Requests for Equitable Adjustment & CDA Claims: A Primer

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1 Solving Post-Award Problems Through Change Orders, REAs, and Claims Presented By: MARIA L. PANICHELLI OF COHEN SEGLIAS PALLAS GREENHALL &FURMAN, P.C. Requests for Equitable Adjustment & CDA Claims: A Primer 2 Requests for Equitable Adjustment Request for Equitable Adjustment (REA): Is a request for compensation Either for time, money or both 3 1

2 Requests for Equitable Adjustment Request for Equitable Adjustment: Based on a change to the contract arising during project performance. Examples: Differing Site Condition Defective Specification Change(s) (Constructive or Express) Suspension of Work 4 REA Fundamentals REAs lack the formality of claims Generally considered a creature of contract administration as opposed to litigation 5 REA Fundamentals Filed during project performance Involves (theoretically) negotiations As compared to a claim, procedural requirements are relaxed, more informal 6 2

3 REA Fundamentals Time for submittal: REAs may be submitted at any time during contract performance or close out May not be submitted after contract close out 7 REA Fundamentals Time for submittal: REA s should typically be submitted within 30 days of change/dispute that gave rise to the REA Failure to do so will not necessarily bar the REA unless there was prejudice to the Government 8 REA Fundamentals Format: No specific format required Typically takes the form of a letter to the Contracting Officer with any relevant exhibits, such as: Cost information Correspondence between contractor and Government Schedule updates Change orders Any other relevant information for the Government to consider The more detail, the better your chance of success 9 3

4 REA Fundamentals Costs: Preparation costs are recoverable This includes legal and accounting fees, and internal costs 10 REA Fundamentals Certification: Generally, REAs do not need to be certified Exception: Department of Defense contracts where the value exceeds the simplified acquisition threshold requires certification 11 REA Fundamentals Certification: Certification Language: I certify that the request is make in good faith, and that the supporting data are accurate and complete to the best of my knowledge and belief. DFARS and

5 Claims A Claim: Is filed pursuant to the Contract Disputes Act ( CDA ), 41 USC 701 et seq. Is a formal written request demanding payment/the adjustment of a contract price or interpretation of a contractual term, or seeking other relief pursuant to or relating to a contract 13 Claims A Claim: Can lead to litigation: Before a Board of Contract Appeals (Armed Services or Civilian, depending on agency at issue) or, Court of Federal Claims 14 Claim Fundamentals Claims are more formal than REAs Requires certification No longer a creature of contract administration, rather it constitutes the first stage of litigation No longer a negotiation, positions are fixed 15 5

6 Claim Fundamentals Time for Submittal: Must be filed within 6 years of claim accrual Jurisdictional issues Equitable Tolling A contractor must provide a Contracting Officer with notice of a claim prior to final payment on the contract Claims should be filed within 30 days of cancellation of a stop work order 16 Claim Fundamentals Format: No specific format required. Typically takes the form of a letter to the Contracting Officer with applicable exhibits, including: Cost information Correspondence between contractor and Government Schedule updates Change orders Any other relevant information for the Government to consider 17 Format: Claim Fundamentals Claim must include a clear and unequivocal written statement that puts the Contracting Officer on notice of the basis and amount of a claim 18 6

7 Claim Fundamentals Costs: Preparation costs are NOT recoverable 19 Claim Fundamentals Certification: Certification is required for claims over $100,000 Certification language: 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 accurately reflects the contract adjustment for which the contractor believes the Government is liable; and that I am duly authorized to certify the claim on behalf of the contractor. 48 CFR Claim Fundamentals Certification: Defective certification can be corrected, but this causes delay to the claim process; not recommended What about subcontractor claims? Fraud issues? 21 7

8 REAs v. Claims Informal v. Formal Negotiations, Discussions v. Adversarial, Litigation Certification (Usually) Not Required v. Certification Required Costs Recoverable v. Costs Not Recoverable Privilege Issues? 22 REAs v. Claims: Practical Considerations When to file a REA: When a contractor has a good working relationship with the Contracting Officer When the agency had indicated they would be willing to negotiate a change/dispute with the contractor When a contractor is attempting to show that its willingness to negotiate 23 REAs v. Claims: Practical Considerations When to file a Claim: When the contractor and Contracting Officer do not have a good working relationship, or when there is an antagonistic or adversarial relationship When it is clear that the Contracting Officer is not willing to negotiate a change/dispute, or when the Government has already stated that it does not believe the contractor is entitled to an equitable adjustment When the Statute of Limitations is about to run out 24 8

9 REAs v. Claims: Practical Considerations Keep in mind: An REA can later be converted into a Claim The filing of an REA does not preclude you from later filing a Claim, in fact, it is quite common to file both 25 REAs and Claims: Common Issues Some of the most common issues leading to REAs or Claims: Differing Site Conditions (FAR ) Changes (Fixed Price) (FAR ) Changes to Prevailing Wages (FAR ) Variations in Estimated Quantity (FAR ) Stop Work Order (FAR ) Suspension of Work ( ) Terminations Damages Associated with Punitive Punch List Delays Good Faith and Fair Dealing, Duty to Cooperate Recent Case Developments: Declaratory Judgments? 26 REAs and Claims: What Type of Relief is Available A Contractor is Entitled to: Costs Additional Time (Relation to LDs?) Reasonable Profit (sometimes) 27 9

10 REAs and Claims: What Type of Relief is Available A Contractor is Entitled to: Field Overhead/General & Administrative ( G&A ) Expenses Home Offense Expenses (in very limited circumstances) Bond Costs Preparation Costs (REA Only) 28 Subcontractor s Pass Through Claims 29 Subcontractor Pass Through Claims Sovereign Immunity General rule is that lawsuits against the Federal Government are prohibited Tucker Act creates an exception to sovereign immunity: suits may arise out of express or implied contracts to which the government was a party Thus, to take advantage of this exception, there must be an express or implied contract Because subcontractors have no privity of contract they can not file claims against the government on their own behalf 30 10

11 Subcontractor Pass Through Claims To assert a claim, subcontractors claims must be sponsored by their prime contractors Commonly called a pass through claim because the prime is passing the subcontractor s claims through to the owner Prime must clearly and affirmatively agree to sponsor the subcontractor claim 31 Subcontractor Pass Through Claims To assert a claim, subcontractors claims must be sponsored by their prime contractors Recognized by FAR (c) allows a subcontractor the right of indirect appeal to the Board of Contract Appeals or Court of Federal Claims Certification issues? 32 Subcontractor Pass Through Claims Subcontracts should address how these will be dealt with Disputes clause distinction between claims between subcontractor and prime, and disputes against owner Should delineate each party s responsibility with regard to pass through claims, i.e.: Prime agrees to sponsor Subcontractor agrees to cooperate fully Appeal of Binghamton Simulator Company, ASBCA No (2014) 33 11

12 Subcontractor Pass Through Claims Addressing it in the subcontract is not always enough. Always a good idea to have a Liquidating, or Pass Through, Agreement In these, prime agrees to sponsor the sub s claim against the Government Combined, or concurrent, with settlement or release agreements dealing with prime and sub s claims against each other 34 Subcontractor Pass Through Claims Addressing it in the subcontract is not always enough. Always a good idea to have a Liquidating, or Pass Through, Agreement Commonly, in a Liquidation Agreement, the sub agrees to release the prime in exchange for the prime s promise to: Prosecute the sub s claim against the government; and Pay the subcontractor some or all of the money recovered from the Government in connection with that claim 35 Subcontractor Pass Through Claims Remember: Every claim in excess of $100,000 on a federal construction project must be certified A prime contractor passing through a subcontractor s claim to the Government must include the certification language 36 12

13 Subcontractor Pass Through Claims 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 duly authorized to certify the claim on behalf of the Contractor. 37 Subcontractor Pass Through Claims When agreeing to pass through a subcontractor s claim, a prime should consider the Severin Doctrine: A prime cannot recover from the Government for harm to the sub if either the subcontract or liquidating agreement eliminates the prime s liability to the sub 38 Subcontractor Pass Through Claims However, a prime s promise to its sub to reimburse the sub if and when recovery is obtained from the Government does not implicate the Severin Doctrine The Severin Doctrine will not serve to bar a passthrough claim unless the agreement between the sub and prime is an explicit and total release of the prime s liability 39 13

14 Subcontractor Pass Through Claims Can Primes retain a portion of the damages obtained from the Government in connection with the subcontractor s pass through claim? Courts in the federal contracting context have largely ignored dealing with whether this is appropriate In a Board case, a sub and prime had a liquidating agreement that allowed a $7,500 sponsorship fee to be retained by the prime, and the Board did not address this arrangement at all in the opinion A United State District Court, addressing a state government contract, allowed a prime to retain a portion of the sub s damage award based largely on the principles of freedom of contract 40 CDA Claims: Appeals & Litigation 41 Claims Appeal Process What happens after a claim is filed? FAR When a claim by or against a contractor cannot be satisfied or settled by mutual agreement and a decision on the claim is necessary, the contracting officer shall: Review the facts pertinent to the claim Secure assistance from legal and other advisors Coordinate with the contract administration officer or contracting office, as appropriate Prepare a written decision 42 14

15 Claims Appeal Process The written decision shall include: A description of the claim or dispute A reference to the pertinent contract terms A statement of the factual areas of agreement and disagreement A statement of the contracting officer s decision, with supporting rationale Paragraphs explaining that the decision constitutes the final decision of the Contracting Officer, and explaining to the contractor their right to appeal, and the procedure for doing so 43 Claims Appeal Process When will this written decision be completed? For claims of $100,000 or less: 60 days after receiving a written request from the contractor that a decision be rendered within that period Or within a reasonable time after receipt of the claim if the contractor does not make such a request. 44 Claims Appeal Process When will this written decision be completed? For claims over $100,000: 60 days after receiving a certified claim However if a decision will not be issued within 60 days, the contracting officer shall notify the contractor, within that period, of the time within which a decision will be issued 45 15

16 Claims Appeal Process When will this written decision be completed? (cont.) The contracting officer shall issue a decision within a reasonable time, taking into account The size and complexity of the claim The adequacy of the contractor s supporting data Any other relevant factors 46 Claims Appeal Process Appeals: A contractor may appeal their claim to either a Board of Contract Appeals (Armed Services or Civilian, depending on the Agency involved with the Contract at issue) in two circumstances: Contracting Officer issues a final decision on a claim denying the claim Called a Contracting Officer s Final Decision Contracting officer does not issue a decision Can take appeal as a deemed denial appeal 47 Claims Appeal Process Where can a contractor file an appeal? And when? Board of Contract Appeals (90 days) Court of Federal Claims (12 months) 48 16

17 Claims Appeal Process Where SHOULD you appeal? Which forum is best for you? Court of Federal Claims ( COFC ) Article 1 Court 11 Judges, serving 15 year terms, and an additional 6 active Senior Judges Highly intelligent judicial officers, but no government contracts experience needed to become COFC judges Can tax costs and assess attorney s fees Single Judge decides the case Attorney representation required 49 Claims Appeal Process Where SHOULD you appeal? Which forum is best for you? Armed Services Board of Contract Appeals ( ASBCA ) Jurisdiction over DoD and NASA CDA contracts 21 members, experienced Judges Decisions by panels, but a single judge takes the evidence Contractor may appear pro se 50 Claims Appeal Process Where SHOULD you appeal? Which forum is best for you? Civilian Board of Contract Appeals ( CBCA ) Est. January 2007 Consolidated 8 separate civilian boards, including very active GSBCA (GSA) Jurisdiction over all civilian agency CDA contracts, other than those of the Postal Service and TVA 13 members, experienced Judges Decisions by panels, but a single judge takes the evidence Contractor may appear pro se 51 17

18 Claims Appeal Process Where SHOULD you appeal? Which forum is best for you? Key considerations: Size of Contract/Dispute Amount v. Cost of Litigation Complexity of Issues Government Contracting Experience of Judges Preparation Time Required Objectivity v. Settlement Authority (Agency Counsel v. DOJ) Appeal Filing Deadlines Ruling Precedent, Trends in Decisions Formality Timing (Attorney Preference Educate yourself) 52 Government Defenses The Government tends to rely on the same defenses over and over. Some of the favorites include: Waiver, Release or Accord & Satisfaction Notice Lack of Governmental Authority 53 Government Defenses - Waiver Waiver/Release/Accord & Satisfaction Contract Modifications often include broad waiver language that purports to release the Government from further liability 54 18

19 Government Defenses - Waiver For example: CLOSING STATEMENT: It is understood and agreed that pursuant to the above, the contract time is extended the number of calendar days stated, and the contract price is increase as indicated above, which reflects all credits due the Government and all debits due the Contractor. It is further understood and agreed that this adjustment constitutes compensation in full on behalf of the Contractor and its Subcontractors and Suppliers for all costs and markups directly or indirectly attributable for the change ordered, for all delays related thereto, for all extended overhead costs, and for performance of the change within the time frame stated 55 Government Defenses - Waiver It is vital to understand the difference between bilateral and unilateral modifications, and the impact this difference can have on a waiver/release or accord & satisfaction defense: Unilateral signed only by the Government Bilateral signed by Government and Contractor, can function as accord and satisfaction 56 Government Defenses - Waiver The lesson(s)? Be aware of waiver language before you sign Add your own language to any release to make it clear that you take exception and that you reserve your rights to file a claim in the future Be aware that the Government will sometimes apply pressure, or withhold modifications to entice you to sign 57 19

20 Government Defenses - Waiver What if you DID sign a modification with broad waiver language? Is an obstacle, but not an insurmountable one. There are several responses that can help defeat a waiver argument based on release language in a modification 58 Government Defenses - Waiver 1. Scope Remember the language from the closing statement:... constitutes compensation in full on behalf of the Contractor and its Subcontractors and Suppliers for all costs and markups directly or indirectly attributable for the change ordered... What do the earlier sections of the modification say about the scope of the change ordered? 59 Government Defenses - Waiver 2. Date What was the date of the modification? What was the date, or the range of dates on which you were effected/for which you are claiming compensation? 60 20

21 Government Defenses - Waiver 3. Is there any other way to defeat an accord and satisfaction defense? Accord and Satisfaction Elements: Proper subject matter Competent parties Meeting of the minds of the parties Consideration Can you disprove any of these elements? 61 Government Defenses - Waiver Can you disprove any of these elements? (cont.) Where the parties continue to consider the claim after execution of a release, such conduct manifests an intent that the parties never construed the release as an abandonment of plaintiff's earlier claim. Cmty. Heating & Plumbing Co. v. Kelso, 987 F.2d 1575, 1581 (Fed. Cir. 1993) 62 Government Defenses - Notice Notice Government often argues that the contractor failed to give the Government the requisite notice, and that the lack of notice bars the contractor s claim(s) Particularly prevalent in differing site condition and constructive change claims 63 21

22 Government Defenses - Notice Notice Responses to a Notice argument Notice need not be in any particular form (Serial Letter?) Actual v. constructive notice Lack of prejudice 64 Government Defenses - Authority Another common argument made by the Government, in particular in the Changes context, is that the Government official that made the change did not have the authority to bind the Government, and that the contractor s claim is therefore barred 65 Government Defenses - Authority Who has authority to bind the Government? The Contracting Officer Any formally designated representative: ACO, COR, COTR Any representative assigned without formal designation Different dollar levels of authority? 66 22

23 Government Defenses - Authority How do you know who has been designated as having authority? Solicitation/Contract might designate who has authority, and to what amount If not in the Solicitation, might be another writing (letter, modification, amendment, etc.) Often conveyed (or reiterated, or altered) at pre construction (or other) meeting 67 Government Defenses - Authority When is the Government bound by a Government representative s actions? Government is bound when an official acted within the scope of their ACTUAL authority, is NOT bound by apparent authority But when else is it bound? What type of response can you offer when someone technically acted outside the scope of their authority and the Government uses this as a defense? 68 Government Defenses - Authority When is the Government bound by a Government representative s actions? When a Government official acted with implied authority A government representative will be deemed to have implied authority when it is an integral part of the duties assigned to the particular government employee. A government representative can be found to have implied authority to make a change to the Contract if the change is within, or reasonably related and consequent to, the representative s official responsibilities 69 23

24 Government Defenses - Authority When is the Government bound by a Government representative s actions? More on implied authority, Wieman v. U.S., 230 Ct. Cl. 563 On site representative had implied authority based on: (1) the acquiescence and acceptance by the Government of benefits accruing to it from direction by on site representatives of the CO; and (2) the fact that the on site representative was authorized, although not contractually, to direct the contractor s work and the contractor was expected to comply Obvious from on site representative s daily inspections and other onsite actions that the CO had delegated the broad discretion in supervising [the] contract and exercised that delegated authority on a daily basis 70 Government Defenses - Authority When is the Government bound by a Government representative s actions? An unauthorized representative s directives can be ratified by the government at a later date; if a superior with explicit authority to bind the government later endorses the directives given by a government representative, that representative s actions are considered ratified by the government, and a contractor may be entitled to a equitable adjustment of the Contract price in connection with such directives 71 Subcontractor v. Prime Contractor Claims 72 24

25 Sub s Lawsuits Against Prime What if a prime breaches the subcontract? If a nonpayment issue, sub should serve timely notice of nonpayment upon prime and prime s surety 73 Sub s Lawsuits Against Prime What if a prime breaches the subcontract? If prime continues to refuse to honor subcontract, sub can: Bring suit against the prime in the appropriate U.S. District Court Submit a claim to the prime s surety 74 Sub s Lawsuits Against Prime Common Issues in Sub v. Prime Litigation Pay if Paid v. Pay When Paid? Exhaustion of Administrative Remedies ADR Jurisdiction (Colorado cases example) 75 25

26 Miller Act Claims 76 Miller Act Claims The Miller Act 40 USC Mandates the furnishing of payment bonds and performance by Federal prime contractors Defines and limits where and when a bond claim may be brought Thus addresses two concerns that would otherwise exist in the performance of federal government construction projects Miller Act Claims When does the Miller Act Apply? Applies to all projects for the construction, alteration or repair of any public building or public work of the federal government where the prime contract exceeds $100,000 Public Work not defined by Act Alternates allowed for contracts more than $25,000 and less than $100,000: (Bond, Letter of Credit, Escrow Agreement, CD, Cash) 78 26

27 Miller Act Claims Who is a Miller Claim against? A subcontractor Miller Act claim is not brought against the Prime Contractor A subcontractor Miller Act claim is brought against the Prime Contractor s surety/sureties 79 Miller Act Claims How does a First Tier Subcontractor Bring a Miller Act Claim? No notice required Must wait 90 days from non payment waiting period to give bond principal a chance to make payments Must file suit within 1 year of last work performed or materials supplied Contract work v. Punch list or warranty work 80 Miller Act Claims How does a Second Tier Subcontractor Bring a Miller Act Claim? All requirements from previous slide PLUS MUST provide notice within 90 days (strictly construed!) of supply of last labor or supplies 81 27

28 Questions? 82 Contact Information Maria L. Panichelli, (twitter)