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.
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.