his claim and prevented him from showing any prejudicial effect.

      B.      Defining the Claim

Because the CDA does not define the term "claim," the courts and boards of contract appeals look to the definition set forth in the Federal Acquisition Regulation ("FAR").  FAR 33.201 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."  Whether the courts and boards have jurisdiction over a matter therefore turns on whether there is a valid "claim" and, relatedly, how that claim is defined.

Two decisions from the ASBCA considered whether the contractor had submitted a claim as required by the CDA.

                      Amaratek, ASBCA No. 60503 (Sept. 7, 2016)

In 2011, the Army awarded a contract to Amaratek to provide laboratory services.  After multiple contract extensions, the contracting officer notified Amaratek by letter that the Army was in-sourcing the services.  Amaratek objected by letter. 

Because jurisdiction requires a written claim by either the Government or a contractor, the Board (D’Alessandris, A.J.) found that Amaratek must prove that either the Army’s letter or Amaratek’s letter constituted a "claim."  In holding that Amaratek failed to establish a "claim," the Board explained that the Army’s letter was not a "demand" or an "assertion" seeking payment; rather, it was merely a notification.  Amaratek’s letter similarly failed to establish a "claim" because it was based upon a Government decision for a contract not yet in existence, thus the "claim" did not arise under or relate to the contract.  The Board also considered Amaratek’s letter as more akin to a bid protest, over which the Board lacked jurisdiction.

                      Alaska Aerospace Corp., ASBCA No. 59794 (Sept. 13, 2016)

In 2003, the Missile Defense Agency awarded a contract to Alaska Aerospace for support services and the use of a launch complex.  The contract incorporated by reference FAR clause 52.216-7, Allowable Cost And Payment (DEC 2002), which allows reimbursement of contributions to employee pension plans.  In 2014, the Government partially disallowed costs for employee pension plans and sought to recover the disallowed costs.

The Board (Melnick, A.J.) first noted that because the Government was seeking to recoup money, the case was a Government claim for which the Government bore the burden of proof.  In finding that the Government failed to meet its burden, the Board explained that the its reliance on the contracting officer’s final decision as evidence of overpayment was improper.  The final decision attempted to impose a penalty, not establish recoupment as a basis for the demand for payment.  Further, findings of fact in the final decision are not binding upon the parties and was not entitled to any deference. 

      C.      Adequacy of the Claim

Another common issue before the tribunals that hear government contracts disputes is whether the contractor appealed a valid CDA claim.  FAR 33.201 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."  Under the CDA, a claim for more than $100,000 must be certified.  In the second half of 2016, the Federal Circuit and boards considered (1) when a claim accrues, and (2) whether the claim has been properly certified.

       1.      Claim Accrual and Statute of Limitations

The FAR defines "accrual" of a contract claim as "the date when all events, that fix the alleged liability of either the Government or the contractor and permit assertion of the claim, were known or should have been known."  48 C.F.R. § 33.201.  Although the CDA provides for a statute of limitations six years from the time a claim accrues, the CBCA considered when parties may contractually agree upon a different deadline to submit a valid claim.

                      ThinkGlobal Inc. v. Dep’t of Commerce, CBCA No. 4410 (Sept. 9, 2016)

TGI entered into two related contracts with the Department of Commerce ("DOC"), in 2004 and 2009.  In 2013, TGI asserted a variety of claims against DOC, including claims for breaches of the 2004 contract.

DOC moved to dismiss the breach of contract claim based on the 2004 contract.  The Board (Drummond, A.J.), recognizing that "[a] party’s failure to submit a claim within six years of accrual is an affirmative defense to the claim," agreed that the claim was untimely.  The crux of TGI’s claim was that DOC failed to meet its contractual obligations to provide certain contractually specified information to TGI.  Under the terms of the contract, however, DOC was to provide such information to TGI "immediately after contract signing."  Any breach therefore would have occurred "immediately after contract signing," in 2004, and TGI’s breach claim would have accrued at that time.  TGI’s failure to assert this claim within six years of claim accrual was fatal to the claim. 

                      Jonathan Noeldner v. Dep’t of Agric., CBCA No. 5379 (Sept. 23, 2016)

Pursuant to a timber sale contract between Noeldner and the USFS, Noeldner had 60 days from the time he received notice that a sale had closed to submit claims to the contracting officer.  In July 2015, Noeldner received notice that a sale had closed; he did not, however, file any claims until March 2016, at which time the contracting officer denied all claims on timeliness grounds. 

The CBCA (Daniels, A.J.) agreed that the claims were untimely.  Although the CDA generally permits a party to file a claim against the Government up to six years after accrual, parties–including the Government–are free to agree to terms that expedite the claim resolution process.  And where, as here, a contract clearly states that the contractor will lose rights if it does not make a submission within a prescribed period of time, such a limitation will be strictly enforced.  Given the unambiguous terms of the contract, Noeldner’s claims were deemed untimely. 

                      AHTNA Environmental, Inc. v. Dep’t of Transportation, CBCA No. 5456 (Dec. 22, 2016)

AHTNA held a fixed price contract with the Federal Highway Administration ("FHWA"), which provided that if, after final payment, "unresolved claims exist or claims are proposed," AHTNA was required to list those claims on a release form FHWA would send upon final acceptance and verification of final pay records.  The clause further provided that failure to execute the "release of claims document within 90 days after receipt shall constitute and be deemed execution of the documents and the release of all claims against the Government arising by virtue of the contract."  After performance concluded, AHTNA disputed the final voucher and release by written communications within 90 days.  It did not, however, submit a Request for Equitable Adjustment ("REA") until eight months after receiving the final voucher and release.

The CBCA (Lester, A.J.) again reiterated that the CDA’s statute of limitations in which to file a claim could be contractually limited: "Such a waiver provision is not unenforceable simply because the time limit imposed for reserving claims is shorter than the statute of limitations identified in the CDA."  However, "because the contracting officer had or should have had a full understanding of the scope and amount of [the] anticipated claims before making final payment on April 26, 2016 (following AEI’s detailed REA submission in December 2015)," the Board found that the FHWA could not rely on the contractual release under these circumstances. Accordingly, the CBCA declined to find that the claim was barred by the release.

       2.      Claim Certification

Two decisions from the boards considered whether the signatory to the claim had the proper authority to bind the contractor, such that the claim was properly certified as required by the CDA.

                      AMX Veterans Specialty Servs., LLC v. Dep’t of Veterans Affairs, CBCA No. 5180 (Aug. 9, 2016)

AMX appealed the deemed denial of its claim for costs and damages resulting from the Department of Veterans Affairs’ ("VA") termination for convenience.  The VA moved to dismiss for lack of subject matter jurisdiction, arguing (among other things) that AMX did not properly certify its claim.  AMX’s claim certification was signed by the company’s chief operations officer ("COO").  VA argued that there were no documents in the record establishing the COO’s authority to certify the claim and that such a defect in the certification deprived the Board of jurisdiction. 

The Board (Beardsley, A.J.) first noted that "[i]t is well-settled that even if [the COO] did not have authority to certify AMX’s claim, and the certification would consequently be considered defective, the Board would not be deprived of jurisdiction."  In any event, the Board found that the COO had both actual and apparent authority to certify the claim.  VA’s arguments that the COO did not sign the initial contract and that he was not listed as COO in the company’s articles of organization were insufficient to undermine the actual and apparent authority of the company’s COO, which were well established by the facts before the Board. 

                      ABS Development Corp., ASBCA Nos. 60022 et al (Nov. 17, 2016)

In ABS, the Government moved to dismiss for lack of jurisdiction on a pair of consolidated claims arguing that the person who certified the claims on behalf of the appellant lacked the proper authority to do so.  The Government asserted that the signatory was not an employee of the ABS and that ABS had promised, prior to being awarded the contract, only employees would manage the work. 

The Board (McIlmail, A.J.) disagreed, citing FAR 33.207(e), which provides that "certification may be excited by any person authorized to bind the contractor with respect to the claim."  A declaration by ABS’s president indicated that Gueron was duly authorized to act on behalf of ABS, which was sufficient, and that "there is no further requirement that the person also be an employee of the contractor."  On a second group of claims, the Government’s basis for dismissal was that the underlying claims were not actually "signed" because they were electronically typed "signatures."  The Board agreed, reasoning that because they could not be authenticated, electronic signatures were insufficient and that such a defect could not be corrected.

      D.      Requirement for a Contracting Officer’s Final Decision

A number of decisions from the tribunals that hear government contracts disputes dealt with the CDA’s requirement that a claim have been "the subject of a contracting officer’s final decision."

                      Magnus Pacific Corp. v. United States, No. 13-859C (Fed. Cl. July 13, 2016).

The Court of Federal Claims (Bush, J.) raised sua sponte the issue of its jurisdiction over two counterclaims the Government sought to add in a motion for leave to amend its answer:  a retainage claim and a recalculation claim.  The retainage claim sought $466,092 and had already been the subject of a contracting officer’s final decision prior to becoming an issue in the litigation.  The recalculation claim arose from a disagreement between the Government’s expert and the contracting officer’s final decision.  The Government’s expert believed a contract modification should have resulted in the reduction of $725,540, an additional $279,448 from the $466,092 previously determined by the contracting officer.

Under the CDA, a court only has jurisdiction over a Government counterclaim where the Government’s claim was "the subject of a contracting officer’s final decision."  The retainage claim satisfied this standard and the Court granted the Government leave to amend in part to add the claim.  However, the recalculation claim had never been presented or decided by a contracting officer; instead, it was determined by the Government’s expert.  On that basis, the claim also did not qualify for the mirror-image exception to the CDA’s jurisdictional requirement because having been decided by an expert, the claim could not be "the mirror image of a contractor claim denied by the contracting officer."  The Court therefore denied the Government’s request for leave to amend to add the recalculation claim.           

                      Regency Constr., Inc. v. Dep’t of Agric., CBCA Nos. 3246 et al (Aug. 17, 2016)

In 2008, Regency submitted an REA for $281,650 after performing canal excavation and sediment removal services for the Natural Resources Conservation Service ("NRCS").  The REA was not certified and also did not seek certain "contract administration costs" that it had paid for assistance in calculating and preparing the REA.  In 2012, after years of negotiating, NRCS sent Regency a response to the REA, which it later described as a contracting officer’s final decision.  In a January 2013 letter to the contracting officer, Regency argued that any "final decision" had been premature because Regency had not certified its claim, which it did for the first time in this January 2013 letter.  A month later, without waiting for a new decision on its claims, Regency filed its first appeal with the CBCA.  Regency later filed a second appeal with the CBCA seeking "contract administration costs.". 

The CBCA (Sullivan, A.J.) dismissed Regency’s original appeal, noting that a contracting officer’s decision rendered on an uncertified claim is a "nullity," which precludes the Board from exercising appellate jurisdiction.  Although NRCS maintained that the contracting officer had issued a "final decision" on the REA, any such decision was issued prior to the time when Regency certified its claim.  On the second appeal, the Board held that it lacked jurisdiction to consider Regency’s claim for contract administration fees.  Under the CDA, the Board only has jurisdiction to hear claims that are first presented to a contracting officer for decision: "If a claim is not presented to the contracting officer, the Board lacks jurisdiction to consider it in an appeal."  Because Regency’s claim for contract administration costs had never been presented to the contracting officer, the Board was precluded from considering such a claim, even if the costs were otherwise recoverable.

                      Stobil Enter. v. Dep’t of Veterans Affairs, CBCA No. 5246 (Aug. 19, 2016)

Several years into its contract with the VA, Stobil filed a request seeking over $100,000 for wage increases and benefits based on prevailing wage rates established by the DOL.  Stobil also sought over $5,000 in damages for goods that Stobil claimed were lost or damaged during contracting performance and/or close-out.  The VA’s contracting officer ultimately granted part of the relief sought but, in his decision, noted that Stobil did not submit a certified claim.  Stobil appealed and the VA moved to dismiss for lack of jurisdiction. 

The Board (Russell, A.J.) granted the VA’s motion, noting that a written demand for payment in excess of $100,000 is not a "claim" under the CDA unless and until it is certified.  It was irrelevant that the contracting officer had issued a decision on the uncertified claim and that Stobil allegedly had certified the claim after the CO’s decision but before the appeal.    

                      Baistar Mech., Inc. v. United States, 128 Fed. Cl. 504 (Sept. 28, 2016).

Baistar obtained a contract in 2010 with The Retirement Home, an independent Executive Branch agency.  The contract was terminated early in 2015.  The contractor satisfied the CDA’s requirements by submitting written requests to the contracting officer, which were all rejected in final decisions by that officer.  Baistar argued that the Government failed to properly compensate it for services performed both within and outside the scope of the contract, that the Government impeded its performance, and that the Government improperly terminated the contract. The Government argued that if Baistar’s allegations that the contracting officer had denied the claims improperly were true, the officer’s decision would not have been a proper final decision and therefore, CDA jurisdiction did not exist. 

The Court of Federal Claims (Lettow, J.) was not convinced.  Where the contractor’s claim had been properly filed, an improper decision by the officer would be considered a legal nullity that did not "affect the ‘contractor’s rights or obligations.’"  Instead, the court would proceed as though the decision had never been made.  Where an officer failed to respond to a properly filed claim within 60 days after receipt of those claims, the claim would be deemed a denial, and the Court would still have jurisdiction under the CDA.  The Court therefore determined that regardless of the propriety of the contracting officer’s decision here, jurisdiction existed under the CDA.

                      Fed. Contracting, Inc. v. United States, 128 Fed. Cl. 788 (Sept. 28, 2016).

The Court of Federal Claims (Kaplan, J.) again addressed the CDA’s exhaustion requirements when it granted in part the Government’s motion to partially dismiss a contractor’s claims arising from the U.S. Army Corps of Engineers’ ("Army Corps") termination of its contract with FCI for the construction of a medical warehouse on an airbase.  FCI’s two claims for breach of contract were dismissed because although the contractor submitted responses to the Government’s cure, show cause, and termination notices, FCI’s responses did not contain a demand for a sum certain and therefore could not constitute valid claims for payment under the CDA.  By contrast, FCI’s fourth claim that an interim performance evaluation was, among other things, inaccurate and an abuse of discretion, was not dismissed.  The Court reached this decision relying on a string of cases holding "that a contractor’s challenge to an agency’s performance evaluation" could constitute a CDA claim.  Further, the contractor did not seek monetary relief for that claim, and so needed only to "have submitted a written demand for a final decision seeking relief . . . and received a final decision on that claim."

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Three decisions – two from the Court of Federal Claims and one from the CBCA – addressed the recurring jurisdictional issue of whether the scope of the issues on appeal was properly captured by the claim presented to the contracting officer.

                      Bruhn NewTech, Inc. v. United States, No. 16-783C (Fed. Cl. Dec. 19, 2016)

In 1998, Bruhn received a contract from the U.S. Marine Corps to produce commercial software.  Though the contract allowed the Marine Corps to make "an unlimited number of copies" of the software and distribute them for the Government’s internal purposes, the software license agreements forbade the Marine Corps from selling the software to third parties.  Bruhn alleged that it learned in 2013 that the Marine Corps distributed its software to the South Korean and Jordanian governments.  Bruhn submitted a claim to the contracting officer, which denied the claim.  Bruhn filed suit, alleging, in relevant part, breach of the contract between it and the Marine Corps.  The Marine Corps moved to dismiss for lack of subject-matter jurisdiction and for failure to state a claim, alleging that Bruhn’s claim to the contracting officer concerned only a 2008 version of the software whereas its complaint concerned the 1998 version.

The Court of Federal Claims (Horn, J.) found that there was a fundamental factual dispute between the parties as to whether there were one or more versions of the software.  Bruhn argued that 2008 and 1998 software versions were one and the same, with the 2008 "version" representing an update to the underlying 1998 software.  At the motion-to-dismiss stage, the Court found that Bruhn sufficiently alleged that it made a certified claim as to the 1998 contract, as the certified claim identified the 1998 contract and the complaint similarly discussed the 1998 contract.

                      Claude Mayo Constr. Co. v. United States, No. 128 Fed. Cl. 616 (Oct. 6, 2016)

Claude Mayo received a contract to renovate the U.S. Attorney’s Office in Syracuse, New York.  Thereafter, the Government Services Administration ("GSA") sent Claude Mayo a notice to cure, in which it stated that Claude Mayo had failed to provide schedules of completed work and failed to respond to two contract modification requests.  Various other disputes arose and GSA terminated the contract.  Under the contract, Claude Mayo could dispute the termination to GSA’s contracting officer.  Claude Mayo did so by mailing a letter requesting rescission of GSA’s termination or, in the alternative, payment for all outstanding pay applications and lost profits.  The contracting officer denied the request and Claude Mayo brought suit in the Court of Federal Claims alleging, in relevant part, breach of contract.

The Government moved to dismiss, alleging that Claude Mayo failed to properly present its breach-of-contract claim to a contracting officer before filing the complaint.  The Court of Federal Claims (Kaplan, J.) agreed, finding that Claude Mayo never advised the contracting officer that it was asserting a claim for breach of contract.  Judge Kaplan expressly denied Claude Mayo’s argument that its letter responding to GSA’s decision to terminate sufficed, as that letter (1) did not make any assertion that GSA breached its contract and instead only rebutted GSA’s reasons for termination; (2) only requested rescission of the decision to terminate; and; (3) did not seek payment in sum-certain for any alleged breach of contract.  Additionally, Judge Kaplan rejected Claude Mayo’s argument that the breach-of-contract claim and the improper-termination claim were one and the same, finding that "a termination for default is a claim by the government, separate from a contractor’s breach of contract claim."

                      CB&I AREVA MOX Services, LLC v. Dep’t of Energy, CBCA No. 5395 (Dec. 15, 2016)

CB&I was the successor in interest to a contract with the Department of Energy ("DOE") for mixed oxide fuel fabrication and reactor irradiation services. CB&I submitted a claim to the contracting officer requesting relief under a contract clause for an increase in fee percentage, as well as under the CDA for payment of an award fee.  The contracting officer denied the claim, and CB&I filed an appeal requesting three forms of relief: (1) a finding that the Government’s alleged failure to negotiate on an option year fee was a material breach of the contract; (2) a finding that the contract provided for an increase in fee percentage; and (3) a monetary award based on the additional fee owed.

In dismissing the appeal for lack of jurisdiction, the CBCA (Daniels, A.J.) noted that while a contractor may increase the amount of his claim, he may not raise any new claims not presented and certified to the contracting officer.  When a new claim is asserted that was not directly addressed in the contractor’s submission to the contracting officer, the CBCA will determine whether the newly posed claim derives from the same operative facts, seeks essentially the same relief, and, "in essence, merely asserts a new legal theory for the recovery originally sought."  Here, the Board determined that while the claims relating to the fee increase and related quantum were properly before the contracting officer prior to the appeal, the evidentiary issues that may be required to be resolved for the lack of good faith claim were not submitted to the contracting officer.  Accordingly, because the CBCA would have to examine different operative facts to resolve CB&I’s lack of good faith contention from the facts it must examine to resolve the contractor’s fee claims submitted to the contracting officer, the CBCA dismissed the portion of the complaint alleging a lack of good faith.

      E.      Timeliness of Appeals

A host of recent cases address the CDA’s jurisdictional requirement to timely file an appeal after receipt of a contracting officer’s final decision.  Under the CDA, a board of contract appeals has jurisdiction only over appeals that are taken within 90 days of receiving the contracting officer’s final decision; whereas there is a one-year statutory clock applicable to appeals filed in the Court of Federal Claims. 

                      Suffolk Constr. Co. v. GSA, CBCA No. 4377 (Aug. 26, 2016)

Over the course of more than two years, Suffolk submitted a number of claims to the GSA’s contracting officer following the completion of its construction contract.  The contracting officer denied Suffolk’s claims and, for the majority of the claims, Suffolk timely appealed to the CBCA.  For one such denial, however, Suffolk filed suit in the Court of Federal Claims ("COFC") just under 12 months after the denial was issued.  The Court then transferred the case to the CBCA for consolidation with Suffolk’s other pending appeals.  GSA argued that Suffolk could not circumvent the 90-day time limit for filing appeals with the Board by filing its claim in the Court of Federal Claims and later having the case transferred.

Citing Glenn v. United States, 858 F.2d 1577, 1581 (Fed. Cir. 1988), the Board (Zischkau, A.J.) rejected GSA’s jurisdictional argument and held that "COFC’s authority to transfer actions to agency boards under 41 U.S.C. § 7107(d) is not limited to only those actions filed with . . . COFC within ninety days of receipt of the CO’s final decision."  Thus, even though Suffolk did not appeal to the CBCA within 90 days of the denial of its claim, its timely suit in the Court of Federal Claims did not divest the Board of jurisdiction to hear the transferred case.     

                      Bass Transp. Servs., LLC v. Dep’t of Veterans Affairs, CBCA No. 4995 (July 6, 2016)

The VA terminated Bass’s contract for default and informed Bass that the termination constituted a final decision.  More than three months later, Bass submitted a claim to the contracting officer for damages as a result of the termination and alleged breach.  A successor contracting officer denied Bass’s claim and Bass appealed.  While on appeal, VA submitted a decision of the contracting officer converting the termination for default to a termination for convenience.

Relying on the ASBCA’s decision in Military Aircraft Parts, ASBCA 60139 (June 3, 2016), covered in our 2016 Mid-Year Government Contracts Litigation Update, the CBCA (Chadwick, A.J.) concluded that it lacked jurisdiction over the appeal because Bass did not appeal within 90 days of receiving notice that the contracting officer had terminated the contract for cause.  While Bass did appeal to the CBCA within 90 days of the successor contracting officer’s decision denying its claim for damages, Bass’s claim was "not independent of the unappealed termination decision, but ar[o]se[] from it.  A tribunal could award the breach damages that Bass [sought] (if at all) only by finding that VA should not have terminated the contract for cause–an issue that the CDA places beyond our review, as it was the crux of a government claim that was not appealed and is final."  That VA converted the termination to a termination for convenience after the appeal was filed did not change the fact that the Board lacked jurisdiction when the appeal was filed.        

                      Alaska Excavating, LLC v. Dep’t of Transp., CBCA No. 5342 (Aug. 2, 2016)

Alaska Excavating submitted a claim to the contracting officer, which was denied in part in a final decision received by the contractor on February 26, 2016.  Alaska Excavating submitted an appeal to the CBCA on the 91st day and "plead[ed] leniency" under the circumstances for missing the deadline by one day. 

The Board (Somers, A.J.) refused, noting: "[Alaska Excavating] was not only represented by counsel, but also informed in the final decision of the contracting officer exactly how, when, and to whom the written notice of appeal should be sent."  The failure to timely appeal divests the Board of jurisdiction to consider a case on the merits.   

III.      TERMINATIONS

The ASBCA and Court of Federal Claims also issued several important decisions during the second half of 2016 arising from contract terminations for default.

      A.      Terminations for Default

                      GSC Constr., Inc., ASBCA Nos. 59402 et al (July 12, 2016)

The U.S. Army Corps of Engineers terminated a contract with GSC on the grounds that GSC allegedly violated labor standards contract provisions.  GSC appealed and then moved to dismiss, asserting that DOL possessed exclusive jurisdiction to determine whether such a violation had occurred. 

The Board (McIlmail, A.J.) conceded that although it did not have jurisdiction to determine whether GSC had violated a contract’s labor provisions, it certainly had jurisdiction to determine whether the findings by DOL were final, and whether a contract default termination was justified as a result.  The Board further held that it may uphold a contract termination for default on any ground that existed at the time of termination, even if it was not the specific ground the contracting officer’s final decision relied upon.

                      Avant Assessment, LLC, ASBCA No. 58866 (Sept. 28, 2016)

In 2011, Avant Assessment and the Army entered into a contract for the delivery of foreign language test items.  The contract provided that any items provided for by the contract, but not accepted by the Government, would be removed from the scope of the contract.  In 2013, the Government terminated the contract for cause for failure to provide the contracted number of items. 

The Board (McIlmail, A.J.) agreed with Avant Assessment that the clause removing items not accepted from the scope of the contract essentially removed the delivery amount requirement.  Thus, the Government could not terminate the contract for failure to deliver a required amount of test items.

                      Primestar Construction v. Dep’t of Homeland Security, CBCA No. 5510 (Dec. 9, 2016)

Primestar held a contract with the Federal Emergency Management Agency ("FEMA") for the replacement of an elevator. Less than two years into performance of the contract, the FEMA contracting officer issued a termination for default, asserting that Primestar had failed to complete 30% of the work required under the contract, and that Primestar had not corrected deficiencies in response to prior show cause and cure notices.  Primestar filed a notice of appeal disputing that it had failed to complete the work, and, to the extent any work was not performed, it was because the work was outside the scope of the contract or could not be done due to unforeseen site conditions. The appeal requested monetary compensation for final payment due, as well as "all incidental expenses incurred; the total amount is not yet fully determined."

FEMA filed a motion to dismiss the monetary claim for lack of jurisdiction, arguing that the contracting officer’s termination did not cover money damages, and that Primestar had not submitted a separate claim to the contracting officer in accordance with the CDA. The CBCA (Lester, A.J.) agreed, and dismissed the portion of the appeal seeking monetary damages, finding that "Unless it has previously submitted a claim to the contracting officer seeking monetary relief, a contractor cannot piggyback a request for monetary damages onto a contracting officer’s termination decision."

      B.      Terminations for Convenience

                      Boarhog, LLC v. United States, No. 16-678C (Fed. Cl. Nov. 14, 2016)

On September 18, 2014, the U.S. Navy awarded a contract to Boarhog for the provision of "engineering, logistical, and clerical support" for Navy ships near San Diego, California.  Boarhog’s contract provided that it would provide service from September 2014, until September 2015.  Just before the contract was set to begin, the Navy terminated the contract for convenience and awarded the contract to one of Boarhog’s competitors.  After Boarhog filed a bid protest, the Navy engaged in corrective actions and awarded a second contract.  But the second contract was not awarded until March and had the same end date of September.  Boarhog filed suit alleging breach of the contract arising from the Navy’s conversion of a 12-month contract into one for six months.

The Court of Federal Claims (Wheeler, J.) granted the Government’s motion to dismiss, relying on the Government’s right to terminate for convenience under the contract.  The Navy’s decision to terminate for convenience could only create liability if the Navy were to terminate "in bad faith" or "abuse[ ] its discretion."  Accordingly, Judge Wheeler found the pleading standard to require some allegation of bad faith or abuse of discretion, which Boarhog did not make.  Alternatively, the Court found that Boarhog had failed to sufficiently allege damages because it had not begun performance under the old contract and had therefore accrued no costs. 

IV.      CONTRACT INTERPRETATION

A number of noteworthy decisions from the second half of 2016 articulate broadly applicable contract interpretation principles that should be considered by government contractors. 

                      CACI Int’l, Inc. & CACI Techs., Inc., ASBCA No. 60171 (July 18, 2016)

CACI’s contract with the Government provided that contractors could pay employees hazardous duty compensation ("danger pay"), but that this danger pay could not exceed 35% of basic compensation.  CACI paid danger pay based on salaries that reflected actual hours worked, and passed on these costs to the Government, who in turn compensated CACI.  However, the Special Inspector General for Afghanistan Reconstruction challenged these danger payments, and argued that the Government had over-compensated CACI because certain hours worked constituted overtime, which the Government argued did not constitute a valid basis for the danger pay.

The Board (Prouty, A.J.) found that CACI was entitled to danger pay under the contract, and the question thus became what constituted "basic compensation" under the contract such that the danger pay did not exceed 35% of that amount.  The Board concluded that an employee’s pay for normal or usual working hours under the contract constituted basic compensation for two reasons: (1) portions of the Department of State Standardized Regulations ("DSSR") that excluded overtime pay were not applicable to the present contract; and (2) CACI employees were not paid overtime despite working significantly more than 40 hours per week.  The Board concluded that in the absence of any applicable definition contained in the DSSR, "basic pay" would have its common meaning, which was the salary given to employees before being subject to multipliers or additions.  Thus, despite CACI employees’ longer work hours, salaries for the number of hours worked per week for which no overtime pay was given would be the proper amount considered as basic pay.  The Board also concluded that despite working more than 40 hours per week, CACI employees were in fact not working overtime because the contract did not treat hours worked in excess of 40 hours as other than normal work hours.  Thus, the additional hours worked were actually part of the CACI employees’ normal workweeks, leading the Board to hold that the danger pay was ultimately proper.

                      King Aerospace, Inc., ASBCA No. 57057 (July 26, 2016)

In 2005, the Government awarded a contract to King for the maintenance of a fleet of aircraft.  In 2009, King presented a certified claim incorporating an REA based on additional maintenance required as a result of aircraft conditions inferior to that represented in the contract.  The contracting officer denied the claim and King appealed.  

The Board (McImail, A.J.) concluded that King was entitled to additional compensation, noting that in order to prevail on a claim of misrepresentation, the contractor needed to show that there was a false representation of material fact that the contractor reasonably relied on to the contractor’s detriment.  The Board determined that the contract had represented that aircraft would be maintained in accordance with industry practices, although the aircraft clearly were not.  Further, this misrepresentation was material because the condition of the aircraft was likely to affect the inducement of King in assenting to maintaining the aircraft.  Moreover, King honestly relied on the misrepresentation to its detriment because King would have bid higher had it known of the substandard condition of the aircraft.  The Board also found that King’s reliance was reasonable as there was no contrary representation of the aircrafts’ condition. 

V.      COMMON LAW PRINCIPLES

The boards of contract appeals and Court of Federal Claims addressed a number of issues during the second half of 2016 arising out of the body of federal common law that has developed in the context of government contracts.

      A.      Subcontractors and Third Party Beneficiary Claims

                      Global Freight Sys. Co., W.L.L. v. United States, No. 15-378C (Fed. Cl. Dec. 29, 2016)

Global Freight was a subcontractor that provided services to the U.S. Navy at Camp Lemonnier in Djibouti.  The prime contracts under which Global Freight was a subcontractor incorporated a Base Access Agreement between the U.S. and Djiboutian governments, including a dispute-resolution mechanism providing that any dispute arising under the contract would not "be referred to any national or international tribunal or any third party for settlement."  In 2014, the Navy instructed Global Freight to move its vehicles to a villa outside of Camp Lemonnier, at which point local government authorities promptly seized 29 of Global Freight’s vehicles based on an alleged failure to pay taxes.  Global Freight had to pay 25 million Djiboutian francs (~ $139,727.00 USD) in order to regain control of the vehicles.  Global Freight filed suit alleging that it was a third-party beneficiary of the Base Access Agreement and the Government should have invoked it to prevent Global Freight from paying its settlement.  The Government moved to dismiss, alleging that 28 U.S.C. § 1502 divested the Court of jurisdiction over any claims dependent on a treaty with a foreign nation and that, given the broad reading of the term "treaty" under relevant precedent, the Base Access Agreement was a treaty. 

The Court of Federal Claims (Williams, J.) found the issue of whether Section 1502 applied in this case to be "thorny" and instead decided that the better approach was to determine whether Global Freight was a third-party beneficiary under the prime contract at all.  The Court determined that Global Freight’s allegations that the Navy provided it with tax exoneration letters congruent with the terms of the Base Access Agreement were sufficient to trigger discovery on the question of third-party-beneficiary status.  Accordingly, the Court denied the Government’s motion to dismiss.

      B.      Fraud

                      Laguna Construction Company, Inc. v. Carter, 828 F.3d 1364 (Fed. Cir. 2016)

The Government refused to reimburse Laguna for approximately $3 million in costs related to subcontractors, which Laguna appealed to the ASBCA in 2012.  That same year, Laguna’s COO was criminally indicted for fraud based on alleged kickbacks he received in exchange for awarding the subcontracts at issue.  After the COO pleaded guilty in 2013, the Government asserted the affirmative defense of fraud in its answer to Laguna’s appeal.  Both sides moved for summary judgment, and the ASBCA sided in favor of the Government, reasoning that the it was not required to pay Laguna’s invoices because the company had committed a material breach of the contract by engaging in the fraudulent kick-back scheme. 

Two issues were presented to the Federal Circuit:  first, did the ASBCA have jurisdiction over the affirmative defense of fraud, and second, whether the alleged fraud excused the Government from performing its obligations under the contract. On the issue of jurisdiction, the Federal Circuit held that jurisdiction was proper over the fraud defense so long as the ASBCA did not have to make any factual determinations, which in this case it did not since the COO had already pleaded guilty.  With respect to the Government’s nonperformance and refusal to pay Laguna’s costs, the Court reaffirmed that the Government need not know about a prior breach at the time that the breach occurred to excuse it from subsequent obligations.  For those reason, the Federal Circuit affirmed the ASBCA decision dismissing Laguna’s claims.

                      Kellogg Brown & Root Services, Inc., ASBCA Nos. 57530 et al (Nov. 8, 2016)

In this case, the Government argued that the recent Federal Circuit decision in Laguna discussed immediately above required the Board to suspend KBR’s cost appeals when the appeals were the subject of a pending False Claims Act case pending in federal district court.  The Board (Melnick, A.J.) disagreed and distinguished its facts from those in Laguna.  In Laguna, the district court made determinations as to the facts underlying the fraud and the Government asserted a prior material breach affirmative defense.  In KBR, however, the Government’s fraud claim was still pending in district court and had not yet presented a prior material breach defense.  Accordingly, the board concluded that, "[n]othing in Laguna mandates that the Board suspend appeals indefinitely [where] the government has merely filed a fraud cause elsewhere that might establish an affirmative defense of prior material breach if and whenever proven."

                      Bryan Concrete & Excavation, Inc. v. Dep’t of Veterans Affairs, CBCA No. 2882 (Aug. 26, 2016)

The VA awarded a contract reserved for Service Disabled Veteran Owned Small Businesses ("SDVOSBs") to BCE, a business founded by a disabled veteran and which had SDVOSB status with VA.  BCE did not inform the VA, however, that it had entered into a "teaming agreement" with a non-SDVOSB third-party, through which the third-party "took over management and control of BCE."  After a series of unrelated issues arose during performance of the contract, the contracting officer terminated the contract for default.  BCE appealed the termination to the CBCA.  During discovery, VA learned of the third-party teaming agreement, an agreement which would have disqualified BCE from eligibility for the SDVOSB contract.  VA moved for summary judgment on the grounds that the contract was void ab initio

The Board (Somers, A.J.) granted summary judgment to the VA, finding that VA had satisfied the test set forth in Long Island Savings Bank v. United States, 503 F.3d 1234, 1246 (Fed. Cir. 2007), which requires the Government to prove that a contractor obtained a Government contract by knowingly making a false statement.  In this case, BCE did not dispute that it obtained the contract and that, through its representatives, it certified its eligibility as an SDVOSB without disclosing the existence of the teaming agreement.  Because the contract was void ab initio, the Board denied BCE’s appeal challenging the contract termination.       

      C.      Bad Faith

                      Puget Sound Envtl. Corp., ASBCA No. 58828 (July 12, 2016)

In 2009, the Government awarded a contract to PSE that provided for a total of four option years, exercisable at the Government’s discretion.  In 2011, the Government opted to terminate the contract for its convenience, and chose not to exercise its options pursuant to the contract.  Consequently, PSE filed a claim seeking 4% of the revenue that it lost had the Government exercised all its options.  The contracting officer did not issue a final decision and this appeal followed.

The Board (O’Connell, A.J.) noted that the appeal was primarily about the failure to exercise options, and not the termination of the contract.  In addressing the failure to exercise options, the Board found that while the Government has the right not to exercise options, there is a limited exception if the contractor can prove bad faith.  Thus, the Board needed to determine whether it could be reasonable to find by clear and convincing evidence that the contracting officer acted in bad faith.  While PSE contended that the contracting officer rushed to judgment, the Board found that the officer had a reasonable basis for his decision at the time, and there was no evidence that even hinted at specific intent to injure PSE.  Because PSE could not demonstrate by clear and convincing evidence that the contracting officer had a specific intent to injure PSE, the Board found that the Government did not err in exercising its contract rights not to exercise an option.

                      ThinkGlobal Inc. v. Dep’t of Commerce, CBCA No. 4410 (Sept. 9, 2016)

In ThinkGlobal Inc., also discussed above in the context of the decision’s jurisdictional implications, TGI produced, marketed, and distributed an advertising catalog called "Commercial News USA" pursuant to a series of contracts with the Department of Commerce ("DOC").  The contracts were "no cost" contracts under which DOC had no financial obligations to TGI–TGI would derive revenues from advertising sales on the publication.  After several years of performance, DOC chose not to exercise the remaining option years and ordered TGI to cease performance.  TGI asserted a variety of claims against DOC, primarily for breach of contract and bad faith termination. 

The Board (Drummond, A.J.) rejected DOC’s primary argument that TGI could not show entitlement to relief simply because the contract was "no cost" in nature and TGI actually earned profits from third-parties.  "Although the Government will not pay for services rendered under no-cost contracts, that does not mean that the Government is similarly immune from paying damages for breaching the terms of a no-cost contract in a way that limits the contractor’s ability to earn monies from third parties under its contract."  Nevertheless, the Board agreed that DOC’s decision not to exercise the remaining option years did not amount to a breach of contract because a contract that provides for one-year options "based upon satisfactory performance" does not transform a traditional option–where the option holder possesses the unilateral right to exercise–into a condition limiting the Government’s discretion.  Further, the Board agreed that TGI failed to state a claim for bad faith termination because TGI had alleged no facts "indicating a specific intent by DOC to injure TGI, a necessary element of a bad faith claim against the Government." 

      D.      Stay of Proceedings

                      BAE Sys. Tactical Vehicle Sys. LP, ASBCA Nos. 59491 et al (July 25, 2016)

The Government requested the Board stay proceedings in the current appeal due to a pending False Claims Act lawsuit involving what it claimed were the same facts then pending in federal district court.  Under the CDA, the Board (O’Sullivan, A.J.) has the authority to stay proceedings by balancing competing interests.  The Board considered the following factors: (1) whether the logistics in both proceedings are substantially similar; (2) whether the on-going litigation could be compromised by going forward with the current case; (3) the extent to which any stay could harm the non-moving party; and (4) whether the duration of the requested stay is reasonable.  The Board also considered whether judicial efficiency should lead to a stay.

In denying the stay, the Board found that there were sufficient differences between the ASBCA appeal and the False Claims Act case such that BAE was entitled to the Board’s decision on the matter.  Further, the Government had failed to demonstrate a clear case of hardship, especially since the Board’s decision would likely precede trial in the False Claims Act case.  In addition, a stay would likely result in a loss of witnesses and evidence for BAE such that a stay would cause sufficient harm to BAE.  The Board also held that judicial efficiency would not warrant a stay, since the resolution of the CDA claim would likely simplify and streamline the issues in the False Claims Act action.  Lastly, the Government’s request for a stay of indefinite duration was unreasonable, in light of there being no pressing need.

VI.      CONCLUSION

We will continue to keep you informed on these and other related issues as they develop.


The following Gibson Dunn lawyers assisted in the preparation of this client update:  Karen L. Manos, John W.F. Chesley, Lindsay M. Paulin, Lauren M. Assaf, David H. Glanton, Matthew P. O’Sullivan, Christopher M. Rigali, Victor Twu, and Casper J. Yen.

Gibson Dunn lawyers are available to assist in addressing any questions you may have regarding the issues discussed above.  Please contact the Gibson Dunn lawyer with whom you usually work, or any of the following:

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