Claim for Costs Incurred During Stop-Work Order Denied by the ASBCA

In December 2017, the Army awarded a contract for information technology support services to Advanced Global Resources (AGR). A few days later, the award was protested to the GAO (Government Accountability Office) so the Army issued a stop-work order (SWO) pending the outcome of the protest. After GAO denied the protest, the Army lifted the stop-work oder. AGR then filed a claim for direct costs it expended during the stop-work order period plus extended home office overhead costs.

The day after contract award, AGR entered into an employment contract with Mr. McKissick. A week later, the Army issued its stop-work order which stated, in part, that AGR was not authorized to purchase materials or services until further notified and to stake all reasonable steps to minimize incurring costs associated with the stop-work order.

Eventually the protest was denied and on March 26, 2018 the Army lifted the stop-work order and advised that AGR was free to start the process of obtaining a clearance to manage cleared personnel. It took an additional two months for AGR to receive its clearance.

During the stop-work order period, AGR continued to pay Mr. McKissick's salary even though the employment agreement allowed the company to release him, furlough him, or put him on unpaid leave. Additionally, during the stop-work order, AGR continued to pursue other opportunities, bidding on at least six requests for proposals, winning one of them.

AGR filed a claim for the direct wages paid to Mr. McKissick during the stop-work period as well as unabsorbed overhead. AGR appealed to the ASBCA. The Army asserted that AGR was not entitled to the direct costs because it failed to minimize costs during the stop work period and was not entitled to unabsorbed overhead because the performance period was not extended as a result of the order. Additionally, AGR was not on standby, not subject to a delay of indefinite duration, was not required to be able to resume work immediately at full speed and did not demonstrate that it was impractical for it to obtain replacement work.

The ASBCA sided with the Government and denied AGR's claim. You can read the full decision here.

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.

Estimates Used for ID/IQ Contracts are not Guaranteed

In 2008, Evie's Catering entered into an indefinite delivery-indefinite quantity (IDIQ) contract with the National Guard to provide food and other catering services to personnel for the Washington Army National Guard and other DoD agencies at the Yakima facility in Washington State. Ultimately that contract lasted more than five years, ending in March 2013.

An IDIQ contract serves as a master contract setting forth the estimated number of meals and prices. The actual number of meals would be provided by individual task orders. In 2011, an active duty unit from Texas approached Evie's to provide meal and catering services for a training exercise at the Yakima Center. Because the Texas unit was not approved to use the IDIQ contract, it was negotiating directly with Evie's Catering. After Evie's initial proposal for $483 thousand, the Texas unit received authorization to use the IDIQ contract so the National Guard took over as the contracting agent and Evie's ceased its direct negotiations with the Texas Battalion.

Using Evie's initial proposal, it authorized the National Guard to spend a maxim amount of $483 thousand on its behalf. However, the National Guard was only to pay Evie's for services actually provided during the Battalion's exercise. The Battalion provided daily meal requirements to the National Guard and the National Guard calculated a cost of $317 thousand, $166 thousand less than the estimated costs.

In 2012, the National Guard issued Task Order 112 for the Yakima catering services. The task order total award amount stated $483 thousand "EST" while also containing spreadsheets showing $317 thousand. Evie's provided the catering and afterwards, the National Guard paid Evie's $317 thousand for the services rendered.

Evie's contended that the $483 thousand was not an estimate but a guaranteed payment amount and filed a claim with the National Guard. The National Guard contracting officer denied the claim so Evie's filed a complaint with the U.S. Court of Federal Claims for the difference between the estimate and the amount actually paid, $166 thousand.

The Court sided with the Government in this case. It stated that the plain meaning of "$483,061 EST" supports only one reading and was not ambiguous. It is an estimate. Contract terms that are qualified as an estimate are unambiguous and non-binding. To conclude that the $483 thousand was a guaranteed payment would require the Court to ignore the "EST" annotation and three pages of detailed spreadsheets included int he task order.

You can read the entire decision here.

Contracting Officers' Decisions Must be Timely

How long does a contracting officer have before making a decision on a claim? Sixty days or a good reason why it should take longer. But the extension must be a definite date and "reasonable". A recent Board case illustrates this principle.

Brad West and Associates (Brad West) filed a request for equitable adjustment (REA) with the Department of Transportation (DOT) in June 2013. DOT granted some of Brad West's  claim but denied other portions. In February 2014, Brad West submitted a certified claim to DOT for $1.375 million. According to the Contract Disputes Act (CDA), a contracting officer has only 60 days to issue a decision or to notify the contractor of the time within which a decision will be issued. This time period is not limitless. The CDA imposes the requirement that the decision be issued within a reasonable time, taking into account such factors as the size and complexity of the claim and the adequacy of the information provided by the contract in support of the claim. In this case, the contracting officer advised Brad West in March 2014 (roughly two weeks after the claim was submitted) that it "anticipated" issuing a contracting officer's decision by December 2014, about 10 months after Brad West submitted its claim.

In May 2014, Brad West filed an appeal from the failure of a contracting officer to issue a decision on its claim ("deemed denial"). In June 2014, the Board (Civilian Board of Contract Appeals) directed DOT to issue a decision within 30 days or advise the Board as to why such a decision could not be issued.

DOT tried to rationalize its actions. DOT maintained that (i) the claim was complex, representing over half of the original contract price, (ii) the contracting officer was very busy, and (iii) the contracting officer needed more time to review the claim because of no prior involvement in the claim.

The Board thought that DOT's excuses were nonsense. It was not a new claim. Over six months prior to the claim submission, DOT had reviewed Brad West's REA. Thus it was familiar with the claim. Secondly, the idea that DOT was too busy was unpersuasive. And thirdly, the statute requires a decision be provided in a reasonable time and if DOT was too busing, it should have assigned other personnel to the review. Finally, the Board found that DOT's "anticipated" date was indefinite and not in accord with the intent of the statute to provide a date certain when the decision will be issued.

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.

Government Settles for 30 Cents on the Dollar

After 22 years, Boeing and General Dynamics are finally going to pay-off their $1 billion debt to the Navy by providing about $400 million in in-kind products; three aircraft and a ship deckhouse, hanger, missile-launching system. Not a bad deal for the Companies, not so good for the taxpayers. The settlement is conditional upon passage of the 2014 NDAA (National Defense Authorization Act) as its currently constructed.

Back in 1988, the Air Force was flying around in stealth aircraft. The Navy was jealous and wanted its own stealth attack jet. So, it awarded a firm fixed-price contract to a consortium of McDonnell Douglas (a company that has since been bought by Boeing) and General Dynamics to buy eight planes for $4.7 billion. Deliveries were scheduled for January 1991. The contract also had an option for purchasing another 850 or so aircraft.

By June 1990, the program was in serious trouble. The airplane was 30 percent heavier than specifications and there were a host of other technical issues as well. The companies notified the Navy that they could not deliver the aircraft on time and more importantly, the cost of completing the eight plane contract had grown from $2 to $5 billion.

In 1991, then Secretary of Defense Dick Cheney terminated the contract for default (T for D) and the Navy demanded that the contractors return the $1.35 billion already advanced under the contract.  The companies refused so the matter has been in the courts ever since. In 2011, the Supreme Court ruled that the Navy was justified in terminating the contract but the matter went back to lower courts for decisions on other issues where it has remained.

Congress feels justified with the settlement. It felt the settlement was good for the Navy at a time of tight budgets and "incredible fiscal challenges" and good for the taxpayers because there's no guarantee that the government will ultimately prevail in the ongoing litigation. Also, it will end decades of litigation. Think about that for a moment - 22 years of litigation - there's probably attorneys and others that have spent entire careers on this one issue.

Constructive Changes - Verify Critical Information

A decision that was recently handed down by the Armed Services Board of Contract Appeals (ASBCA) illustrates the importance of both contracting parties, the Government and the prospective contractor, to verify critical information in a solicitation (Appeal of BECO Construction Co., Inc., ASBCA No 57483).

The Government issued a Request for Quotation (RFQ) that called for reclamation work on approximately 2.7 acres. The appellant submitted its bid based on that estimate. After contract award, the contractor discovered that the site to be reclaimed was more than 4 acres and asked the Government for an increase in contract price. The Government refused, the contractor completed the work, and filed a claim for additional compensation. The Government again refused so the contractor appealed.

The appellant argued that there was a constructive change that entitled it to a price adjustment. The ASBCA agreed that the appellant was misled and ordered the Government to pay for the extra work. In its decision, the ASBCA cited the well-established rule that where the government makes positive statements in the specifications or drawings for the guidance of bidders, a contractor has the right to rely on them regardless of contractual provisions requiring the contractor to make investigations. Additionally, the Government knew that the reclamation project was greater than that specified in the solicitation. It had information in its files that it did not disclose estimating the site to be about 5 acres. The Government should have known that the description of the area in the contract was misleading and that potential contractors would rely on it.

Contract Disputes Overview - Part III

Today we conclude our short overview on contract disputes. It is not our intent here to go into a lot of detail on  the processes and procedures available to contractors or the Government when disputes arise. Rather, we are simply informing readers of the methods available to resolve contract disputes. One piece of advice that we can offer based on experience on both sides of disputes is to try and settle disputes quickly and as efficiently as possible, even if it nets results that are less than desired. Protracting the resolution process is very costly in terms of time and resources.

Usually when contract disputes are discussed, it is the contractor disputing a Government position. However, the Government also makes affirmative claims against contractors. These claims include unallowable costs charged to contracts (either directly or indirectly), defective pricing allegations, defective parts, CAS (Cost Accounting Standards) noncompliances, etc. When the Government is making the claim, the demand must be in writing and

1. state an amount certain
2. make a demand for payment,
3. provide an address for payment,
4. notify the contractor of any deferment processes available to it.

The Government's claim is typically made as soon as the contracting officer has (i) determined that an actual debt is due the Government and (ii) has determined the amount or refund or payment. Often it is not a simple matter to calculate the amount so the contracting officer seeks assistance and advice from auditors and other technical experts. Regardless, the "sum certain" requirement demands that the Government's claim be fairly precise.

Finally, contractors should be aware of the statute of limitations. There is a six-year statute of limitations upon claims by either party for contracts awarded after October 1, 1995 (that should be just about all contracts by now). However, determinations of when a claim accrues can be a very complicated issue of law and we recommend consultation with legal counsel if it appears that a claim is outside the statute of limitations.

Contract Disputes Overview - Part II

There are several ways of handling contract disputes ranging from the informal and inexpensive (negotiations) to the formal and very expensive (going to court). Naturally, both contractors and the Government want to and generally seek to resolve disputes at the lowest cost possible. However, sometimes the stakes are so great or one side or the other becomes so entrenched that resolution by negotiation or by ADR is not possible. The decision to elevate disputes to the ASBCA or the COFC is largely a business case judgment where one or both of the parties calculate that the potential benefits outweigh the risk (i.e. cost). Yesterday we introduced the subject of contract disputes - today we will focus on the event that occurs when resolution is not possible through negotiations or ADR (Alternative Disputes Resolution) procedures. The first thing that must happen when a dispute is not resolved at the contracting officer level is the preparation of the contracting officer's "final decision".

When a claim cannot be satisfied or settled by mutual agreement and a decision upon the claim is necessary, the Contracting Officer must prepare a final decision (see FAR 33.211). A final decision represents the independent decision and determination of the ACO (or TCO). This decision may be based on information and assistance of auditors and technical specialists but the ultimate decision is that of the contracting officer after thoroughly reviewing all facts and recommendations (see FAR 33.211). The actual final decision document may contain copious information and legal jargon but must, at a minimum,

• Contain a describe the claim or dispute
• Refer to the pertinent contract terms
• State the factual areas of agreement and disagreement
• Set forth the contracting officer’s decision (along with supporting rationale).
• Notify the contractor of its right to appeal to the ASBCA within 90 days or the Court of Federal Claims within 12 months.

For claims of $100 or less, the contracting officer must issue a final decision within a reasonable time (see FAR 33.211(c)(1)). For claims greater than $100 thousand, contracting officers must issue a final decision within 60 days or provide written notification within 60 days or provide written notification with 60 days as to when such a decision will be issued. Even if the 60 day target cannot be met, contracting officers are still required to issue a final decision in a "reasonable time". Reasonable time is not defined and we have seen situations where final decisions can take a year or longer to issue.

Contract Disputes Overview - Part I

A dispute between the Government and contractor may arise in a variety of situations. These include, but are not limited to:

• Inability to agree upon an equitable adjustment
• Inability to agree upon the amount due following a contract termination
• Disallowance of costs
• Noncompliance with Cost Accounting Standards (CAS)

There are three principal means of disputes resolution between contractors and the contracting officer. These are

• Unassisted negotiation
• Alternative Dispute Resolution (ADR), and
• Appeal of a contracting officer final decision to the 
• ASBCA (Armed Services Board of Contract Appeals) or
• United States Court of Federal Claims (COFC)

The Government's policy is to try to resolve all contractual issues in controversy by mutual agreement at the contracting officer's level (see FAR 33.204). Both parties are encouraged to make reasonable efforts to resolve controversies prior to the contractor submitting a claim. Agencies are encouraged to use ADR procedures to the maximum extent practicable. Certain factors, however, may make the use of ADR inappropriate. For example agencies are encouraged to avoid ADR when

• a definitive or authoritative resolution of the matter is required for precedential value and such a proceeding is not likely to be accepted generally as an authoritative precedent
• the matter involves or may bear upon significant questions of Government policy that require additional procedures before a final resolution may be and, and such a proceeding would not likely serve to develop a recommended policy for the agency
• maintaining established policies is of special importance, so that variations among individual decisions are not increased and such a proceeding would not likely reach consistent results among individual decisions
• the matter significantly affects persons or organizations who are not parties to the proceeding
• a full public record of the proceeding is important, and a dispute resolution proceeding cannot provide such a record
• the agency must maintain continuing jurisdiction over the matter with authority to alter the disposition of the matter in the light of changed circumstances, and a dispute resolution proceeding would interfere with the agency's fulfilling that requirement.

When resolution cannot be accomplished by negotiation or by ADR proceedings, contractors may file a formal claim. The claim must be in writing (see FAR 33.206(a)). It must request a "sum certain" or a decision concerning contract terms. In addition, contractors must certify claims over $100 thousand (see FAR 33.207). Uncertified claims will be rejected and returned to contractors.

To be continued...