January 30, 2017 - Compliance, Protests & Litigation

Significant Government Contract Litigation: A Year in Review

ComplianceLast year provided a number of important claims and cases that further developed various aspects of litigation regarding the Contract Disputes Act (CDA).  The major issues raised in some of the more notable claims include claim accrual, the interpretation of a claim, the proper scope of a claim, the binding nature of a contract, and the impact of contractor compliance on a claim.  Below is a summary of some of the significant decisions from 2016.

Claim Accrual

Kellogg Brown & Root Servs., Inc. v. Murphy, 823 F.3d 622 (Fed. Cir. 2016)

Kellogg Brown & Root (KBR) filed an appeal at the Armed Services Board of Contract Appeals (ASBCA) challenging the contracting officer’s denial of KBR’s claim for costs incurred by one of its subcontractors.  The ASBCA dismissed KBR’s appeal for lack of subject matter jurisdiction because KBR submitted its claim in May of 2012, which the ASBCA determined was outside of the six-year statute of limitations articulated in the Contract Disputes Act. 41 U.S.C. § 7103(a)(4)(A).  There was no dispute that the subcontractor’s costs had been incurred prior to being terminated in 2003.  The ASBCA found that the claim was untimely, even if the Board had concluded that January 24, 2005 was the actual claim accrual date, because it represented the date that KBR settled the subcontractor’s disputed costs.

Citing the Federal Acquisition Regulation (FAR), the Federal Circuit reversed the ASBCA’s decision to dismiss the appeal because it found that KBR did not know all of the events or the certain amount of the claim.  FAR 33.201 (a claim accrues on the date when “all events that fix the alleged liability of either [party], and permit the assertion of the claim, were known or should have been known.”).  Although KBR agreed that the costs related to the subcontractor’s performance were incurred prior to 2003, and that the relevant settlement date for a portion of the subcontractor’s costs occurred in 2005, the Federal Circuit found that KBR did not receive the subcontractor’s certified cost claim for the entirety of the costs until August 22, 2006.  In other words, the Federal Circuit found that KBR could not have ascertained an accurate estimate of the liability until KBR received the subcontractor’s certified cost claim for all outstanding costs, which occurred in 2006.  As a result, the claim filed in May 2012 was within the six-year statute of limitation.  The Federal Circuit remanded the case to the ASBCA for a review of the claim’s merits.

The case raises significant questions regarding when exactly a contractor has knowledge, or should have knowledge, about the sum of the claim.  KBR will almost certainly give rise to new arguments that the true amount of a claim has not matured until every possible event to potentially affect the value of the claim has taken place.  Like M. Maropakis Carpentry, Inc. v. United States, 609 F.3d 1323 (Fed. Cir. 2010), this case may have unintended consequences that require the Federal Circuit and the boards of contract appeals to reign in the decision on a fact-by-fact basis.

Interpreting Maropakis

Jane Mobley Assocs., Inc. v. GSA, CBCA No. 2878 (Jan. 5, 2016)

In M. Maropakis Carpentry, Inc. v. United States, 609 F.3d 1323, 1331 (Fed. Cir. 2010), the Federal Circuit held that “a contractor seeking an adjustment of contract terms must meet the jurisdictional requirements and procedural prerequisites of the [Contract Disputes Act], whether asserting the claim against the government as an affirmative claim or as a defense to a government action. . . .”  Since the decision, contracts must always address whether to submit potential defenses as a claim under the CDA to the contracting officer prior to asserting the defenses on appeal in order to avoid the risk of forfeiting defenses on appeal.

In Jane Mobley, the General Services Administration (GSA) asserted a claim against the contractor alleging that the contractor had overbilled GSA for labor costs and failed to provide prompt payment discounts.  The contractor disagreed with GSA’s findings, and a dispute arose regarding GSA’s entitlement to payment for the alleged overbillings.  The contracting officer issued a final decision concluding that Jane Mobley owed GSA money on June 1, 2012.

Jane Mobley appealed the decision to the Civilian Board of Contract Appeals (CBCA) and raised a number of defenses.  In response, GSA sought to dismiss a number of the defenses on jurisdictional grounds, arguing that Jane Mobley had forfeited the defenses because they qualified as CDA claims that had not previously been submitted to the contracting officer.  The CBCA denied the government’s motion and explained the difference between contractor claims that are asserted as defenses and disagreements about the facts of the government’s claims.  The CBCA ruled that “the rule of Maropakis is inapplicable where the contractor’s defense does not seek an adjustment of contract terms.”  According to the CBCA, a contractor that is not asserting a claim for affirmative relief can raise ordinary common-law defenses in an affirmative manner.  Furthermore, such defenses do not amount to a request to amend the contract’s terms and, therefore, do not qualify as CDA claims.

Scope of the Claim

When filing a claim with a contracting officer, it is important to ensure that each claim is included in the transmission and, if necessary, certified.

Kansas City Power & Light Co. v. United States, 124 Fed. Cl. 620 (2016)

Kansas City presents a reminder that the government will likely challenge any information that is perceived to be new in a complaint before the boards of contract appeals or the Court of Federal Claims (COFC).

Kansas City Power & Light Co. (KCPL) settled a wrongful-death suit related to an electrical accident that occurred on property owned by the United States.  KCPL had a contract to deliver electrical utility services to a GSA property located in Kansas City, Missouri, and the contract included an indemnity provision.  Following the fatal electrical accident, KCPL settled a lawsuit against the company for $2.25 million and subsequently submitted a certified claim to its contracting officer seeking reimbursement for the costs related to the lawsuit and settlement.  GSA denied the claim, and KCPL appealed.

KCPL’s complaint filed at the COFC included facts that were allegedly not included in the claim, and the government sought to dismiss those additional facts because they were not certified and constituted supplemental information that was not part of the claim.  Judge Sweeney rejected the argument and held that “even though the complaint adds a detail that was not contained within the text of the certified claim and was not referenced by the contracting officer in his final decision, the operative facts underlying both are the same.”  Judge Sweeney also allowed the court to consider KCPL’s breach of contract claim alleging that GSA breached the contract when it failed to defend the lawsuit, even though the certified claim did not specifically raise the breach of contract claim, because the underlying theory – indemnification for the costs relating to the wrongful death lawsuit – was the same.

Binding Contract

Contractors need to be mindful of the nature of their agreement with the government and what laws, regulations, and rules may govern any legal action arising under the agreement.  Contractors often seek monetary damages pursuant to the wrong regulatory scheme or procedure.

Some agreements are clearly procurement contracts, but occasionally the nature of the agreement is unclear.  In those instances, the contracting entity must look to the nature of the agreement to decipher whether it constitutes a procurement contract.

Hymas v. United States, 810 F.3d 1312 (Fed. Cir. 2016)

Hymas is an example of the confusion around what constitutes a procurement contract instead of a grant or cooperative agreement.  The agreement at issue in Hymas relates back to farming agreements first entered into between the Fish and Wildlife Service (FWS) and farmers in the 1970s.  Those agreements permitted the farmers to farm land inside certain wildlife refuges free of charge as long as the farmers left 25% of their crops on the reserve for consumption by the wildlife.

Hymas was denied the right to participate in the program because the FWS utilized a priority selection service to identify participants, which did not include Hymas.  Hymas brought suit in the COFC challenging FWS’s denial of Hymas’ participation.  The COFC found that it had subject matter jurisdiction pursuant to the Tucker Act because the suit arose “in connection with a procurement or proposed procurement.”

The Federal Circuit reversed the COFC’s decision and dismissed the suit because it found that the agreements constituted cooperative agreements instead of procurement contracts.  The Federal Circuit cited the Federal Grant and Cooperative Agreement Act to distinguish the agreements.  That Act states that “an executive agency shall use a procurement contract [when] the principal purpose of the instrument is to acquire . . . property or services for [] the United States Government” and it shall use “a cooperative agreement [when the] principal purpose of the relationship is to transfer a thing of value . . . to carry out a public purpose of support . . . .”  The Federal Circuit found that the agreements were akin to cooperative agreements because they transfer value for the public purpose of feeding the refuges’ wildlife.  Judge Stoll filed a dissent arguing that the FWS was acquiring the farmers’ services to farm food and feed wildlife in exchange for permitting the farmers to sell a portion of the crops farmed.

Cal. Dep’t of Water Resources v. United States, No. 15-1563 C (Fed. Cl. Oct. 4, 2016)

The California Department of Water Resources (CDWR) brought a breach of contract claim for roughly $10,000,000 pursuant to the CDA for reimbursement for scheduling coordinator charges that the CDWR incurred in connection with its operation of certain water storage and distribution facilities that were jointly used by the United States Bureau of Reclamation (USBR).  Among other functions, the CDWR operates and maintains the jointly used facilities, and it periodically pumps federal water through the state-owned water plants on behalf of the USBR.  The CDWR also paid certain coordination charges to schedule energy for delivery to the jointly used facilities.

The jointly used facilities were authorized in the San Luis Act, which provided that the United States and California could enter into an agreement for the coordinated use and operation of the jointly used facilities.  Pursuant to the Act, the United States and California entered into several agreements, which were amended over time.  California filed a claim with the United States seeking reimbursement of the roughly $10,000,000 pursuant to these agreements, under the CDA.  The United States denied the claims, causing California to appeal.  On appeal, Judge Griggsby found that the agreements between California and the United States did not qualify as procurement contracts because nothing was being purchased, acquired, or disposed of.  Moreover, even if the contracts could be considered contracts for the procurement of “joint use services,” as California alleged, the “the legislative history of the CDA demonstrates that the agreements do not fall within the scope of the Act [because] . . . the agreements do not implicate the cost and competition policy considerations underlying the CDA.”

Impact of Contractor Compliance on Claims

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

Laguna Construction filed a claim pursuant to a construction contract in Iraq, seeking reimbursement for taxes and other costs, including various subcontractor costs.  During performance of the construction contract, however, various high-ranking Laguna employees accepted numerous high-value kickbacks from subcontractors.  See Laguna Constr. Co., Inc., ASBCA No. 58324, 14-1 BCA ¶ 35,748.  As a result of the kickbacks, Laguna’s project manager and chief operating officer pleaded guilty to various criminal violations.

The government denied Laguna’s claim based on the Defense Contract Audit Agency’s conclusion that Laguna had failed to provide sufficient support to demonstrate that roughly $18 million in subcontractor costs were “fair and reasonable.”  The government waited until 10 months after Laguna filed its notice of appeal at the ASBCA to amend its answer to assert an affirmative defense of fraud, based on the kickbacks.  The government then argued that it was not liable to pay Laguna because the receipt of the kickbacks constituted a prior material breach, which relieved the government of the obligation to pay Laguna the amounts owed under the contract.  The main issue was whether the ASBCA had properly permitted the government to amend its answer to assert common-law affirmative defenses.

First, the Federal Circuit considered whether the government’s affirmative defenses constituted new claims, which would have prohibited the ASBCA from considering them because the claims had not been processed by the contracting officer, as required under the CDA.  Laguna cited Maropakis in arguing that the government had failed to previously raise its affirmative defenses as claims.  The Federal Circuit rejected Laguna’s argument and found that the government’s affirmative defense did not amount to a claim; rather, the affirmative defenses added pertinent facts to the record regarding Laguna’s commission of fraud under the contract.  In this regard, the Federal Circuit once again attempted to distinguish one party’s addition of facts to an existing claim or defense from the addition of an entirely new legal theory and claim, as was the case in Maropakis.

Next, the Federal Circuit addressed Laguna’s argument that the CDA had abrogated common law government contract doctrines and claims.  According to Laguna, the CDA is a statute that specifies how claims under procurement contracts are handled and processed, and the statute replaced the common-law theories applicable to a suit for recovery between a private entity and a sovereign entity.  The Federal Circuit rejected Laguna’s argument.  According to the Federal Circuit, the CDA did not abrogate all common-law claims because it did not “speak directly to the question addressed by the common law,” which was raised as an affirmative defense by the government (the theory of prior material breach had occurred).  Therefore, the court found that the common-law affirmative defense of prior material breach could be considered, and the ASBCA correctly permitted the government to amend its answer.

One important takeaway from Laguna is that contractors must consider common-law rights in addition to strict contractual and statutory rights.