Know When To Fold ’Em: When An Appeal Decision Is Worse Than The Final Decision Under Appeal

Protests and LitigationKenny Rogers once offered some sage advice that’s as applicable to Government contractors as it is to gamblers and human beings in general:

You gotta know when to hold ’em,
Know when to fold ’em,
Know when to walk away,
Know when to run.

A recent decision from the Armed Services Board of Contract Appeals (“Board”) describes a case where a contractor should have folded and walked away rather than exercise its appeal rights.

In Lebolo-Watts Constructors 01 JV, LLC, ASBCA Nos. 59738, 59909, a contractor was dissatisfied with a Contracting Officer’s Final Decision granting it a price increase of $495,886, rather than the $1,502,653 the contractor claimed it was due as the result of certain constructive changes the Government made to its contract.  The contractor apparently decided that the cost of litigating an appeal before the Board was worth the opportunity of winning the additional million dollars to which it believed it was entitled.  The Government agreed the contractor was entitled to some compensation for constructive changes, but disputed the quantum of the contractor’s claim.

After approximately four years of litigation, the Board not only denied the contractor’s appeal, but it also held that the Final Decision’s price increase of $495,886 (which the Government had already paid) was itself excessive.  The contractor thus came away from the appeal saddled with legal bills and related costs, and it also had to pay the Government back $123,131 that the Board determined the contractor should never have received in the first place.

Lebolo-Watts is a good reminder that the Boards of Contract Appeals and the Court of Federal Claims adjudicate Contract Disputes Act appeals under a de novo standard of review.  Boards and courts show a contracting officer’s finding of facts no deference, and the Board or Court is free to reduce any award amount to which the contracting officer has already agreed if the agency’s litigation position is less generous than the Contracting Officer’s Final Decision was.  This outcome is fairly unusual, but it occasionally happens.  See, e.g., BES Design/Build, LLC v. Dep’t of Veterans Affairs, CBCA No. 5640, 17-1 BCA ¶ 36,840 (denying motion for payment of $21,998 to which a final decision found the appellant was entitled because “the fact that the contracting officer made specific findings, including quantifying costs owed to BES, does not bind the agency once appellant has appealed the final decision”).

Because of this, a Contracting Officer’s Final Decision on a contractor claim is sometimes likened to a settlement offer, which a contractor can either accept or reject.  That “offer” is off the table once the contractor rejects it by filing an appeal.  On appeal, if agency counsel disputes the appellant’s contractual right to what the Contracting Officer offered, the contractor then must prove to a judge’s satisfaction all of the elements of its claim by a preponderance of the evidence.  If the contractor cannot do that, it may end up with less than the Contracting Officer offered – or even with nothing at all.

Takeaway:  Before deciding to appeal a less-than-ideal final decision, a contractor should consider the possible and likely outcomes and make an informed decision of whether to file an appeal or fold.