Forty-five years after enactment of the Contract Disputes Act of 1978 (CDA), contractors and agencies still often struggle to identify what is and isn’t a CDA claim—a term the CDA itself does not define. Until the CDA’s administrative dispute process is complete, a contractor is jurisdictionally barred from bringing its claim (or its challenge to a government claim) to a Board of Contract Appeals or the Court of Federal Claims. For contractors (and agencies) navigating the CDA’s superficially simple procedures and deceptively clear timelines, such uncertainty can jeopardize otherwise meritorious claims.
In Lockheed Martin Aeronautics Company v. Secretary of the Air Force, the Court of Appeals for the Federal Circuit provides a clear answer to what a claim is, at least with respect to a contracting officer’s unilateral definitization of an undefinitized contract action (UCA).
Federal Circuit: A Unilateral Definitization Is Not a CDA Claim
UCAs or “letter contracts” are mechanisms that allow an agency to authorize critical contract performance to begin before the parties have settled on all contractual terms and conditions—even price. In a typical UCA scenario, the agency authorizes the contractor to begin work and reimburses a fraction of the contractor’s incurred costs, subject to a cost ceiling, and the parties agree promptly to determine definite terms and figure out a price while performance proceeds. As we have commented before (Undefinitized Contract Action Proposed Rule and The Basics of Undefinitized Contractual Actions (UCAS)), UCAs pose risks to contractors, have a history of abuse, and are supposed to be used only on those rare occasions when it is critical that work begin immediately and there is no time to negotiate definitive terms. See FAR 16.302; DFARS Subpart 217.74.
In Lockheed Martin, two UCAs worth billions of dollars remained undefinitized for years before the Air Force unilaterally definitized their terms and set their prices at amounts with which the contractor disagreed. (The fact that the government awarded the contracts as UCAs in the first place and then left them undefinitized for years is a cautionary tale for another blog post.) The contractor treated the unilateral definitizations as government claims and appealed them directly to the Armed Services Board of Contract Appeals. The government moved for dismissal of the appeal for lack of jurisdiction, arguing the underlying claim was really a contractor claim that was never submitted to the contracting officer for a final decision—thus barring an appeal. Is a unilateral definitization a government claim that may immediately be appealed? Or must a contractor first submit its own mirror-image claim to the contracting officer for what the contractor contends the correct definitization amount should be? The latter approach would entail requesting a contracting officer’s final decision on the same question the contracting officer has already decided and proceeding to a Board or the Court of Federal Claims only after receiving a contracting officer’s final decision, which presumably will be the same decision already reflected in the contracting officer’s definitization determination.
In a divided opinion, the Armed Services Board held that an earlier Board decision from 1988 compelled it to dismiss the appeal for lack of jurisdiction. Over the dissent of one Board judge, the majority found that the 1988 case was still good law and binding precedent. Based on that precedent, the Board held that, if a contractor disagrees with a contracting officer’s unilateral definitization of a UCA, the contractor must submit its own claim to the contracting officer and wait for a final decision. Until that process is completed, the Board held it lacks jurisdiction over an appeal of the dispute.
The contractor appealed, and the Federal Circuit affirmed the Board’s decision. The Court acknowledged “it is not always clear whether a claim has been made and, if so, which party made it” and lamented that the CDA itself provides only “minimal guidance” on what a claim may be. Following its own precedent, the Circuit cited the Federal Acquisition Regulation’s definition of 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.” FAR 2.101. The Court found the government’s unilateral definitization of price simply followed the definitization procedures spelled out in the UCAs themselves. The Court determined the contractor was the only party “making a demand or an assertion seeking relief,” and, therefore, only the contractor had a potential claim—one that it must submit to the contracting officer for a final decision before seeking review of the claim by a Board or the Court. This surely is not the result the contractor hoped for, but at least it is a clear and easily applied rule for future contractors to follow.
Over the years, the lack of clarity about what a CDA claim is has caused contractors and agencies many troubles and generated abundant litigation. The uncertainty about definitization claims is now resolved, but plenty of other CDA uncertainty remains. There is the recurring problem of when a request for equitable adjustment is a claim (sometimes it is, and sometimes it isn’t, without a bright-line way to distinguish one from the other). Guessing wrong can cause one to miss crucial deadlines to assert a claim or file an appeal. There is also the problem of when one party’s defense to a claim might constitute a separate claim: if a defense is deemed a separate claim, the defending party must run the defense through the administrative disputes process before a Board or the Court may consider it; if the defense isn’t deemed a claim, the party is not required to jump over those procedural hurdles.
As Judge Solomson of the Court of Federal Claims recently commented in yet another controversy over the definition of “claim,” the lack of clear rules “gives rise to the jurisprudential equivalent of situational ethics, jurisdictional confusion and, thus, extensive litigation,” which is “unfortunate and imposes unnecessary costs on the procurement system and, in turn, the public fisc.” It also can lead to injustice, when a party that does its best to comply with the fuzzy rules but guesses wrong and cannot recover on a meritorious claim. In Lockheed, the contractor was prudent enough both to file its immediate appeal of the definitization as a government claim and submit a contractor claim to the contracting officer—meaning its claim eventually will be judged on its merits, notwithstanding the loss in the Federal Circuit. The contractor’s attorneys clearly were tracking the risks, watching the statute of limitations, and taking steps to mitigate the uncertainty.
Thanks to Lockheed, we now know how to handle definitization-related claims. But, until the powers that be resolve all the other areas lacking clarity, contractors and contracting officers alike would do well to seek good legal counsel when deciding whether a CDA claim may have accrued or been asserted.