Government Contractors and Litigation Forums: Navigating Litigation Against the Government

Transcription

1 Government Contractors and Litigation Forums: Navigating Litigation Against the Government Presented by: Paul F. Khoury Kara M. Sacilotto Rick Castiglia June 8, 2016 These slides are accompanied by an oral presentation and are not to be relied upon for legal advice. Copyright 2016 Wiley Rein LLP

2 Speakers Paul F. Khoury Kara M. Sacilotto Rick Castiglia

3 Roadmap Overview of Contract Disputes Act (CDA) and claims process Available forums for resolution of claims Pros and cons Latest developments and unique issues when litigating claims ADR (even Mega ADR ) at the Boards of Contract Appeals Fraud counterclaims/defenses Statute of Limitations Practical advice addressed throughout 3

4 Disputes/Appeals Process Overview The Contract Disputes Act, 41 U.S.C , governs litigation of disputes by and against the Government relating to procurement contracts with Executive Branch agencies Procurement contracts=procurement of goods/property (other than real property), services, construction/maintenance/repair of real property, disposal of personal property CDA Goals Provide for the efficient and fair resolution of disputes Promote resolution/settlement of disputes at administrative level Provide forum choice Equalize bargaining power in contract disputes Despite these goals, if contract disputes are litigated to the end, the costs can easily rival those of traditional court litigation But, there are many, important practical differences between commercial litigation and litigation against the Government 4

5 Disputes/Appeals Process Overview CDA works in conjunction with Disputes Clause (FAR ) in Government Contracts. Disputes Clause: Defines a Claim Written demand or assertion, seeking as a matter of right a sum certain, adjustment to contract terms, an interpretation, or other relief Recites 6-year statute of limitations Includes the certification requirement for claims over $100K Claim is made in good faith, accurate and complete to best of contractor s knowledge, accurately reflects amount contractor believes is due. Intended to deter contractor fraud and inflated claims Note, Government is not required to certify its claims/demands to contractors, regardless of amount Time for decision from Contracting Officer (CO) (generally 60 days) and notice that decision is final unless appealed CDA interest accrues from the filing of claim Big difference from commercial contracts: 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 [CO]. 5

6 Practical Issues with Disputes Process Claims process has several predicate steps even before litigation How much do you want to do in-house? Before taking steps, in-house counsel needs to evaluate whether claim should even be asserted Really aggrieved or making up for bad business decisions? In-house counsel needs to police certification requirement Quantum needs to seek only amount to which entitled or risk bigger (false claims) liability Executives on the hook Facts, not pre-determined number, must drive quantum In-house counsel needs to manage expectations Length of time, expense, discovery burdens Booking of revenue 6

7 Disputes/Appeals Process Overview 7

8 Step-by-Step: Contractor Claims Step 1: Submit certified claim to the CO requesting a sum certain/adjustment to terms/interpretation, requesting a CO final decision and CDA interest Unlike commercial litigation, first decider is your adversary No specific format to claim, but unsupported claim less likely to be granted/more likely to be audited Step 2: CO s final decision on claim generally due within 60 days. CO can ask for more time for complex claims If radio silence after 60 days, claim deemed denied. Go to Step 3 If CO asks for inordinate extension, can litigate duration requested Step 3: If claim denied in full/part, contractor must appeal either to Board of Contract Appeals or Court of Federal Claims 8

9 Step 3: Forum Selection Court of Federal Claims Appeal w/in 12 mos. of CO final decision Judges and traditional court rules; full discovery available Department of Justice represents Agency and has settlement authority Different basis for jurisdiction allows easier assertion of fraud claims by Government ADR less ingrained but still possible Decision takes years Single Judge decides More expensive? Boards of Contract Appeals 2 main Boards: Armed Services BCA or Civilian BCA ASBCA: DoD Agencies, CIA, NASA CBCA: Civilian Agencies Postal Service, FAA: totally separate systems Appeal w/in 90 days of CO final decision Administrative tribunal with less formal rules; full discovery available Agency counsel represents Agency; CO retains settlement authority Arguable restrictions on consideration of fraud claims Favor and facilitate ADR More likely to reach business settlement Decision takes years One judge hears case; 3-judge panel issues decision Less expensive? 9

10 Practical Issues on Forum Selection Is there an advantage (or disadvantage) to getting case out of the hands of agency? Is there a risk of fraud counterclaims? Is there a difference in case law between COFC and Boards? Is there a strong desire for ADR? Is a business resolution feasible? Did you miss your 90-day window for a Board appeal? What is in-house counsel s legal budget? 10

11 Government Claims CDA also covers claims by the Government to the contractor Withholdings; cost allowability; CAS issues; default terminations; assertion of IP rights; other contract dispute claims No certification requirement by either party CDA requires that Government claims be subject of a CO final decision Government claims usually preceded by demand letter, which starts accrual of interest CO final decision on Government claim generally includes a demand for immediate payment. If payment not made, Government will automatically offset against contracts Contractor can request deferral of collection, but grounds in the FAR limited (e.g., would cause financial hardship, small business) Deferral largely discretionary Contractors must perform and wait for any compensation; Government gets paid immediately 11

12 Government Claims Contractor appeals CO final decision on Government claim Contractor usually files the complaint, even though the claim belongs to the Government (i.e., Government is asserting its contractual rights) Contractor defenses to Government claims If contractor s defense looks like, smells like, could have been a contractor claim, contractor must file claim (not assert as an affirmative defense) M. Maropakis Carpentry, Inc. v. United States, 609 F.3d 1323 (Fed. Cir. 2010) 12

13 Practical Issues with Government Claims Unlike contractor, Government has no risk of false claims counterclaims Need to request deferral of collection promptly (within 30 days) Even if grounds in FAR not met, Agency will often grant when contractor intends to appeal If defenses could be independent claims, a contractor claim has to be filed In-house counsel should make program team inventory any potential contractor claims Will want to do so promptly so that any appeal can be consolidated with appeal of Government claim Statute of limitations applies equally to Government Be on the lookout for late claims, esp. if related to audit Contractor has to file notice of appeal and usually the complaint 13

14 ADR at the Boards If you want a quick resolution, ADR is the only real option. (No need for three judge review of decision) CBCA ADR Guidance is more detailed, but both Boards offer flexible ADR approaches Facilitative Mediation Evaluative Mediation Mini Trial Non-Binding Advisory Opinion Summary Binding Decision Other Agreed Methods In-house counsel should consider what business representatives should be involved in ADR 14

15 ADR at the Boards (cont d) ASBCA statistics since Appeals involved in ADR 451 Binding 1474 Non-Binding (Success rate around 95%) Topics addressed in ADR agreement Scope of matters to be addressed Procedures to be followed How limited discovery will take place Submission of position papers Schedule and agenda for the proceedings Example of Mega ADR 15

16 Developments in Claims Litigation: Government Pursuit of Fraud Remedies Government has several fraud remedies, including: CDA, 41 U.S.C. 7103(c)(2) Gov t entitled to judgment in the amount of any part of a claim that cannot be supported because of a misrepresentation of fact or fraud False Claims Act, 31 U.S.C treble damages and civil penalties Special Plea in Fraud (Forfeiture), 28 U.S.C Common Law Fraud COFC has broader fraud jurisdiction than Boards COFC jurisdiction and counterclaim jurisdiction based on 28 U.S.C. 1491, 28 U.S.C. 1503, and CDA; Board jurisdiction based on CDA (only). CDA purports to limit Board jurisdiction to contract disputes, but Boards will hear fraud-type defenses 16

17 Developments in Claims Litigation: Government Pursuit of Fraud Remedies (Court) Commercial Contractors, Inc. v. United States, 154 F.3d 1357 (Fed. Cir. 1998) (contract interpretation that is so plainly lacking in merit that the requisite state of mind can be inferred can form the basis for a false claim) Veridyne Corp. v. United States, 758 F.3d 1371 (Fed. Cir. 2014) 8(a) contractor proposes certified costs of $2,999,949 for contract option to avoid $3 million (M) sole source threshold. Actual costs exceeded $30 million. Agency knew estimates too low but did not inform SBA. Option declared void ab initio after IG investigation; contractor submitted additional invoices Court of Federal Claims: Forfeiture under Special Plea in Fraud, $1.4M civil penalties under FCA, damages under anti-fraud provisions of CDA. But contractor entitled to quantum meruit for work performed Federal Circuit: Upheld damages and penalties and denied quantum meruit recovery Essentially implied certification: claims submitted pursuant to a fraudulently obtained contract are per se FCA violations even if claims themselves do not contain false statements 17

18 Developments in Claims Litigation: Government Pursuit of Fraud Remedies (Court) Daewoo Eng g & Constr. Co. v. United States, 557 F.3d 1332 (Fed. Cir. 2009) $88.6M contract between U.S. Army Corps of Engineers and Daewoo to construct a road in the Republic of Palau Daewoo submits certified claim for $64M for two performance periods. When claim denied, appeals to COFC Gov t counterclaims for full $64M, FCA penalties and forfeiture Fed Cir: although claim can include estimate of future costs, Daewoo s estimates had no merit. No expert used to prepare (and trial experts abandoned estimates). Falsity of $50.6M portion of claim rendered entire claim false. False claim can be based on false calculation not just false facts Alli v. United States, 83 Fed. Cl. 250 (2008) (Gov t allegations of fraud and seeks (and prevails) to pierce the corporate veil) 18

19 Developments in Claims Litigation: Government Pursuit of Fraud Remedies (Boards) Afghanistan Trade Transp. Co., Ltd., ASBCA No , 2015, 15-1 BCA (bribery in connection with BPA does not taint all services performed under the BPA. Contract is only formed by issuance of orders under BPA) Vertex Const. & Eng g, ASBCA No , 14-1 BCA 35,804 (passing Gov t pre-award acceptability review does not excuse fraudulent contractor certifications) Laguna Constr. Co., ASBCA No , 14-1 BCA (contractor materially breached contract (and obligation of good faith and fair dealing) by acceptance of kickbacks by its employees) 19

20 Practical Issues: Government Pursuit of Fraud Remedies Contract disputes easily (and not infrequently) converted to fraud actions Claims must be based on actual amount due. No fluff. Facts, not pre-determined number, must drive quantum Bringing claims at the COFC increases possibility of fraud counterclaim, but filing at Boards does not eliminate fraud-type defenses Executives on the hook 20

21 Developments in Claims Litigation: Statute of Limitations (SOL) Six-year limitations period for both contractor and Government claims. 41 U.S.C. 7103(4)(a) Claims accrue when the facts giving rise to liability are known or should have been known. Some injury must have occurred, but monetary damages need not have been incurred. FAR For years, body of case law was sparse on SOL, particularly for Government claims For years, meeting 6-year SOL was considered jurisdictional In past few years, numerous decisions issued applying SOL to Government claims (primarily arising from Defense Contract Audit Agency backlog on audits), and Federal Circuit has addressed whether jurisdictional 21

22 Developments in Claims Litigation: SOL Sikorsky Aircraft Corp. v. United States, 773 F.3d 1315 (Fed. Cir. 2014) Dispute re CAS 418 allocation of materiel overhead rates. From 1999 through 2005, Sikorsky allocated materiel overhead rates using direct labor base (instead of previous direct materiel cost base). Change made in response to large amount of GFM on government contracts. December 2008: CO issues final determination of non-compliance with CAS 418 Sikorsky appeals to COFC. Asserts: (i) Government s claim barred by CDA s 6-year statute of limitations (SOL), 41 U.S.C. 7103(a)(4)(A); and (ii) no CAS violation COFC characterizes SOL as affirmative defense; holds that Sikorsky failed to meet burden of showing Government had actual or constructive knowledge of potential claim more than 6 years before final decision. Also holds Government did not meet burden of proving an inappropriate allocation method 22

23 Developments in Claims Litigation: SOL Sikorsky Aircraft Corp. v. United States (cont.) At Fed. Cir., Sikorsky argues SOL is jurisdictional, citing Sys. Dev. Corp. v. McHugh, 658 F.3d 1341 (Fed. Cir. 2011) Fed. Cir.: Sys. Dev. essentially overruled by Supreme Court in Sebelius v. Auburn Reg l Med. Ct., which articulated more stringent test: filing deadlines are not jurisdictional unless Congress clearly stated that the rule is jurisdictional. Congress did not do that in the CDA (41. U.S.C. 7103) Because Fed. Cir. agreed no CAS violation, Court does not address whether claim barred in this case Implications SOL now subject to waiver or tolling; if jurisdictional, could not be waived or tolled (In-house counsel should prepare business team for tolling request) SOL is affirmative defense that must be timely raised Burden of proof shifted to party raising defense instead of party raising claim More difficult to have case dismissed at outset. Potential for discovery/summary judgment (Significant budget ramifications) 23

24 Developments in Claims Litigation: SOL Kellogg Brown & Root Servs., Inc. v. Army, No , 2016 WL (Fed. Cir. May 16, 2016), overturning ASBCA decision applying SOL to KBR s claims Dispute relates to termination costs for KBR subcontractor ASBCA/Army: Liability was fixed on Sept. 12, 2003, because claim was for alleged entitlement to net costs of performance of terminated subcontract. Request was non-routine and accrued immediately on termination KBR: Until amount of payment to be requested of the Army was determined, claim had not come into existence and thus could not accrue Fed. Cir.: Sides with KBR. Whereas ASBCA focused on FAR definition of accrual, Fed. Cir. focuses on definition of a claim, in particular the requirement to assert a sum certain. KBR did not have a claim because there was no sum certain until subcontractor presented claim to KBR 24

25 Developments in Claims Litigation: SOL Raytheon Co. v. United States, 104 Fed. Cl. 327 (2012) Advance Agreement executed in 1999 memorializing agreement re allowability of certain costs ($105.9M), subject to audit by DCAA. Detailed cost breakdown and explanation provided with AA DCAA audit in 2003 asserted $4.75M costs unallowable. Supplemental DCAA audit in 2008 triggered by DOD IG report critical of the prior audit identified $25M additional costs deemed unallowable. COFD issued in 2008 for $25M Court: Govt s claim time-barred. Had all information necessary to assess allowability of costs that form the basis of 2008 claim in 1999 based on detailed info submitted with AA Raytheon Co., ASBCA Nos , 57679, 13-1 BCA 35,209 Board finds some, not all, Gov t claims barred by 6-year SOL. Of note, finds one Gov t claim time barred based on DCAA knowledge of changes to long term incentive plan. Other SOL decisions: Raytheon Missile Sys., ASBCA 58011, 13-1 BCA 35,241; Raytheon Co., Space & Airborne Sys., ASBCA Nos et al., 13-1 BCA 35,319 The Boeing Company, ASBCA No , 12-1 BCA 34,916 Cost accounting changes disclosed in revised DS-1 and cost impact statement submitted in Cost impact statement audited by DCAA and evaluated by ACO, culminating in Sept ACO letter proposing negotiations. COFD issued in 2010 asserting government claim. Holding: Sept letter not a final decision but reflected that ACO knew facts of any claim. Thus, 2010 claim time-barred But see Kellogg Brown & Root Servs. Inc., ASBCA No , 15-1 BCA 35,988 (among other things, Gov t claim did not accrue until DCAA auditor obtained necessary data) 25

26 Practical Issues: SOL In-house counsel should sensitize clients to SOL implications for their own or potential Government claims DCAA backlog in auditing incurred cost submissions leading to late Government claims. Be vigilant in assessing timeliness of Gov t claims, particularly as related to cost or audit issues Incurred cost submissions Forward pricing rate proposals Cost accounting disclosures/changes Informal submissions/information exchanges Although DCAA knowledge might put Gov t on notice of basis of claim, copy CO, too, to cover both Gov t bases Be wary of requests to resubmit, revise submissions or provide additional information E.g., Gov t could argue that revised incurred cost submission re-starts clock E.g., could point to new information as actual basis for when Gov t knew/should have known Look out for attempts to make old claims continuing claims. E.g., Gray Personnel, Inc., ASBCA No , 06-2 BCA 33,378; Raytheon Co. v. United States, 104 Fed. Cl. 327 (2012) Claim must be inherently susceptible to being broken down into series of independent and distinct events/wrongs, each having associated damages. But, claim based upon single distinct event, even if continued ill effects later on, is not continuing claim 26

27 No Money, No Problem? The Judgment Fund An agency may access the Judgment Fund to pay [a]ny judgment against the United States on a [CDA] claim. 41 U.S.C. 612(a). See 31 U.S.C. 1304; cf. 28 U.S.C If an agency lacks sufficient funds to cover an informal settlement agreement, it may consent to the entry of a judgment against it. Bath Irons Works Corp. v. United States, 20 F.3d 1567, 1583 (Fed. Cir. 1994) Prior to payment, both parties must certify that the judgment is final (i.e., that the parties will pursue no further review). 31 U.S.C. 1304(a). See Inland Servs. Corp., B , 60 Comp. Gen. 573 (1981) An agency that accesses the Judgment Fund to pay a judgment must repay the Fund from appropriations that were current at the time the judgment was rendered against it. 41 U.S.C. 612(c) 27

28 The Judgment Fund: How s it work? Obtain a CDA final decision. Note an appeal the proper Board Enter into a standard settlement agreement. Include Judgment Fund-specific provisions. Agree to seek a consent judgment. File the Treasury Department JF forms. 28

29 Paul F. Khoury Partner, Government Contracts Practice Wiley Rein LLP Paul counsels and represents government contractors in solicitation review, multiple award schedule contracting, state and local procurements, subcontracting, teaming agreements, corporate transactions, bid protests, terminations, contract disputes litigation, compliance reviews, mandatory disclosures, inspector general investigations, and False Claims Act actions. Paul is regularly rated as one of the country s Leading Lawyers in his field by Chambers USA, which commends him as a fantastic bid protest attorney (2013). Representative Experience Advises clients seeking to do business in the federal marketplace. Litigates bid protests at the Government Accountability Office (GAO) and the U.S. Court of Federal Claims. Represents clients in claims and disputes process at the Boards of Contract Appeals and the U.S. Court of Federal Claims, as well as in subcontractor litigation in district courts and state courts. Represents and counsels health care clients in protests and contract administration matters relating to TRICARE Management Activity, Centers for Medicare & Medicaid Services, Federal Employee Health Benefits, and Department of Veteran's Affairs contracts. Conducts internal investigations, represents clients in making mandatory disclosures, and defends clients in Department of Justice (DOJ) and inspector general investigations and suspension and debarment proceedings. Reviews and develops company compliance programs. Handles protests, contract administration issues, and transactions involving classified and compartmentalized programs. Obtained commutation of a client's death sentence from Virginia Governor George Allen three hours before the scheduled execution in a highly publicized pro bono capital habeas corpus case. 29

30 Kara M. Sacilotto Partner, Government Contracts Practice Wiley Rein LLP Kara counsels and represents government contractors on all aspects of government contracting. Her practice focuses on representing government contractors in connection with threatened suspension and debarment actions, ethics and compliance matters, Federal Acquisition Regulation (FAR) mandatory disclosure issues, and internal investigations. Kara also actively litigates a variety of cases from bid protests and claims to disputes between contractors. Representative Experience Represented major Fortune 500 contractor in investigating and responding to proposed debarment by the U.S. Air Force; matter resolved by administrative agreement. Represents government contractors in pre- and post-award bid protests before the U.S. Government Accountability Office, the U.S. Court of Federal Claims, and federal agencies. Successful representation of contractors, as protester and intervenor, in numerous protests involving billions of dollars. Many matters resolved favorably by agency taking corrective action prior to tribunal reaching the merits. Represents government contractors in the preparation of requests for equitable adjustment and prosecution of contractor claims and defense of Government claims before the Armed Services and Civilian Boards of Contract Appeals. Represents contractors in disputes and litigation relating to subcontracts and teaming agreements. Many matters settled favorably through negotiation and alternative dispute resolution prior to reaching decision on the merits. Conducts internal investigations of allegations of wrongdoing, advises contractors on third-party and FAR mandatory disclosure obligations, and assists contractors with responding to Government inquiries arising from disclosures. Advises government contractors on all manner of issues arising under the FAR and FAR supplements, including ethics, compliance, and present responsibility; cost allowability; protest rights; claims and disputes; subcontracts and teaming agreements; default terminations; and past performance assessments. 30

31 Rick Castiglia General Counsel Global Defense Group Cubic Corporation Rick Castiglia presently serves as the General Counsel for Cubic s Global Defense Group. In that role, Rick is responsible for, among other things, all of the Global Defense Group s government and commercial contracting matters, data rights and other intellectual property issues, anti-corruption efforts, export control, dispute resolution, and litigation management. Prior to joining Cubic in 2005, Rick served as General Counsel for a small defense contractor in Providence, Rhode Island, and practiced government contracts law at the law firms of McKenna, Long & Aldridge and Howrey & Simon in Washington, D.C. Rick began his professional career as an Honors Program Attorney with the Air Force Office of the General Counsel at the Pentagon. There he established and served as Chief of the Air Force s Procurement Fraud Remedies Program and served as lead counsel for the Air Force in over 100 bid protests before the General Accountability Office. Rick received his Bachelor s degree summa cum laude from Case Western Reserve University with Highest Department Honors in Political Science, Economics, and Law & Public Policy and was a member of Phi Beta Kappa. He also received an ROTC Scholarship, was a Distinguished Military Graduate, and was commissioned a Second Lieutenant upon graduation. Rick then received an educational delay to attend law school at the University of Virginia, where he earned his JD and won the Rabbi Seymour Siegel National Moot Court Competition. Rick subsequently received his MBA with honors from the Wharton School of the University of Pennsylvania, with concentrations in Leadership and Strategic Management. Rick presently lives in Herndon, Virginia, where he enjoys participating in various sports and collecting books, especially those pertaining to military history and politics. 31