Guard Your Rubber Stamps

Penna Group, a roofing contractor for the Federal Bureau of Prisons, submitted a $146 thousand claim for costs performed under an expanded scope of work. The contracting officer denied the claim because Penna had signed a release of claims which released the United States from any and all claims arising under the contract. Moreover, on the "release" form, Penna had written "NONE" in the space to identify excepted claims and dollar amounts.

Penna argued that the "release" was of no force or effect because it was completed by one without the actual or apparent authority to do so, and also, the release can be invalidated because of economic duress and because of mutual mistake.

The CBCA (Civilian Board of Contract Appeals) concluded that the release was enforceable and it precluded the contractor from pursuing and prevailing upon the claim. The release bore the signature of the Penna's president. The president was aware that the individual who completed the release on behalf of the contract had his signature stamp; he thus had endowed her with actual and/or apparent authority to use the signature. The CBCA denied the claim. In its decision, the Board wrote:

A signature is binding if placed on a document by one with actual or apparent authority to do so. Negligent oversight regarding a signature stamp or electronic signature may result in the binding nature of the signature when appropriately relied upon by a party.

The Board went on to state that a company acts through its employees and agents. The president was aware that the employee had the signature stamp; this endowed her with the apparent, if not actual, authority to use it. The contractor proffered no support for a perceived limitation on the use of the stamp. Finally, the Board concluded that the Bureau of Prisons is not at fault for the president's failure to receive, review, or act on information included in its "release".

Read the complete decision here.

Government Caused Delay - Contractor Inflates its Equitable Adjustment Proposal

A contractor for the Department of Veterans Affairs filed an appeal with the Civilian Board of Contract Appeals (CBCA) for additional costs incurred as a result of extending the contract by five days because of altered and added work.

The amount of the claim was only $5,633 and included indirect costs that the contractor tried to claim as direct and some other items that were largely unsupported. The Government calculated that the contractor was only due $603, an amount the CBCA ultimately awarded the contractor.

 The contract stated that overhead and fee percentages include field and office supervisors and assistants. The contractor claimed costs for such individuals as direct costs. The contractor also claimed cost for a portable toilet that it could not support and cost for a forklift and fuel which it was unable to demonstrate a direct relationship to the work required by the contract.

The CBCA was rather critical of the contractor's approach.

The contractor's broad-brush approach, and failure to point to specific tasks or related dollars, results in an unsupported position. Impacted work may, not must, result in a change in value. Not all remaining work is necessarily impacted by a change order because non-change order work perhaps is performed as originally scheduled, or is performed earlier or later with no change in value or cost to the contractor

Contract auditors are guided to ensure that costs included in equitable adjustment claims have a strong nexus to the event giving rise to the equitable adjustment proposal or claim. It is the auditors concern that some contractors use the equitable adjustment process to "get healthy" by including costs that bear no relationship to the delay or disruption. This particular claim fell well short of the threshold for an audit so it had to have been some woke person in the contract administration department that figured out what was going on.

You can read the entire CBCA decision here.

Board of Contract Appeals Denies Contractor Claim for Insurance Costs

The Department of Energy (DOE) and Mission Support Alliance LLC (MSA) entered into a contract to provide support services to DOE's environmental cleanup mission. Although the contract did not require MSA to do so, MSA submitted an application to the Department of Homeland Security (DHS) to become a seller of Qualified Anti-Terrorism Technology (QAAT). As a condition for receiving QAAT status, DHS required MSA to have liability insurance coverage of up to $30 million for acts of terrorism.

MSA charged the insurance premiums to its DOE contract. MSA did not seek contracting officer approval for the premiums, as per contractual requirements and by the time DOE became aware of that the premiums had been billed to its cost-reimbursable contract, they had grown to $1.36 million.

The contracting officer concluded that the preiums were unallowable under the contract and demanded that MSA refund the amount paid. The contracting officer's position was threefold: (i) the insurance was not required by contract, (ii) MSA knew the costs were unallowable, and (iii) MSA did not seek approval from the contracting officer to treat them as allowable.

MSA appealed the contracting officer's decision to the Civilian Board of Contract Appeals (CBCA). MSA argued that the DOE contract required adequate insurance against liability. MSA reasoned that a terrorist attack at the DOE site could result in liability for damages. MSA further maintained that the purchase of such insurance was reasonable. Third, even if the contract did not require the insurance, MSA was entitled to exercise reasonable judgment to purchase such insurance. Finally, MSA pointed to the benefits that DOE might derive because of the insurance.

DOE countered noting that the contract did not require MSA to receive QATT status, DOE also noted that in its application for QATT designation, MSA certified, under penalty of perjury, that insurance costs were not allowable under its DOE contract. Finally, MSA did not request or receive contracting officer approval for the insurance costs, as required by contract.

CBCA agreed with DOE. CBCA essentially affirmed DOE's arguments. Concerning the benefits that DOE might derive from the insurance, CBCA ruled that although the government may benefit, the contracting officer never had a chance to evaluate the policy to decide whether the insurance would be worthwile.

Contractors need to know that FAR (or a FAR supplement) are not the only consideration for determining cost allowability. A cost may meet all FAR requirements (i.e allowable, allocable, and reasonable) but they must also meet the explicit terms of the contract to be allowable.

You can read the full text of the decision here.

Allowability of Legal and Accounting Costs - Grants

The Robert T. Stafford Disaster Relief and Emergency Assistance Act (Stafford Act) authorizes FEMA (Federal Emergency Management Agency) to provide grant assistance to State or local governments for the repair, restoration, reconstruction, or replacement of a public facility damaged or destroyed by a major disaster and for associated expenses incurred by the government. FEMA's regulations concerning cost allowability are based on OMB Circular A-87.

St. Tammany Parish Government, Louisiana claimed reimbursement of costs for hiring lawyers and accountants to analyze, defend, and ultimately settle claims against the Parish by debris removal contractors. The Parish maintained that such costs were allowable, FEMA maintained that such costs were categorically unallowable. So, the dispute wound up at the CBCA (Civilian Board of Contract Appeals). The CBCA agreed with the Parish. The CPCA stated that FEMA can reimburse legal and accounting fees in appropriate circumstances (the costs are "allowable" in principle) but the costs must still be allocable and reasonable.

FEMA's argument hinged on 44 CFR 13.36 which states that grantees "alone will be responsible, in accordance wiht good administrative practice and sound business judgment, for the settlement of all contractual and administrative issues arising out of procurements." The Board rules that this particular regulation was not a cost-reimbursement regulation, and "responsible" here does not mean "financially responsible".

This is not the first time that we've seen or heard of agencies pulling regulations out of context to make their point. Unfortunately, it often works, especially at small contractors with limited resources or experience to research and counter a a Government position.

You can read the entire CBCA decision here.

What are the Boards of Contract Appeals?

Often in these blog pages we have mentioned the Armed Services Board of Contract Appeals (ASBCA) and we frequently discuss their decisions and the impact those decisions have on contractors and Government contracts.

The ASBCA is a neutral, independent forum which has been in existence for over fifty years. Its primary function is to hear and decide post-award contract disputes between Government contractors and DoD, NASA, and other agencies. The ASBCA functions under (i) the Contract Disputes Act (41 USC 7101 - 7109, (ii) its own charter, or (iii) other remedy granting provisions. Currently, the Board is comprised of 24 judges.

The majority of matters on the ASBCA's docket involve appeals by contractors from Government contracting officers' final decisions or their failure to issue decisions. Most of the cases are heard in the ASBCA offices in the DC area, but sometimes the judges will travel to a location that is more convenient to the parties. Most hearings are held by a single Administrative Judge but most decisions are made by a panel of three Judges, as the ASBCA functions in a collegial manner. As a matter of judicial philosophy, the ASBCA encourages parties to attempt to negotiate a resolution of their dispute. The Board has developed a ADR (Alternative Dispute Resolution) program for that purpose.

The quarterly reports of proceedings published by the ASBCA gives the appearance that the Board is falling behind in settling cases. Since June 2009, the number of docketed cases has grown each quarter from 532 to 1,066 for the quarter ended September 2014. During that quarter, 226 cases were docketed and 178 cases were disposed for a net increase for the quarter of 48 cases.

Most of the 178 cases disposed were not actually decisions. Only 21 of them resulted in decisions handed down by the board; five appeals were sustained and sixteen were denied. The remaining 157 dispositions were labeled as "dismissed". Most often, dismissals result from either the contractor withdrawing its appeal or the disagreement was settled.

The sources of the 226 cases docketed during the quarter are interesting. DCMA (Defense Contract Management Agency) led the way with 62 cases. The Corps of Engineers came in second at 49 cases. The Army finished a close third at 45 cases. DCMA is probably highest because that Agency is tasked for settling contractor incurred costs, executive compensation, and CAS (Cost Accounting Standards).

Besides the ASBCA, there is also the CBCA (the Civilian Board of Contract Appeals). It operates much like the ASBCA and was recently formed to consolidate the functions of eight other Boards including Agriculture, Energy, HUD, Interior, Labor, Transportation, Veterans Affairs, and GSA. The CBCA has sixteen judges and its charter is a little broader than just contract disputes. It also hears:

• Cases arising under the Indian Self-Determination Act
• Disputes between insurance companies and Agriculture's Risk Management Agency involving actions of the Federal Crop Insurance Corporation
• Claims by federal employees for reimbursement of expenses incurred while on official temporary duty travel or in connection with relocation to a new duty station.
• Claims by carriers or freight forwarders involving actions of the GSA regarding payment for transportation services
• Applications by prevailing private parties for recovery of litigation and other costs under the Equal Access to Justice Act
• And others

Contractors have a choice when challenging a contracting officer's final decision (or a contracting officer's refusal to render a final decision). Under the Contract Disputes Act of 1978, contractors have the exclusive right to choose to litigate their claims in the United States Court of Federal Claims (CFC) or appeal to the ASBCA or CBCA. There are undoubted advantages and disadvantages to each, depending upon the issue. However, for that determination, you need to consult with legal counsel.