SUBMITTING A “CLAIM” UNDER THE CONTRACT DISPUTES ACT

Posted on November 6, 2014November 8, 2024 by Edward Garber

The case of Delaware Cornerstone Builders, Inc. v. U.S., 117 Fed.Cl. 539 (Fed.Cl. 2014) exemplifies what happens if a federal government contractor fails to properly submit a claim in accordance with the Contract Disputes Act (41 U.S.C. s. 7101 en seq.). As reflected below, the failure of the contractor to comply with the Contract Disputes Act will strip the United States Court of Federal Claims of jurisdiction to resolve the contractor’s claim with the federal government.

In this case, the contractor disputed the scope of the government’s punchlist. The contractor sent a letter to the contracting officer that included a good faith certification requesting payment in the amount of $143,390.39 pursuant to its resubmitted payment application #14. The contracting officer denied the payment request stating that the amount exceeded the value of punchlist work. Due to the delay in the contractor completing the punchlist items, the government advised that it would hire another contractor to complete the items and deduct the costs from the contractor’s contract balance. However, the government did not hire the replacement contractor. Years later the contract was still not closed out. The contractor was still trying to get paid its contract balance and was communicating with the government’s legal counsel. The government’s counsel advised the contractor to submit a formal claim (per the Contract Disputes Act), but the contractor failed to do so. Instead, the contractor filed a lawsuit in the Court of Federal Claims for $200,760.39. The government moved to dismiss the complaint based on the contractor’s failure to comply with the Contract Disputes Act prior to filing the lawsuit. The Court of Federal Claims agreed:

The CDA [Contract Disputes Act] permits a contractor to appeal the final decision of a contracting officer to this Court within 12 months of receiving the decision on a claim. A contractor may also seek review in this Court if the contracting officer fails to respond to a contractor’s claim within 60 days, as provided in the CDA. As such, the predicate for jurisdiction under the CDA is an appeal of either a contracting officer’s final decision on a claim or a deemed denial of a claim.

***

The CDA does not define the term “claim,” but the Federal Acquisition Regulation (“FAR”) [in F.A.R. 2.101] defines 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 from or relating to the contract. Thus, the elements of a claim are: (i) a written demand, (ii) seeking, as a matter of right, (iii) the payment of money in a sum certain. Additionally, all claims requesting relief greater than $100,000 must be certified by the contractor.

***

An action brought before the Court of Federal Claims under the CDA must be based on the same claim previously presented to and denied by the contracting officer.

Delaware Cornerstone Builders, supra, at 545-47 (internal quotations and citations omitted).

While the contractor arguably submitted a certified claim for the $143,390.39 per its resubmitted payment application #14, this amount was different than the $200,760.39 it was seeking in its Complaint. Thus, the amount it was seeking was not based on the same potential claim denied by the contracting officer which was a condition precedent to the contractor filing a lawsuit against the government in the Court of Federal Claims.

If a prime contractor wants to pursue a claim against the federal government, it needs to properly prepare and submit that claim pursuant to the Contract Disputes Act. Notably, this is also memorialized in the disputes clause in F.A.R. 52.233-1 that is likely incorporated into the prime 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.

HOME OFFICE OVERHEAD (EICHLEAY) AND GOVERNMENT-CAUSED STANDBY

Posted on August 3, 2014November 8, 2024 by Edward Garber

JMR Construction Corp. v. United States, 2014 WL 3418445 (Fed.Cl. 2014) is a good federal government contracting case discussing a prime contractor’s challenging burden to support unabsorbed home office overhead damages caused by a government-caused delay. The United States Court of Federal Claims described unabsorbed home office overhead damages and the required elements (under the Eichleay methodology) for a prime contractor to prove these damages:

The term “home office overhead” refers to the general administration costs of running a business, such as accounting and payroll services, general insurance, salaries of upper-level management, heat, electricity, taxes, and depreciation. These are indirect costs, expended for the benefit of the whole business, [and thus] by their nature cannot be attributed or charged to any particular contract.

***

Contractors typically recoup these indirect costs by allocating them to individual contracts in proportion to those contracts’ direct costs. But, in the event of a government-caused delay or suspension of work, the stream of direct costs against which to assess a percentage [of home office overhead] is decreased. The resulting shortfall is termed unabsorbed home office overhead.

***

The Circuit has held that the so-called Eichleay formula is the sole method through which contractors are able to recover unabsorbed home office overhead. The Eichleay formula requires that contractors satisfy several strict prerequisites. First, the contractor must demonstrate that there was a government-caused delay not excused by a concurrent contractor-caused delay. Second, the contractor must show that it incurred additional overhead expenses, either because the contract’s performance period was extended or because the contractor would have finished prior to the un-extended performance period’s close. Third, the contractor must establish that it was required to remain on standby for the duration of the delay. [Standby does not require the prime contractor to prove that it was completely idle but that its work was significantly slowed such that it was performing minor tasks.]

***

In order to establish standby, contractors must demonstrate three things. First, the contractor must show that the government caused delay was not only substantial but was of an indefinite duration. Second, the contractor must demonstrate that, during the delay, it was required to return to work at full speed and immediately [once the suspension period is over. If the prime contractor is given a reasonable period of time to remobilize after the suspension is lifted, it will not be able to satisfy this requirement]. Third, the contractor must show a suspension of most if not all of the contract work. If the contracting officer has issued a written stop work order proving these elements the contractor can utilize that order to provide direct evidence of standby. Otherwise, these elements can be proven through indirect evidence.

***

If the contractor can make a prima facie showing of the standby elements, the burden of production shifts to the government to show either that it was not impractical for the contractor to obtain replacement work during the delay, or that the contractor’s inability to obtain or perform replacement work was caused by a factor other than the government’s delay.

JMR Construction, supra, at *5-7 (internal quotations and citations omitted); see also P.J. Dick, Inc. v. Principi, 324 F.3d 1364 (Fed.Cir. 2003) (finding that contractor could not support claim for unabsorbed home office overhead as it could not support it was on standby).

The Federal Circuit Court of Appeals summarized these requirements by the following questions:

In short, a court evaluating a contractor’s claim for Eichleay damages should ask the following questions: (1) was there a government-caused delay that was not concurrent with another delay caused by some other source; (2) did the contractor demonstrate that it incurred additional overhead…; (3) did the government CO [contracting officer] issue a suspension or other order expressly putting the contractor on standby; (4) if not, can the contractor prove there was a delay of indefinite duration during which it could not bill substantial amounts of work on the contract and at the end of which it was required to be able to return to work on the contract at full speed and immediately; (5) can the government satisfy its burden of production showing that it was not impractical for the contractor to take on replacement work (i.e., a new contract) and thereby mitigate its damages; and (6) if the government meets its burden of production, can the contractor satisfy its burden of persuasion that it was impractical for it to obtain sufficient replacement work. Only where the above exacting requirements can be satisfied will a contractor be entitled to Eichleay damages.

P.J. Dick, Inc. v. Principi, 324 F.3d 1364, 1373 (Fed.Cir. 2003).

In JMR Construction, the prime contractor was hired to build an aircraft maintenance facility. The prime contractor sued the government pursuant to the Contract Disputes Act for government-caused delays. The period of delay the prime contractor was seeking to recover damages for was January 16, 2009 (day after the government occupied the facility) through September 4, 2009 (completion).

The government took occupancy of the facility on January 15, 2009. The prime contractor continued to perform work after this date, although its workforce slowed down. On February 3, 2009, the prime contractor demobilized its jobsite trailer and was finishing the balance of its work including the manufacturing and installation of a permanent power converter and the installation of ceiling lights in one of the rooms. Temporary stopgap measures had been implemented to address these electrical issues that likely allowed the government to utilize the facility.

The government moved for summary judgment as to the prime contractor’s entitlement to unabsorbed home office overhead damages. The Court broke the prime contractor’s unabsorbed home office overhead claim into two discrete periods: (1) January 16, 2009 (day after the government took occupancy) to February 3, 2009 (when the contractor demobilized jobsite trailer) and (2) February 4, 2009 to September 4, 2009 (period when the permanent power and room lighting were being installed). Because the contracting officer never issued a standby notice, the prime contractor had the burden to prove by indirect evidence the factors (referenced above) supporting its entitlement to unabsorbed home office overhead.

First Period: 1/16/09-2/3/09

The Court did not grant summary judgment during this period because there was a disputed issue of fact as to materiality of the work the prime contractor was performing during this time period. The prime contractor contended the work it was performing was minor whereas the government contended the work was material. If the work is deemed material (or more than just minor tasks) the prime contractor’s unabsorbed home office overhead claim will fail since it was never on standby or suspended. If it was minor, the prime contractor would still need to prove the elements of standby. Although the Court declined to grant summary judgment based on this disputed factual issue, it seems from the Court’s ruling during the second time period (below) that the prime contractor will have difficulty proving the elements of standby.

Second Period: 2/4/09-9/4/09

The Court granted summary judgment on the prime contractor’s claim for unabsorbed home office overhead during this period because the prime contractor could NOT prove the elements of standby. In particular, the prime contractor could not prove it was required to resume work at full speed and immediately once the “suspension period” was over. The prime contractor did not appear to maintain any personnel or equipment on site during this period that eliminated any argument that it was required to return to work with any degree of urgency once the suspension was lifted. The prime contractor also utilized a subcontractor to perform the incomplete electrical work, and the use of subcontractors can limit a prime contractor’s ability to prove standby since it was only monitoring the work and not actually required to return to work at all. And last, temporary stopgap measures were implemented relating to the lighting that negated the time sensitivity of the remaining work meaning there was no urgency for the contractor to resume work immediately.

Finally, even assuming the prime contractor could support its entitlement to unabsorbed home office overhead, the Court did not go into any discussion regarding the Eichleay formula–the specific formula utilized to determine the allocable unabsorbed home office overhead associated with a government-caused delay. The objective of the Eichleay formula is to obtain a daily rate for the home office overhead allocated to the specific contract and multiply the daily rate by the number of delay days to determine the contractor’s unabsorbed home office overhead caused by the government’s delay.

FEDERAL CONTRACTING AND COMPLIANCE WITH THE CONTRACT DISPUTES ACT

Posted on June 8, 2014November 8, 2024 by Edward Garber

Federal Acquisition Regulation 52.233-1 (48 CFR 52.233-1) contains a dispute clause that is incorporated into prime contracts for federal construction projects. This regulation is set forth at the bottom of this article and provides that the prime contract is subject to the Contract Disputes Act (41 U.S.C. s. 7101 en seq.). The Contract Disputes Act is a vital part of federal contracting.

The Contact Disputes Act—containing similar language to FAR 52.233-1—requires prime contractors to submit claims relating to the prime contract in writing to the contracting officer for a decision within six years after the accrual of the claim. 41 USC s. 7103 (a). Claims of more than $100,000 need to contain a certification that:

“(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.”

41 USC s. 7103(b).

(It is imperative that the prime contractor not misrepresent or fraudulently submit a certified claim as it could expose the contractor to liability. 41 USC s. 7103(c).)

The contracting officer will then render a decision for claims of $100,000 or less within “sixty days from the contracting officer’s receipt of a written request from the contractor that a decision be rendered within that period.” 41 USC s. 7103(f)(1). With respect to claims of more than $100,000, the contracting officer “shall, within 60 days of receipt of a submitted certified claim…(A) issue a decision; or (B) notify the contractor of the time within which a decision will be issued.” 41 USC s. 7103(f)(2). If the contracting officer notifies the prime contractor that it needs more time to render a decision, which is not uncommon, he/she is simply required to issue a decision within a reasonable period of time factoring in the size and complexity of the claim with the back-up information submitted by the prime contractor. 41 USC s.7103(f)(3). “Failure by a contracting officer to issue a decision on a claim within the required time is deemed to be a decision by the contracting officer denying the claim and authorizes an appeal or action on the claim….However, the tribunal concerned may, at its option, stay the proceedings of the appeal or action to obtain a decision by the contracting officer.” 41 USC s. 7103(f)(5).

Once the contracting officer renders a decision on the claim, this decision is final unless the prime contractor (i) appeals the decision to the applicable agency board within 90 days from the date of receipt of the contracting officer’s decision or (ii) initiate an action in the United States Court of Federal Claims within twelve months from the date of receipt of the contracting officer’s decision. 41 USC s. 7104.

The opinion in The Hanover Insurance Company v. U.S., 2014 WL 2192148 (Fed.Cl. 2014), illustrates the importance for prime contractors to comply with the Contract Disputes Act and corresponding Federal Acquisition Regulation 52.233-1 (governing disputes and incorporated into the prime contracts) prior to instituting litigation against the federal government.

In this case, the United States Army Corps of Engineers (“Corps”) engaged a prime contractor to perform work for an Everglades upgrade project. The Corps default terminated the prime contractor due to issues pertaining to the prime contractor’s dewatering plan. The Corps made a demand on the prime contractor’s performance bond surety to either complete the balance of the unperformed contract work or tender a new contractor to complete the contract work. The Corps also denied claims the prime contractor submitted for additional costs relating to the dispute over the dewatering plan (that ultimately led to the default termination). The performance bond surety tendered a completion contractor and executed a tender and release agreement with the Corps that obligated the surety to pay the Corps many millions of dollars which represented the difference between the amount to be paid to the completion contractor to complete the contract work minus the unpaid balance of the original prime contractor’s contract. The tender and release agreement provided that the prime contractor and surety could ultimately challenge the Corps’ default termination.

Subsequently, the prime contractor and its surety filed separate complaints against the federal government in the Court of Federal Claims challenging the default termination. Ultimately, the prime contractor wanted the Corps’ default termination converted into a termination for convenience; this would, in turn, result in the federal government reimbursing the surety the many millions the surety tendered plus other related costs incurred by the contractor in the performance of the project. (The prime contractor also sued the federal government to recover its costs tied to the claims it submitted to the Corps relating to the dewatering dispute that the Corps denied.) These lawsuits were all consolidated.

The federal government moved to dismiss the claims for monetary damages asserted by the prime contractor and surety challenging the default termination. The federal government’s motion was based on the prime contractor and surety’s failure to comply with the Contract Disputes Act. The Court of Federal Claims explained:

“The CDA [Contract Disputes Act] provides that in the event of a dispute between a contractor and the government ‘relating to a contract,’ all contractor claims are to be submitted in writing to the contracting officer for decision and all government claims are to be the subject of a contracting officer decision. A claim [under Federal Acquisition Regulation 52.233-1(c)] is ‘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 [the] contract.’ Upon receipt of a claim, the contracting officer must issue a written decision containing his or her reasoning for the outcome and advising the contractor of its right to appeal. If a contracting officer fails to issue a decision ‘within the period required’ by the statute, the failure is deemed to be a decision denying the claim. The decision of the contracting officer is final unless the contractor makes an authorized appeal. A valid claim, a contracting officer’s decision or deemed denial, and a proper appeal are all jurisdictional requirements under the CDA [to file a complaint in the Court of Federal Claims].”

The Hanover Insurance Company, supra, at *4 (internal citations omitted).

Neither the prime contractor nor its performance bond surety submitted a claim to the contracting officer due to the default termination in accordance with the Contract Disputes Act. Based on this failure, the federal government argued that the Court of Federal Claims did not have proper jurisdiction to hear the merits of the dispute. The Court of Federal Claims agreed and dismissed the claims for lack of jurisdiction stating:

“In the absence of a final contracting officer decision regarding termination for convenience costs or other money damages related to the default termination,

whether premised on a contractor claim or on a government claim, the court must dismiss the claims for money damages…. This ruling, however, does not foreclose Hanover and Lodge from pursuing these claims. To the contrary, by dismissing these claims for lack of jurisdiction, the court is removing the obstacle preventing the contracting officer from entertaining plaintiffs’ claims for default termination-related money damages.”

The Hanover Insurance Company, supra, at *7.

In other words, the prime contractor and surety will need to submit a written claim, await the contracting officer’s obvious denial of the claim, and then re-institute the action in the Court of Federal Claims based on the denial.

Since the contracting officer’s decision converting a default termination into a termination for convenience seems fairly transparent, the prime contractor and surety argued, as they should, that it would be futile to comply with the Contract Disputes Act when the contracting officer is going to obviously deny the claim. Notwithstanding this transparent fact, the Court of Federal Claims relied on case law where a prime contractor sitting in a similar default termination situation was required to submit a claim pursuant to the Contract Disputes Act challenging the default termination in order for the Court of Federal Claims to have jurisdiction.

48 CFR 52.233-1

(a) This contract is subject to 41 U.S.C. chapter 71, Contract Disputes.

(b) Except as provided in 41 U.S.C. chapter 71, all disputes arising under or relating to this contract shall be resolved under this clause.

(c) Claim, as used in this clause, means 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. However, a written demand or written assertion by the Contractor seeking the payment of money exceeding $100,000 is not a claim under 41 U.S.C. chapter 71 until certified. A voucher, invoice, or other routine request for payment that is not in dispute when submitted is not a claim under 41 U.S.C. chapter 71. The submission may be converted to a claim under 41 U.S.C. chapter 71, by complying with the submission and certification requirements of this clause, if it is disputed either as to liability or amount or is not acted upon in a reasonable time.

(d)(1) A claim by the Contractor shall be made in writing and, unless otherwise stated in this contract, submitted within 6 years after accrual of the claim to the Contracting Officer for a written decision. A claim by the Government against the Contractor shall be subject to a written decision by the Contracting Officer.

(d)(2)(i) The Contractor shall provide the certification specified in paragraph (d)(2)(iii) of this clause when submitting any claim exceeding $100,000.

(ii) The certification requirement does not apply to issues in controversy that have not been submitted as all or part of a claim.

(iii) The certification shall state as follows: “I certify that the claim is made in good faith; that the supporting data are accurate and complete to the best of my knowledge and belief; that the amount requested accurately reflects the contract adjustment for which the Contractor believes the Government is liable; and that I am authorized to certify the claim on behalf of the Contractor.”

(3) The certification may be executed by any person authorized to bind the Contractor with respect to the claim.

(e) For Contractor claims of $100,000 or less, the Contracting Officer must, if requested in writing by the Contractor, render a decision within 60 days of the request. For Contractor-certified claims over $100,000, the Contracting Officer must, within 60 days, decide the claim or notify the Contractor of the date by which the decision will be made.

(f) The Contracting Officer’s decision shall be final unless the Contractor appeals or files a suit as provided in 41 U.S.C. chapter 71.

(g) If the claim by the Contractor is submitted to the Contracting Officer or a claim by the Government is presented to the Contractor, the parties, by mutual consent, may agree to use alternative dispute resolution (ADR). If the Contractor refuses an offer for ADR, the Contractor shall inform the Contracting Officer, in writing, of the Contractor’s specific reasons for rejecting the offer.

(h) The Government shall pay interest on the amount found due and unpaid from (1) the date that the Contracting Officer receives the claim (certified, if required); or (2) the date that payment otherwise would be due, if that date is later, until the date of payment. With regard to claims having defective certifications, as defined in (FAR) 48 CFR 33.201, interest shall be paid from the date that the Contracting Officer initially receives the claim. Simple interest on claims shall be paid at the rate, fixed by the Secretary of the Treasury as provided in the Act, which is applicable to the period during which the Contracting Officer receives the claim and then at the rate applicable for each 6–month period as fixed by the Treasury Secretary during the pendency of the claim.

(i) The Contractor shall proceed diligently with performance of this contract, pending final resolution of any request for relief, claim, appeal, or action arising under the contract, and comply with any decision of the Contracting Officer.