Contract Disputes - Briefly

It is the Government's policy to try to resolve all contractual issues by mutual agreement at the contracting officer's level without litigation. Often times, it does not seem like this is the Government's policy at all. There are a few contracting officers out there that fancy themselves as the supreme authority on contractual matters and rebuff any attempts at compromise or resolution. Likewise, there are contractors out there that view any questions or queries from Government officials as personal attacks on their character and integrity. When these two meet, there is little hope of resolution so contracting officers issue their final decision and contractors submit claims.

The Contract Disputes Act of 1078 (41, USC 7013) requires that claims exceeding $100,000 be accompanied by a certification. The certification has three elements:

1. The claim is made in good faith
2. Supporting data are accurate and complete, and
3. The amount requested accurately reflects the contract adjustment for which the contractor believes the Government is liable (sometimes referred to as a "sum certain".

The certification must be signed by a person authorized to bind the Contractor with respect to the claim. Usually this is an officer of the company.

The contracting officer has 60 days to decide the claim or 60 days in which to notify the contractor of the date by which the decision will be made. On complex issues, it usually takes much longer than 60 days for the contracting officer to render a final decision.

The contractor is entitled to interest from the date of the certified claim, should the dispute ultimately be decided in the contractor's favor.

Contractors still have a duty to proceed with contract performance while a claim is pending.

The Government estimates that contractors submit 13,500 claims requiring certification (i.e. those exceeding $100 thousand) per year. Only a tiny fraction of those are appealed to the ASBCA (Armed Services Board of Contract Appeals) or Federal Court. The ASBCA encourages the use of ADR (alternative disputes resolution) methods to settle prior to litigation.

See FAR 52.233-1, Disputes, for more information on filing claims against a contracting officer's final decision.

Government Loses Another 6-Year Statute of Limitations Case

In 2001 and 2004, Sparton Electronics (now Sparton DeLeon Springs LLC) was awarded Navy contracts for sonobuoy research and development and engineering and technical services related to submarine acoustics. Some of the work required under these contracts was farmed out to Jackson Engineering, an affiliated company of Sparton. By January 2007, the Government had reimbursed Sparton for about $577 thousand representing the cost of work performed by Jackson Engineering.

In 2007 and 2008, Sparton submitted timely final indirect cost rate proposals for its fiscal years 2006 and 2007. Both of these proposals included the required "Schedule I"s, Cumulative Allowable Cost Worksheet (CACWS) but neither Schedule I included the cost of the intra-divisional work performed by Jackson.

In September 2013, DCAA (Defense Contract Audit Agency) issued audit reports covering those years, noting that the Schedule I's did not include the Jackson costs. Eventually, the parties executed final indirect cost rate agreements after which Sparton updated its Schedule I's to reflect the the negotiated rates. The "final" Schedule I's still did not reflect the Jackson intra-divisional costs.

In August 2014, the contracting officer requested Sparton to submit final vouchers for the completed contracts/delivery orders. Sparton submitted the final vouchers that included the previously invoiced and paid Jackson costs.

In October 2015, the contracting officer issued a final decision demanding that Sparton repay $577 thousand that the Government had reimbursed it for work performed by Jackson. Evidently, Sparton was unable to satisfy the contracting officer's request for support for the costs. The contracting officer wrote: "There is no proof whatever that (Sparton) was billed for work or more importantly, that (Sparton) paid these costs in connection with any Government contract".

In January 2016, Sparton appealed the contracting officer final decision to the ASBCA (Armed Services Board of Contract Appeals) and the Government filed a complain alleging that Sparton had been overpaid because the Jackson costs were insufficiently supported.

Sparton eventually requested summary judgment that the Government's claim was time-barred under the Contract Disputes Act (CDA). Summary judgment can be granted if the movant (i.e. Sparton, in this case) shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law. Under the CDA, the Government must bring a contract claim against a contractor within six years after the accrual of the claim. A claim accrues on 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.

There was no dispute that the contracting officer first claimed there was an overpayment on October 26, 2015; consequently, to be timely, that claim must not have accrued earlier than October 26, 2009. The Board found that the Government knew, or should have know of the Jackson costs in January 2007 when it paid those costs pursuant to the interim vouchers that were reimbursed and by the Government's own admission, included information related to the Jackson costs. Moreover, the Government knew or should have known by January 2008 that Sparton had not included the Jackson costs in its indirect cost proposals. Thus, there is no genuine dispute that the Government's claim accrued no later than either January 2007 or January 2008. Both dates precede the October 2009 cut-off for statue of limitations purposes.

The ASBCA granted Sparton's motion for summary judgment and Sparton's appeal was sustained.

The decision doesn't mention why Sparton was unable to satisfactorily support the intra-divisional costs. It mentioned that Jackson had gone out of business in 2006 so perhaps the records supporting the intra-divisional transfers were no longer available.

You can read the entire ASBCA decision here.

Government Loses Another Statute of Limitations Case

There have been a number of notable contract appeals recently where the Government's case has been thrown out because it couldn't seem to act within the six-year statute of limitations imposed by the Contract Disputes Act (CDA). We've reported on a number of them on this blog including Raytheon Cost Accounting Changes case from last year. Bottom line, both the Government and a contractor have only six years for asserting a claim after the event that fixes a liability becomes known. The Government has been losing a lot of appeals lately (or choosing not to pursue the matter) because it cannot seem to complete audits in a timely manner, or, in the case of Laguna Construction, failed to act timely on an audit report that was issued.

Laguna Construction received an Air Force contract to perform various construction projects in Iraq. In due course, Laguna issued a couple of subcontracts whose prices were not adequately supported. The subcontracts were not awarded based on competition nor was there any documentation by Laguna to support the reasonableness of the subcontract prices.

In December 2005, DCAA (Defense Contract Audit Agency) issued an inter-agency audit report (that's an audit report issued from one DCAA office to another) citing Laguna for inadequate subcontract management practices. DCAA stated that Laguna's subcontract management policies, procedures, and practices could not be relied upon to ensure the reasonableness of subcontract prices. The receiving DCAA office forwarded the audit report to the ACO in February 2006.

Now here's where the Government's actions get lame. It took more than three years for the ACO (Administrative Contracting Officer) to notify Laguna of the deficiencies cited in the audit report and more than three more years after that for the ACO  to render a final decision. That's more than six years after the Government had knowledge of Laguna's (alleged) subcontract management deficiencies. The Government's claim totaled $3.8 million. Laguna appealed stating that the Government's claim was outside the six-year statute of limitations.

Under the CDA, a contract claim, whether that of the contractor or the government must be submitted with six years after the accrual of the claim. Accrual of a claim, according to FAR 33.201 means 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. The Board (Armed Services Board of Contract Appeals) found that the Government was aware of the "injury" in February 2006 when DCAA issued its audit report to the ACO but the ACO did not file a claim until December 2012. December 2012 was beyond the six-year statute of limitations.

Based on the foregoing, the ASBCA ruled that the Government's monetary claim was barred under the CDA as untimely. Accordingly the ACO's decision was deemed null and void.

You can read the entire Board decision here.