Category Archives: Government Contracting

“NO DAMAGE FOR DELAY” PROVISIONS AND THE EXCEPTIONS

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Contractors and subcontractors should be familiar with “no damage for delay” provisions.  These are contractual provisions that limit the contractor’s remedies for a delay to an extension of time ONLY, and disallow the contractor from being entitled to extended general conditions (overhead) for an otherwise excusable, compensable delay.   

 

There are numerous variations of the “no damage for delay” provision; however they usually contain language that provides as follows:

 

“The contractor’s sole and exclusive remedy for a delay, interference, or hindrance with its Work shall be an extension of time and contractor shall not be entitled to any damages for a delay, interference, or hindrance with its Work.”

 or

“The contractor shall not be entitled to any compensation whatsoever for any delay, interference, hindrance, acceleration, or inefficiency with its Work and its sole and exclusive remedy for any delay, interference, acceleration, or inefficiency with its Work shall be an extension of time.”

 

In Florida, “no damage for delay” provisions are enforceable on private and public projects.  However, there are EXCEPTIONS that would prevent the provision’s harsh application and entitle a contractor to its extended general conditions for an excusable, compensable delay.  These exceptions are fraud, willful concealment of foreseeable circumstances, and active interference.  See Triple R Paving, Inc. v. Broward County, 774 So.2d 50 (Fla. 4th DCA 2000).  In other words, if the hiring party (owner) does not willfully or knowingly delay construction, then the application of the “no damage for delay” provision will preclude the hired party (contractor) from recovering its extended general conditions associated with the delay.  See id.  On the other hand, if the hiring party does willfully or knowingly delay construction, then the hired party has an argument around the “no damage for delay” provision.

 

Even with a “no damage for delay” provision in the contract, it is imperative for the hired party (contractor) to properly and timely request additional time and money in accordance with the contract.  There are typically provisions that require the hired party (contractor) to notify the hiring party (owner) of delaying events or claims and to request time and money associated with the event or claim.  If a contractor fails to timely preserve its rights under the contract to seek additional time or money, it may preclude itself from recovering extended general conditions for a delay that would otherwise serve as an exception to the “no damage for delay” provision.  See Marriot Corp. v. Dasta Const. Co., 26 F.3d 1057 (11th Cir. 1994) (contractor’s failure to request time pursuant to the contract prevented it from recovering delay damages associated with an owner’s active interference).

 

On federal construction projects, “no damage for delay” provisions are perhaps less common based on Federal Acquisition Regulations (F.A.R.) that would otherwise entitle the contractor to recover delay-related damages if it properly and timely preserves its rights.  These “no damage for delay” provisions are more frequently found in subcontracts between the prime contractor and its subcontractors.  There is authority that would hold an unambiguous “no damage for delay” enforceable on federal construction projects:

 

“Nevertheless, given their potentially harsh effect, no damages for delay provisions should be strictly construed, but generally will be enforced, absent delay (1) not contemplated by the parties under the provision, (2) lasting an unreasonable period and thereby amounted to an abandonment of the contract, (3) caused by fraud or bad faith, or (4) amounting to active interference or gross negligence.”

Appeal of-The Clark Construction Group, Inc., GAOCAB No. 2003-1, 2004 WL 5462234 (November 23, 2004); accord Grunley Construction Co. v. Architect of the Capitol, GAOCAB No. 2009-1, 2010 WL 2561431 (June 16, 2010).

 

In drafting a “no damage for delay” provision, I always like to include language that specifically states that the application of the “no damage for delay” provision is not conditioned on the hired party (contractor) being granted additional time to substantially complete or finally complete the project.  I also like to include language that the hired party (contractor) understands this “no damage for delay” provision and has factored this provision into the contract amount.  It is important that this provision clearly reflects the intent because the hiring party will want to rely on this provision in the event there is a delaying event and it is a provision that will be strictly construed.

 

Conversely, if you trying to avoid the harsh consequences of a “no damage for delay” provision, it is advisable to consult with counsel that understands the recognized exceptions to the provision and can assist you in negotiating and presenting your claim based on these recognized exceptions.

 

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.

SUBMITTING A “CLAIM” UNDER THE CONTRACT DISPUTES ACT

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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.

RECOVERING COMPENSATION FOR UNREASONABLE DELAYS UNDER THE SUSPENSION OF WORK CLAUSE

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Federal government construction contracts for fixed-price contracts contain a suspension of work clause found in F.A.R. 52.242-14 (a copy of this clause can be found at the bottom of this posting).   This clause allows the government, through the contracting officer, to order the suspension, interruption, or delay of the construction work.  This clause further permits the contractor to obtain an equitable adjustment for the increased costs it incurs associated with the delay / suspension of its work for an unreasonable period of time. George Sollitt Const. Co. v. U.S., 64 Fed.Cl. 229, 236-37 (Fed.Cl. 2005).  The unreasonableness of the delay / suspension depends on the actual circumstances of the project, but it is this finding of unreasonableness that triggers additional compensation to the contractor.  See id.   The test applied to determine whether the contractor is entitled to an equitable adjustment for additional compensation pursuant to the suspension of work clause is as follows:

 

1.  The delay must be of an unreasonable length extending the contract’s performance;
2.  The delay must be proximately caused by the government;
3.  The delay resulted in injury or damage to the contractor; and
4.  There is no concurrent delay caused by the contractor.

 

CEMS, Inc. v. U.S., 59 Fed.Cl. 168, 230 (Fed.Cl. 2003) quoting P.J. Dick, Inc. v. Principi, 324 F.3d 1364, 1375 (Fed.Cir. 2003).

 

As reflected above by the fourth factor, “even if the government has caused an unreasonable delay to the contract work, that delay will not be compensable if the contractor, or some other factor not chargeable to the government, has caused a delay concurrent with the government caused-delay.”  George Sollitt, 64 Fed.Cl. at 237.

 

This suspension of work clause is designed to make the contractor whole for unreasonable delays, but additional profit would be excluded from any additional compensation owed to the contractor.  See F.A.R. 52.242-14(b).

 

As mentioned in previous postings, contractors need to understand the clauses incorporated into their prime contract so they can appreciate how to best preserve their rights when they encounter a delaying event.  Also, understanding the clauses will enable the contractor to best present their request for equitable adjustment or claim in a manner that supports their position for additional compensation.

 

F.A.R. 52.242-14

Suspension of Work (APR 1984)

(a) The Contracting Officer may order the Contractor, in writing, to suspend, delay, or interrupt all or any part of the work of this contract for the period of time that the Contracting Officer determines appropriate for the convenience of the Government.

(b) If the performance of all or any part of the work is, for an unreasonable period of time, suspended, delayed, or interrupted (1) by an act of the Contracting Officer in the administration of this contract, or (2) by the Contracting Officer’s failure to act within the time specified in this contract (or within a reasonable time if not specified), an adjustment shall be made for any increase in the cost of performance of this contract (excluding profit) necessarily caused by the unreasonable suspension, delay, or interruption, and the contract modified in writing accordingly. However, no adjustment shall be made under this clause for any suspension, delay, or interruption to the extent that performance would have been so suspended, delayed, or interrupted by any other cause, including the fault or negligence of the Contractor, or for which an equitable adjustment is provided for or excluded under any other term or condition of this contract.

(c) A claim under this clause shall not be allowed (1) for any costs incurred more than 20 days before the Contractor shall have notified the Contracting Officer in writing of the act or failure to act involved (but this requirement shall not apply as to a claim resulting from a suspension order), and (2) unless the claim, in an amount stated, is asserted in writing as soon as practicable after the termination of the suspension, delay, or interruption, but not later than the date of final payment under the 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.

FEDERAL GOVERNMENT CONTRACTING AND RECOVERY OF ATTORNEY’S FEES UNDER THE EQUAL ACCESS TO JUSTICE ACT (“EAJA”)

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The ability to recover attorney’s fees against the federal government is a consideration before initiating a dispute against the government, whether in federal court or in an administrative proceeding.

 

The Equal Access to Justice Act (referred to as the “EAJA”) authorizes a court to award reasonable attorney’s fees and costs to a prevailing, eligible contractor in an action brought by or against the United States.  28 U.S.C. s. 2412(d)(1)(a).  The purpose of the EAJA has been explained as follows:

 

“The purpose of the EAJA is to eliminate legal expenses as a barrier to challenges of unreasonable government action. Accordingly, the EAJA authorizes this court to award attorney fees and expenses incurred by contractors who prevail in litigation against the government provided the contractors do not exceed certain size and net worth limitations. The government may escape liability for legal expenses if its actions were substantially justified or if special circumstances make the award unjust.  The burden is on the government to present a substantial justification for its actions.”

Community Heating & Plumbing Co., Inc. v. Garrett, 2 F.3d 1143, 1145 (Fed.Cir. 1993) (internal citations and quotations omitted)

 

First, the contractor needs to be eligible to recover fees under the EAJA.  Not every contractor is eligible.  Such eligible contractors are defined by the EAJA as:

 

“(i) an individual whose net worth did not exceed $2,000,000 at the time the civil action was filed, or (ii) any owner of an unincorporated business, or any partnership, corporation, association, unit of local government, or organization, the net worth of which did not exceed $7,000,000 at the time the civil action was filed, and which had not more than 500 employees at the time the civil action was filed….”

28 U.S.C. 2412 (d)(2)(B)

 

Second, the contractor needs to be the prevailing party.  A prevailing contractor under the EAJA is a contractor that recovers a judgment on the merits in its favor.  Ulysses, Inc. v. U.S., 117 Fed.Cl. 772, 777 (Fed.Cl. 2014).   The government however, can avoid the award of fees against it if it proves it was substantially justified in advancing its position.  Substantial justification is a subjective standard determined on a case-by-case basis:

 

“In determining whether to award attorney’s fees under EAJA, the Court looks to whether the Government’s position prior to and throughout litigation had a reasonable basis in both law and fact. While the appropriateness of the Government’s position might vary on individual matters, the Court considers the totality of circumstances to determine whether that position was substantially justified. In the words of the United States Supreme Court, ‘While the parties’ postures on individual matters may be more or less justified, the EAJA … favors treating a case as an inclusive whole, rather than as atomized line-items.’”

Ulysses, 117 Fed.Cl. at 778 (internal quotations and citations omitted). 

 

Stated more simplistically, the government must prove that it advanced a position “justified to a degree that could satisfy a reasonable person.”  BCPeabody Construction Services, Inc. v. U.S., 117 Fed.Cl. 408, 413 (Fed.Cl. 2014) (internal quotation and citation omitted).

 

And third, even if the contractor is eligible to recover attorney’s fees under the EAJA and prevails against the government, this does NOT mean that it will recover 100% of the fees it incurred in the action.  The EAJA provides a statutory cap of $125/hour for attorney’s fees time unless the “court determines that an increase in the cost of living or a special factor, such as the limited availability of qualified attorneys or the proceedings involved, justifies a higher fee.” 28 U.S.C. s. 2412(d)(2)(A).  Unfortunately, exceeding this hourly cap has nothing to do with the novelty of the issues, the competence of the attorney, or the results obtained.  BCPeadbody Construction Services, 117 Fed.Cl. at 415. This means that contractors should not bank on exceeding the statutory cap in recovering attorney’s fees against the government.

 

Importantly, there is also a relevant EAJA for administrative proceedings initiated prior to or instead of  any civil action in court.   5 U.S.C. s. 504.  This administrative EAJA largely mirrors the EAJA discussed above for civil actions, but applies to administrative proceedings. See Melkonyan v. Sullivan, 501 U.S. 89 (1991).

 

Before proceeding with a dispute against the federal government in federal court or an administrative proceeding, consider whether you have a basis under the EAJA to recover attorney’s fees.

 

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.

REQUESTS FOR EQUITABLE ADJUSTMENT AND CONSTRUCTIVE CHANGES IN FEDERAL CONSTRUCTION PROJECTS

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Federal government construction contracts contain a changes clause.  The changes clause in fixed-price federal construction contracts is contained in F.A.R. 52.243-4 (set forth at the bottom of this posting).  This changes clause allows the government, through the contracting officer, to direct changes to the construction contract.  It also allows the prime contractor to request an equitable adjustment to its contract price associated with either a directed / formal change or a constructive change.

 

Formal / directed changes issued to the prime contractor by the government are easy to comprehend.  These typically are less likely to lead to a dispute because the government acknowledges increased costs are owed to the prime contractor through its issuance of a formal change order / directive.

 

A constructive change, on the other hand, oftentimes is what leads to a dispute if the government does not agree that it caused the contractor to incur increased costs to perform the contract. The United States Court of Federal Claims in CEMS, Inc. v. U.S., 59 Fed.Cl. 168 (Fed.Cl. 2003) contains a good discussion as to what constitutes a constructive change:

 

“A constructive change generally arises where the Government, without more, expressly or impliedly orders the contractor to perform work that is not specified in the contract documents.  The constructive change doctrine provides recovery for contractors as the rationale for constructive changes involves the objective of persuading a contractor to continue to work pending resolution of any dispute involving the work at issue.

*** 

There are two basic components to the constructive change doctrine-the change component and the order/fault component.  The change component describes work outside of the scope of the contract, while the order/fault component describes the reason that the contractor performed the work.

***

A constructive change issue arises for work if the Government either expressly or impliedly ordered the work outside the scope of the contract, or if the Government otherwise caused the contractor to incur additional work….In any event, the Government must have directed the contractor to perform the additional work.  The work must not have been volunteered.”

CEMS, supra, at 203 (internal quotations and citations omitted).

 

It is the constructive change that typically leads to what is referred to as a request for equitable adjustment or REA.  An equitable adjustment compensates a prime contractor for the increased costs it incurs in performing the contract, whether due to additional work or delays caused by the government.  Morrison Knudsen Corp. v. Fireman’s Fund Ins. Co., 175 F.3d 1221, 1243-44 (10th Cir. 1999).   “Some equitable adjustments are for work added by formal change orders….Other equitable adjustments result from ‘constructive changes,’ which occur when the government does something to increase the contractor’s costs without issuing a formal change order.” Id at 1244.

 

 

For a prime contractor to receive an equitable adjustment under the changes clause, it bears the burden of proving liability, causation, and injury.  P.R. Burke Corp. v. U.S., 58 Fed.Cl. 549, 556 (Fed.Cl. 2003).   The prime contractor must “prove that the government somehow delayed, accelerated, augmented, or complicated the work, and thereby caused the contractor to incur specific additional costs.”  Morrison Knudsen Corp., 175 F.3d at 1244.  Stated differently, “[b]efore an equitable adjustment will be granted, plaintiffs [prime contractor] are required to demonstrate that: (1) increased costs arose from conditions materially different from what the contract documents indicated and that such conditions were reasonably unforeseeable based on all information available to the contractor; and (2) the changes in the requirements caused the increased costs.”  Sipco Services & Marine, Inc. v. U.S., 41 Fed.Cl. 196, 224 (Fed.Cl. 1998).

 

As a prime contractor, if you experience a constructive change (increased costs to perform your work), notify the government and request an equitable adjustment to the contract.  If you volunteer to do additional work than you may be impacting your ability to request an equitable adjustment for a constructive change.  It is all about knowing and understanding your rights under the contract so that, among other things, you can preserve your right to seek additional compensation / an equitable adjustment to your contract price.

 

 

 

52.243-4 Changes (JUN 2007)

(a) The Contracting Officer may, at any time, without notice to the sureties, if any, by written order designated or indicated to be a change order, make changes in the work within the general scope of the contract, including changes-

(1) In the specifications (including drawings and designs);

(2) In the method or manner of performance of the work;

(3) In the Government-furnished property or services; or

(4) Directing acceleration in the performance of the work.

(b) Any other written or oral order (which, as used in this paragraph (b), includes direction, instruction, interpretation, or determination) from the Contracting Officer that causes a change shall be treated as a change order under this clause; provided, that the Contractor gives the Contracting Officer written notice stating (1) the date, circumstances, and source of the order and (2) that the Contractor regards the order as a change order.

(c) Except as provided in this clause, no order, statement, or conduct of the Contracting Officer shall be treated as a change under this clause or entitle the Contractor to an equitable adjustment.

(d) If any change under this clause causes an increase or decrease in the Contractor’s cost of, or the time required for, the performance of any part of the work under this contract, whether or not changed by any such order, the Contracting Officer shall make an equitable adjustment and modify the contract in writing. However, except for an adjustment based on defective specifications, no adjustment for any change under paragraph (b) of this clause shall be made for any costs incurred more than 20 days before the Contractor gives written notice as required. In the case of defective specifications for which the Government is responsible, the equitable adjustment shall include any increased cost reasonably incurred by the Contractor in attempting to comply with the defective specifications.

(e) The Contractor must assert its right to an adjustment under this clause within 30 days after (1) receipt of a written change order under paragraph (a) of this clause or (2) the furnishing of a written notice under paragraph (b) of this clause, by submitting to the Contracting Officer a written statement describing the general nature and amount of proposal, unless this period is extended by the Government. The statement of proposal for adjustment may be included in the notice under paragraph (b) above.

(f) No proposal by the Contractor for an equitable adjustment shall be allowed if asserted after final payment 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.

DELAY, DELAY AND MORE DELAY! EXCUSABLE OR NON-EXCUSABLE?

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The word “delay” is an all too familiar word utilized during construction because it is not remotely uncommon for a construction project to experience delays.  While contractors never want a delay to actually happen because time is money, delays unfortunately do happen as construction schedules are not written in stone.

 

There are two types of delay: (1) non-excusable delay (or inexcusable delay) and (2) excusable delay.

 

Non-excusable delay is the type of delay that contractors never want to hear.  This is the delay solely caused by them and may trigger the owner’s assessment of liquidated damages.  Not only this, but this type of delay will not entitle the contractor to additional time or compensation.  Why? Because again, the delay was caused by the contractor, hence the reason why it is the type of delay a contractor never wants to hear!

 

Excusable delay is not the fault of the contractor and is the type delay that will entitle the contractor to additional time, additional compensation, or both.  Excusable delay is further broken down into (a) compensable, excusable delay (entitling the contractor to additional compensation and time) and (b) non-compensable, excusable delay (entitling the contractor to additional time, but not additional compensation).

 

Excusable, compensable delay is a delay solely caused by the owner or its consultants and is not caused by the contractor.  This is the good type of delay in the sense that it should entitle the contractor to additional time to substantially complete the project and, based upon the contract, additional compensation in the form of extended general conditions.  This type of delay could be the result of owner-directed changes, differing site conditions, design revisions, suspension of performance, i.e., actions that are outside of the contractor’s control but within the owner and its agents’ control.

 

Excusable, non-compensable delay, on the other hand, is typically your force majeure delay including unusually severe weather conditions, fire, or labor strikes—these are the types of delay that are beyond any parties’ control in the construction process, which is why the contractor would be entitled to additional time, but not additional money.

 

The contractor claiming excusable delay has the burden of proving the delay.  See R.P. Wallace, Inc. v. U.S., 63 Fed.Cl. 402, 409 (Fed.Cir. 2004) (“The contractor must prove that the excusable event proximately caused a delay to the overall completion of the contract, i.e., that the delay affected activities on the critical path.”).  For this reason, it is important that the contractor well-document the cause of the delay including how the delay impacted its critical path, and provide timely notice under the contract regarding the event causing the delay.

 

Now, construction contracts contain may contain a “no damage for delay” clause that is designed to prevent the contractor from being entitled to extended general conditions for excusable, compensable delay.  Basically, if there is an excusable delay, the contractor’s sole and exclusive remedy is an extension of time and not extended general conditions.  The “no damage for delay” provision is enforceable in many jurisdictions.  While there are certain recognized exceptions to the application of an enforceable “no damage for delay” provision (e.g., fraud, active interference), a contractor agreeing to such a provision certainly cannot operate on the premise that it will argue around it in the event of an excusable, compensable delay.  Rather, the contractor needs to operate on the premise that it is assuming a certain risk that a delay could be caused by the owner or the owner’s agents and the contractor’s sole remedy for the delay is more time to substantially complete the project.

 

The objective for any contractor is to understand what the legal implications and consequences are for delays on a construction project, whether an excusable delay or non-excusable delay.  Some tidbits for contractors to absolutely consider on the front-end and prior to the execution of the contract include:

 

  • Does the contract define excusable delay that would entitle the contractor to additional time and/or money?  For instance, in government contracting, the prime contract may incorporate Federal Acquisition Regulation 52.249.10 and 52.249.14 regarding excusable delay, as set forth below.
  • Is there a “no-damage-for-delay” provision in the contract?
  • What are the notice provisions to ensure the contractor is timely providing notice for the cause of the delaying event? Notice should always be given even if the full impact of the delay is unknown. Many contracts contain onerous language that if notice is not given with “x” number of days after the delaying event, the contractor waives any and all claims for delay.  Watch out for this!
  • Does the contractor have appropriate language in its subcontracts that will enable it to flow-down damages associated with non-excusable delay (the owner’s assessment of liquidated damages and the contractor’s own extended general conditions)?
  • Does the contractor have an experienced scheduling consultant or scheduler that can capture the delaying event to show the event impacted the critical path?

 

 

52.249-10    Default (Fixed–Price Construction) (APR 1984)

(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.

See also F.A.R. 52.249-14 (regarding bolded language).

 

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.

CONVERTING THE DREADFUL TERMINATION FOR DEFAULT INTO A TERMINATION FOR CONVENIENCE

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Contractors, whether prime contractors or subcontractors, terminated for default (also known as termination for cause) want to convert that termination for default into a termination for convenience.   The termination for default ultimately means the contractor materially breached the contract and would be liable for any cost overrun associated with completing their contractual scope of work.  On the other hand, if the termination for default is converted into a termination for convenience, the contractor would be entitled to get paid for the work performed through the termination along with reasonable profit on the work performed and, depending on the contract, reasonable anticipatory profit on the work NOT performed.  A huge difference and the fundamental reason contractors terminated for default should aim to convert that termination for default into a termination for convenience!

 

Under the Federal Acquisition Regulations, contractors terminated for convenience may recover reasonable profit on work performed, but NOT profit for work not performed.  (See F.A.R. s. 52.249-2 and 49.202)

 

But, under the standard AIA A201 General Conditions, if an owner terminates a general contractor for convenience, “the Contractor shall be entitled to receive payment for Work executed, and costs incurred by reason of such termination, along with reasonable overhead and profit on the Work not executed.”  (See AIA A201, para. 14.4.3)

 

Yet, under the ConsensusDocs 200, “If the Owner terminates this Agreement for Convenience, the Constructor shall be paid: (a) for the Work performed to date including Overhead and profit; and (b) for all demobilization costs and costs incurred as a result of the termination but not including Overhead or profit on Work not performed.” (See Consensus Docs, 200, para. 11.4.2)

 

As reflected above, a contractual provision will dictate the costs recoverable when there is a termination for convenience.  The AIA A201 General Conditions is favorable to a contractor by providing for reasonable overhead and profit on the work not executed.  Whether reasonable  profit on work not performed is recoverable, the objective should always be converting that termination for default into one for convenience so that at least the contractor can recover for work performed and profit on the work performed along with other associated termination costs that the contract may provide.

 

When a party is terminated for default, the key issues that will arise will typically be: (a) whether the termination for default was proper, i.e., whether the terminating party procedurally complied with the termination for default provision in the contract, (b) whether the cause or default was material and rose to the level of constituting a default termination, and (c) converting the termination for default into a termination for convenience and the recoverable costs pursuant to the termination for convenience provision in the contract.  Again, a termination for default will likely mean that the terminated party owes the terminating party money associated with the overrun for completing their scope of work.  A termination for convenience, on the other hand, will likely mean that the terminated party is owed money for work it performed irrespective of any overrun experienced by the terminating party.

 

 


A recent ruling in U.S.A. f/u/b/o Ragghianti Foundations III, LLC v. Peter R. Brown Construction, Inc., 2014 WL 4791999 (M.D.Fla. 2014), illustrates a dispute between a prime contractor and a subcontractor on a federal project after the prime contractor default terminated the subcontractor.   The prime contractor hired a subcontractor to construct the foundation, slab on grade, and site concrete.  As the subcontractor was pouring the slab on grade concrete, it was determined that there were deficiencies in the concrete.  The prime contractor sent the subcontractor notice under the subcontract regarding the deficiencies and that the subcontractor needed to provide an action plan prior to future concrete placement. Although the subcontractor responded with a plan including when it was going to demolish the defective portion of the slab, it failed to live up to its own recovery schedule.  Accordingly, the prime contractor terminated the subcontractor for default and incurred costs well in excess of the subcontractor’s original subcontract amount to complete the subcontractor’s scope of work.  The subcontractor filed suit against the prime contractor and its Miller Act surety and the prime contractor counter-claimed against the subcontractor.

 

 

There were numerous interesting issues raised in this case.  This article will only touch upon a couple of the legal issues. The first issue was whether the prime contractor properly terminated the subcontractor for default pursuant to the subcontract; if not, the termination should be deemed a termination for convenience.  The Court found that the termination was procedurally proper, but declined to determine whether the termination was wrongful, perhaps because the Court determined that once the termination for default was properly implemented pursuant to the subcontract there was no reason to delve into any further analysis.  In other words, once the prime contractor procedurally, properly terminated the subcontractor for default pursuant to the subcontract, it appeared irrelevant whether the cause forming the basis of the default was material.   This implication is certainly beneficial for the prime contractor and it is uncertain why the Court did not entertain the argument as to whether the procedurally proper termination was wrongful.   This determination would seem important because if the termination was wrongful, the terminating contractor would be responsible for its own cost overrun in addition to the costs incurred by the terminated subcontractor.  Although, in this case, by the Court finding that the termination for default was procedurally proper, the Court seemed to recognize that there was cause supporting the implementation of the termination for default; otherwise, the termination for default would not have been procedurally proper.

 

The next issue discussed in this case pertained to recoverable delay-type damages under the Miller Act.  The Court expressed:

 

A Miller Act plaintiff is entitled to recover under the bond the out-of-pocket labor and expenses attributable to delays. 

***

[A] damage claim against a surety that does not flow directly and immediately from actual performance [of its agreement] is barred by the Miller Act….A subcontractor cannot recover on a Miller Act payment bond for the cost of labor and materials provided after the termination of work under a government construction project, and cannot recover profits on out-of-pocket expenditures attributable to delay.

Ragghianti Foundations, supra, at *18, 19 (internal quotations and citations omitted).

What does this mean?  This means that a subcontractor is not entitled to recover against a Miller Act surety:  (a) anticipated lost profits on work not performed, (b) delay-related costs that do not flow directly and immediately from actual performance under the subcontract, (c) profit on delay-related costs, and (d) costs incurred after the termination of the work.  These are all categories of damages that are applicable to a terminated subcontractor that it will NOT be able to recover against a Miller Act surety.  This is important because if a subcontractor is looking to capitalize on its damages for converting a termination for default into one of convenience, it may want to sue the terminating contractor so that it is not leaving any damages on the table by only suing the Miller Act surety.

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.

DIFFERING SITE CONDITIONS: TYPE I & TYPE II CLAIMS

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It is not uncommon for contractors, especially foundation and civil contractors, to encounter unanticipated site conditions.  These conditions are known as “differing site conditions.”    In government contracting, there is a differing site conditions clause (F.A.R. 52.236-2 shown at the bottom of this posting that is routinely incorporated into prime contracts and subcontracts through flow-down provisions) that identifies two types of differing site conditions.

 

Type I differing site conditions are “subsurface or latent physical conditions at the site which differ materially from those indicated in the contract.”  F.A.R. 52.236-2.  Type II differing site conditions, on the other hand, are “unknown physical conditions at the site, of an unusual nature, which differ materially from those ordinarily encountered and generally recognized as inhering in work of the character provided for in the contract.”  Id.

 

If a contractor complies with the differing site conditions clause and proves the differing site condition, it should be entitled to an equitable adjustment from the government.  The objective behind the differing site conditions clause is to prevent contractors from including fluff in their prices to account for contingencies and unknown conditions since the government will equitably adjust the contract based on these conditions.  In reality, though, the contractor still bears the burden of proving the differing site condition which is oftentimes more challenging than it sounds.  It is important for contractors to understand the difference between Type I and Type II differing site conditions so that they know what is necessary to support an appropriate adjustment to their contract (from a dollar and time standpoint).

 

 

I. Type I Differing Site Condition (subsurface or latent conditions differing materially from contract):

 

There are six elements to a Type I differing site conditions claim that a contractor must prove:

 

“(1) that the contract affirmatively indicated subsurface conditions upon which the contractor’s claims are based; (2) that the plaintiff acted as a reasonably prudent contractor in interpreting the contract documents; (3) that the contractor reasonably relied on the indications of subsurface conditions in the contract; (4) that the subsurface conditions actually encountered differed materially from subsurface conditions indicated in the contract; (5) that the subsurface conditions encountered were reasonably unforeseeable; and (6) that the contractor’s claimed excess costs were solely attributable to the materially different subsurface conditions.”

Weston/Bean Joint Venture v. U.S., 115 Fed.Cl. 215, 218 (Fed.Cl. 2014).

 

These conditions are in addition to the initial notice requirement that the contractor must give the contracting officer before proceeding with the alleged additional work.  See Id. at 218, n.2 citing F.A.R. 52.236-2.  Timely notice should always be given, especially notice before the work commences, to take away any argument that notice was not properly or timely provided to the government.

 

The contractor should also submit any request for equitable adjustment or claim based on the six elements.  This means the contractor needs to point out the subsurface or latent conditions that were indicated in the contract documents and the reasoning / factual basis supporting the different subsurface conditions that the contractor encountered.  This is important because a contractor will not succeed with its Type I differing site conditions claim without showing what the contract indicated. As the United States Court of Federal Claims explained:

 

“A contractor cannot prevail on a claim for a Type I differing site condition unless the contract indicated what that condition would be.  However, the indication in the contract need not be explicit or specific if it provide[s] sufficient grounds to justify a bidder’s expectation of latent conditions materially different from those actually encountered. There must be reasonably plain or positive indications in the bid information or contract documents that such subsurface conditions would be otherwise than actually found in contract performance ….  Determining what the contract indicated requires contract interpretation performed by stepping into the shoes of a reasonable and prudent contractor and decid[ing] how such a contractor would act in interpreting the contract documents.”

All Power, Inc. v. U.S., 60 Fed.Cl. 679, 684 (Fed.Cl. 2004) (internal citations and quotations omitted).

 

The contractor should also endeavor to separately cost code and track its costs (manpower, equipment, subcontractor(s), etc.) solely relating to the differing site condition.

 

 

 

 II. Type II Differing Site Condition (unknown physical conditions at the site differing materially from those ordinarily encountered and generally recognized): 

 

There are three elements to a Type II differing site conditions claim that a contractor must prove: “(1) the condition must be unknown to the contractor; (2) unusual; and (3) materially different from comparable work.”  All Power, 60 Fed.Cl. at 685.  Type II claims are harder to prove because the contractor carries a heavier burden “since there is a greater duty to conduct pre-bid inquiries or reasonable site inspections inasmuch as recovery is available only if the condition is unknown, which means it would not have been revealed upon inquiry or during a reasonable site investigation.”  Totem Construction, ASBCA 35985, 1990 WL 224243 (1990).

 

Similar to a Type I claim, the contractor must provide timely notice and endeavor to separately cost code and track the additional work it incurs in furtherance of supporting a request for equitable adjustment or claim.

 

 

52.236-2 Differing Site Conditions.-                                                                                                                                                                                               
(a) The Contractor shall promptly, and before the conditions
are disturbed, give a written notice to the Contracting
Officer of—
(1) Subsurface or latent physical conditions at the site
which differ materially from those indicated in this contract;
or
(2) Unknown physical conditions at the site, of an
unusual nature, which differ materially from those ordinarily
encountered and generally recognized as inhering in work of
the character provided for in the contract.
(b) The Contracting Officer shall investigate the site conditions
promptly after receiving the notice. If the conditions
do materially so differ and cause an increase or decrease in the
Contractor’s cost of, or the time required for, performing any
part of the work under this contract, whether or not changed
as a result of the conditions, an equitable adjustment shall be
made under this clause and the contract modified in writing
accordingly.
(c) No request by the Contractor for an equitable adjustment
to the contract under this clause shall be allowed, unless
the Contractor has given the written notice required; provided,
that the time prescribed in paragraph (a) of this clause for

giving written notice may be extended by the Contracting Officer.

(d) No request by the Contractor for an equitable adjustment
to the contract for differing site conditions shall be
allowed if made after final payment 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.

HOME OFFICE OVERHEAD (EICHLEAY) AND GOVERNMENT-CAUSED STANDBY

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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.

 

Eichleay-formulaFinally, 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.

 

 

 

 

 

 

 

 

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 CONTRACTING AND COMPLIANCE WITH THE CONTRACT DISPUTES ACT

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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.