DOES YOUR REQUEST FOR EQUITABLE ADJUSTMENT (REA) COMPLY WITH THE CONTRACT DISPUTES ACT?

unknownUnder a federal construction contract, a contractor MUST comply with the Contract Disputes Act and request a final decision from the contracting officer in order for the United States Court of Federal Claims to have jurisdiction over the claim.  This means that in most instances a request for an equitable adjustment (REA) will not meet the requirements of the Contract Disputes Act, meaning the Court of Federal Claims will not have jurisdiction to resolve a disputed REA. This is an important distinction for contractors that work on federal construction projects that submit requests for equitable adjustments and best articulated by the Court of Federal Claims:

  

Under the CDA [Contract Disputes Act], the Court only has subject matter jurisdiction over a contract action against the Government if the action is filed within twelve months after receipt of a contracting officer’s final decision on the claim.  Therefore, both a contractor’s claim and the contracting officer’s final decision on that claim are jurisdictional requirements. Logically, there can be no contracting officer’s final decision on a claim if the contractor has not requested such a decision from the contracting officer. A request for a contracting officer’s final decision need not be explicitly labeled as such. For example, an REA under certain circumstances can be construed as a request for a contracting officer’s final decision.  However, a request for a contracting officer’s final decision must, at minimum, be a written demand that includes (1) adequate notice of the basis and amount of a claim and (2) a request for a final decision.

Zafer Taahut Insaat ve Ticaret, A.S. v. United States, 2016 WL 7176723, *3 (Fed.Cl. 2016) (internal quotations and citations omitted).

 

In Zafer Taahut Insaat ve Ticaret, a contractor submitted an REA for unanticipated costs in incurred on a foreign construction project.  In the REA, the contractor simply asked the government to review and evaluate the REA at the earliest convenience.   The REA was not sent directly to the contracting officer.  The government did not pay the REA and the contractor filed suit in the Court of Federal Claims.  The government moved to dismiss the lawsuit based on the contractor’s failure to comply with the Contract Disputes Act.  The Court granted the motion to dismiss because (1) the REA was not sent directly to the contracting officer and (2) the REA did not request the contracting officer issue a final decision under the Contract Disputes Act.   Hence, the Court did not have jurisdiction to resolve the claim.

 

 

Please contact David Adelstein at dadelstein@gmail.com or (954) 361-4720 if you have questions or would like more information regarding this article. You can follow David Adelstein on Twitter @DavidAdelstein1.

 

SUBCONTRACTOR PASS-THROUGH CLAIMS AND THE CONTRACT DISPUTES ACT

imagesA prime contractor submitting a subcontractor’s pass-through claim MUST still comply with the certification requirements in the Contract Disputes Act.  And, the prime contractor cannot sponsor a pass-through claim unless it remains liable to the subcontractor for the claim, a doctrine known as the Severin doctrine based on the decision Severin v. U.S., 99 Ct.Cl. 435 (Ct.Cl. 1943).  These are important concepts for a prime contractor and subcontractor to understand and appreciate on federal projects.

 

Certification of Pass-Through Claims

 

For claims of more that $100,000  (including subcontractor pass-through claims) submitted to the federal government, the contractor must certify:

 

(A) the claim is made in good faith;

(B) the supporting data are accurate and complete to the best of the contractor’s knowledge and belief;

(C) the amount requested accurately reflects the contract adjustment for which the contractor believes the Federal Government is liable; and

(D) the certifier is authorized to certify the claim on behalf of the contractor.

40 U.S.C. s. 7103(b).

 

The certification of the claim is defective if it does not include these four elements (set forth in (A) through (D) above).

 

However, if the certification is defective, this can be cured prior to final judgment by a court or a final decision by a federal agency. See M.K. Ferguson Co. v. U.S., 2016 WL 1551650 (Fed.Cl. April 14, 2016).   On the other hand, a failure to certify (versus a defective certification) cannot be cured meaning the contractor has not submitted a proper claim under the Contract Disputes Act. Id.

 

Severin Doctrine

 

According to the Severin doctrine, “a prime contractor may not sponsor a pass-through claim unless it remains liable to its subcontractor on the underlying claim.” M.K. Ferguson, supra, at *13. If the federal government is relying on the Severin doctrine:

 

(1) the burden is on the government to prove that the prime contractor is no longer liable to its subcontractor on the pass-through claim; and

(2) the Severin doctrine generally requires an ‘iron-bound release or contract provision immunizing the prime contractor completely from any liability to the sub.

Id. at *14 quoting E.R. Mitchell Constr. Co. v. Danzig, 175 F.3d 1369, 1370-71 (Fed.Cir. 1999)

 

Please contact David Adelstein at dadelstein@gmail.com or (954) 361-4720 if you have questions or would like more information regarding this article. You can follow David Adelstein on Twitter @DavidAdelstein1.

 

 

FEDERAL GOVERNMENT TERMINATING FOR DEFAULT “SEPARABLE” CONTRACT

UnknownIf a contractor is terminated for default on a federal project (really, any project), the objective for the contractor is to convert that termination for default into a termination for convenience so that the contractor can get paid for work performed and associated profit on that work through the date of the termination. For more information on termination for defaults and convenience, check out this article and this article.

 

The Armed Service Board of Contract Appeals (ASBCA) decision, Nelson, Inc., ASBCA No. 57201, 2015 WL 959241 (ASBCA 2015), provides an example of the government terminating a prime contractor for default where the prime contractor argued the termination was improper.  The prime contract called for the construction of stone dikes at four sites along the Mississippi River.  Each site had separate pricing, separate notices to proceed, and separate performance periods and durations for the construction of the stone dikes. After the prime contractor had started to perform at two of the four sites, the government terminated the prime contractor for default based on the prime contractor’s failure to timely perform in accordance with the schedules for those sites. 

 

The prime contract included the F.A.R. 52.249.10 clause (set forth in full at the bottom of this posting) relating to termination for defaults.   Applicable here, F.A.R. 52.249-10(a) and (c) provide:

 

(a) If the Contractor refuses or fails to prosecute the work or any separable part, with the diligence that will insure its completion within the time specified in this contract including any extension, or fails to complete the work within this time, the Government may, by written notice to the Contractor, terminate the right to proceed with the work (or the separable part of the work) that has been delayed. In this event, the Government may take over the work and complete it by contract or otherwise, and may take possession of and use any materials, appliances, and plant on the work site necessary for completing the work. The Contractor and its sureties shall be liable for any damage to the Government resulting from the Contractor’s refusal or failure to complete the work within the specified time, whether or not the Contractor’s right to proceed with the work is terminated. This liability includes any increased costs incurred by the Government in completing the work.

***

(c) If, after termination of the Contractor’s right to proceed, it is determined that the Contractor was not in default, or that the delay was excusable, the rights and obligations of the parties will be the same as if the termination had been issued for the convenience of the Government.

 

This case focused on the language “separable part” in F.A.R. 52.249-10(a) to determine whether the government properly terminated the prime contractor from ALL four of the sites along the Mississippi River when the termination focused on the prime contractor’s delay at only two of those sites. 

 
The government has the burden of proving that the termination for default was justified.”  Nelson, Inc., supra, citing Libson Contractors, Inc. v. U.S., 828 F.2d 759, 764 (Fed. Cir. 1987).   When a contract is separable, or divisible, “and a contractor is delinquent only as to a separable part of the contract work, it is improper for the contracting officer to terminate for default the entire contract.”  Nelson, Inc., supra, citing Overhead Electric Co., ASBCA No. 25656, 1985 WL 16703 (1985). 

 

The ASBCA found that the four sites were separable because each site had separate performance periods, notices to proceed, and pricing.  The commencement of the prime contractor’s work at one of the sites was not dependent on or related to its completion of work at another site. (To support the divisibility of the work, the ASCBA stated: “Work at each of the locations did not involve sequential or incremental and interdependent progression of construction, e.g., of one building or levee at one contiguous site.” Nelson, Inc., supra.)   Therefore, the ASBCA found that terminating the prime contractor for default from all four of the sites was improper since the prime contractor’s work was separable (and the government based the termination on delay of two of the four separable sites).

 

Importantly, even when a prime contractor challenges a termination for default claiming it should be converted to a termination for convenience, the prime contractor needs to comply with the Contract Disputes Act.  In other words, the prime contractor needs to submit its termination for convenience costs / claim. For more information on this important issue, check out this article

 

 

F.A.R. 52.249-10 Default (Fixed-Price Construction)

(a) If the Contractor refuses or fails to prosecute the work or any separable part, with the diligence that will insure its completion within the time specified in this contract including any extension, or fails to complete the work within this time, the Government may, by written notice to the Contractor, terminate the right to proceed with the work (or the separable part of the work) that has been delayed. In this event, the Government may take over the work and complete it by contract or otherwise, and may take possession of and use any materials, appliances, and plant on the work site necessary for completing the work. The Contractor and its sureties shall be liable for any damage to the Government resulting from the Contractor’s refusal or failure to complete the work within the specified time, whether or not the Contractor’s right to proceed with the work is terminated. This liability includes any increased costs incurred by the Government in completing the work.

(b) The Contractor’s right to proceed shall not be terminated nor the Contractor charged with damages under this clause, if—

(1) The delay in completing the work arises from unforeseeable causes beyond the control and without the fault or negligence of the Contractor. Examples of such causes include (i) acts of God or of the public enemy, (ii) acts of the Government in either its sovereign or contractual capacity, (iii) acts of another Contractor in the performance of a contract with the Government, (iv) fires, (v) floods, (vi) epidemics, (vii) quarantine restrictions, (viii) strikes, (ix) freight embargoes, (x) unusually severe weather, or (xi) delays of subcontractors or suppliers at any tier arising from unforeseeable causes beyond the control and without the fault or negligence of both the Contractor and the subcontractors or suppliers; and

(2) The Contractor, within 10 days from the beginning of any delay (unless extended by the Contracting Officer), notifies the Contracting Officer in writing of the causes of delay. The Contracting Officer shall ascertain the facts and the extent of delay. If, in the judgment of the Contracting Officer, the findings of fact warrant such action, the time for completing the work shall be extended. The findings of the Contracting Officer shall be final and conclusive on the parties, but subject to appeal under the Disputes clause.

(c) If, after termination of the Contractor’s right to proceed, it is determined that the Contractor was not in default, or that the delay was excusable, the rights and obligations of the parties will be the same as if the termination had been issued for the convenience of the Government.

(d) The rights and remedies of the Government in this clause are in addition to any other rights and remedies provided by law or under this contract.

 

 

Please contact David Adelstein at dadelstein@gmail.com or (954) 361-4720 if you have questions or would like more information regarding this article. You can follow David Adelstein on Twitter @DavidAdelstein1.

 

 

SUBCONTRACTORS MAY (LIKELY) BE REQUIRED TO STAY THEIR MILLER ACT PAYMENT BOND CLAIMS PENDING THE OUTCOME OF THE CONTRACT DISPUTES ACT RESOLUTION PROCESS

UnknownIf you are a subcontractor on federal construction projects, the opinion by the District Court of Alaska in U.S. f/u/b/o Brice Environmental Services Corp. v. Bhate Environmental Associates, Inc., 2016 WL 544406 (D.Alaska 2016),  provides an interesting or not-so-interesting outlook on subcontractors that participate (perhaps by choice) in the request for equitable adjustment (REA) and Contract Disputes Act dispute resolution process.  (See this article for more on this outlook that creates a conflict between a subcontractor’s Miller Act payment bond rights and a prime contractor’s participation in the Contract Disputes Act dispute resolution process.) 

 

In this matter, a soil remediation subcontractor submitted an REA to the prime contractor for approximately $3 Million associated with the prime contractor’s standby and additional work directives.  The subcontractor claimed that most of the REA was unrelated to issues caused by the owner, but rather, caused by the prime contractor.  The subcontractor and prime contractor agreed to a mutual termination of the subcontractor and the subcontractor reduced its REA to approximately $1.1 Million (to include only incurred costs versus anticipated costs).  The prime contractor then submitted a change order request to the federal government.  The subcontractor shortly thereafter sued the prime contractor and its Miller Act payment bond surety.

 

The prime contractor and its Miller Act payment bond surety moved to stay the lawsuit pending the completion a Contract Disputes Act resolution and, if required, completion of arbitration thereafter.  The subcontractor did not oppose staying its Miller Act payment bond claim pending arbitration with the prime contractor, but opposed staying the case pending the resolution of the prime contractor’s Contract Disputes Act claim. However, the subcontractor acknowledged that claims attributable to the federal government are passed through to the government and that the subcontractor shall not maintain any proceeding against the prime contractor with respect to government-related (owner) claims until resolution of Contract Dispute Act claims.  Moreover, the subcontract provided for the completion of the Contract Disputes Act resolution process between the prime contractor and federal government before the subcontractor could maintain any proceeding against the prime contractor in connection with any omission, default, or act by the federal government.   

 

 

Here, the subcontractor could not establish that the federal government’s acts did not contribute to its claims against the prime contractor; and, the prime contractor submitted a change order to the federal government that included the subcontractor’s costs supporting its position that the federal government’s acts were connected to the subcontractor’s claim.  Nonetheless, the subcontractor argued it would be unfair if it had to bear the brunt of waiting for the resolution of any Contract Disputes Act claim between the prime contractor and federal government before the subcontractor could pursue its claim against the prime contractor.  The Court dismissed this argument and stayed the action pending the outcome of the Contract Disputes Act resolution process between the prime contractor and federal government expounding:

 

The economic strain of awaiting resolution of the CDA procedures between Defendant Bhate [prime contractor] and AFCEC [federal government] is, while burdensome, still a reasonably foreseeable event under the Subcontract. Furthermore, denying the Motion to Stay and allowing this matter to proceed would bifurcate the matter, creating parallel proceedings involving many of the same facts and witnesses. Additionally, it could potentially force Defendants [prime contractor and surety] to take inconsistent positions in the simultaneous proceedings, supporting Plaintiff’s claims against AFCEC while defending against them in the arbitration between the parties. An order staying this matter is supported not only by the contract, but also the promotion of judicial economy and efficiency.

Bhate Environmental Associates, supra, at *4. 

 

This is undoubtedly a harsh ruling for a subcontractor that is now forced to wait a potentially long time while the prime contractor participates in the Contract Disputes Act resolution process. While harsh, the subcontractor agreed to bear this risk in its subcontract.  And, from the Court’s rationale, even if the subcontractor did not bear this risk, the Court still found that staying the subcontractor’s claims promoted judicial economy since it prevented the prime contractor from dealing with simultaneous disputes (one with the subcontractor and another with the federal government) and taking inconsistent positions.  

 

From the prime contractor’s perspective, this language that requires the subcontractor to bear this risk and stay any dispute pending the outcome of the Contract Disputes Act resolution process is extremely important language (based on the precise reasoning by the Court quoted above). 

 

From the subcontractor’s perspective, this reinforces the notion that it is imperative for parties to appreciate the risks they are agreeing to in their contracts, particularly as it relates to the resolution of disputes.  Also, this reinforces the risk that a subcontractor performing federal construction work may have to bear irrespective of the subcontract.  

 

Although the subcontractor is now in a wait-and-see mode while the Contract Disputes Act process runs its course, the subcontractor was smart by perfecting its Miller Act payment bond rights by timely filing suit.  Even though the prime contractor’s Contract Disputes Act resolution process may take some time, the prime contractor and its payment bond surety will ultimately have to deal with this dispute if the outcome of its Contract Disputes Act claim does not fully resolve the subcontractor’s claim to the subcontractor’s satisfaction.

 

Please contact David Adelstein at dadelstein@gmail.com or (954) 361-4720 if you have questions or would like more information regarding this article. You can follow David Adelstein on Twitter @DavidAdelstein1.