Read the contract. All of it. Including any attachments. Carefully. Was the proposal incorporated? In nearly every REA, default termination and claim situation, the contractor's first reaction may be to blame the government. But contractors need to apply the scientific method to their theories of causation and blame. What did the contract say?
We've written about the need to scrub and scour the solicitation. Any questions, including obvious ambiguities must be raised promptly, certainly well in advance of proposal submission. The devil is in the details. And the more eyes on the language the better, including professional, dare I say legal help. But when the contract is awarded and problems arise, the first move should be to read the contract.
The contract may contain latent ambiguities. The first rule of contract interpretation is what does the plain language mean. Next, the language of the contract must be read in the context of the entire contract, giving meaning and harmony to all contract wording. The law favors giving harmonious interpretation to all the language in the contract. We've written other posts on contract interpretation. If language can have two reasonable interpretations, it is ambiguous and may then be subject to the rule that the ambiguity is resolved against the drafter, the government. Government contracts are contracts of adhesion, meaning the government dictates the terms.
In our experience with disputes, the most prevailing failure is that the parties do not read the contract. Early dispute resolution can be promoted if the parties would just read the contract. So, before you do anything else when problems arise, study the language in the contract.
If this seems like 5th grade advice, remember that the father of the American Bar Association Public Contract Law Section and one time Chairman of the Armed Services Board of Contract Appeals, Gilbert A. Cuneo, with whom we had the honor of practicing government contract law, was most fond of saying, "When all else fails, read the contract." He ought to know.
bill@spriggsconsultingservices.com bill@spriggslawgroup.com
Saturday, January 25, 2020
Thursday, January 16, 2020
PASS THROUGH CLAIM CERTIFICATION
Some prime contractors are reluctant to certify subcontractor pass through or sponsorship claims. These primes are satisfied the subcontractor is acting in good faith and they obtain a proper FAR 33.207 certification from the subcontractor. (In a pass through claim, the subcontractor must certify the claim using the language in FAR 33.207), The prime contractor often hesitates to sign its own certification of the subcontractor's claim. This may be because it has no agreement with the subcontractor containing an indemnification clause. (Primes should always insist on an indemnification clause in the pass through agreement.) We have posted a model pass through agreement in this blog.
Primes have tried various ways to avoid the certification but to no avail. In fact, in a fairly recent Civilian Board of Contract Appeals (CBCA) decision, the Board found it had no jurisdiction over the subcontractor's claim because the prime failed to use the FAR 33.207 certification. The Board refused to allow correction since it said Congress intended to deny correction of defects where there is fraud, bad faith or reckless or negligent disregard of the certification requirement. Many other Board cases have allowed correction of defects in certifications where an obvious attempt was made to comply with the FAR 33.207 requirement and the defect was a technical language failure.
The Court of Appeals for the Federal Circuit (CAFC) reversed the CBCA. The court said there is no statutory requirement that a defect in a certification be merely technical to be correctable. Indeed, any defect may be corrected. Nor, said the court, is there a statutory basis for finding a defective certification uncorrectable based on reckless or negligent disregard of FAR 33.207. The court noted that the language relied on by the CBCA to find Congressional intent was removed from the legislation prior to final vote. Therefore, the court held that certification defects are not limited to those that are technical in nature nor does the law limit a contractor's right to correct a failure if the initial certification was made with negligent disregard for the certification requirements.
The lesson is that the prime must certify the subcontractor's pass through claim. That is an absolute requirement. However, if the prime shows an intend to provide a certification but the certification is defective under FAR 33.207, the contractor may cure that defect regardless of the nature of the defect. The cure is no longer limited to so-called technical language defects.
bill@spriggsconsultingservices.com bill@spriggslawgroup.com
Primes have tried various ways to avoid the certification but to no avail. In fact, in a fairly recent Civilian Board of Contract Appeals (CBCA) decision, the Board found it had no jurisdiction over the subcontractor's claim because the prime failed to use the FAR 33.207 certification. The Board refused to allow correction since it said Congress intended to deny correction of defects where there is fraud, bad faith or reckless or negligent disregard of the certification requirement. Many other Board cases have allowed correction of defects in certifications where an obvious attempt was made to comply with the FAR 33.207 requirement and the defect was a technical language failure.
The Court of Appeals for the Federal Circuit (CAFC) reversed the CBCA. The court said there is no statutory requirement that a defect in a certification be merely technical to be correctable. Indeed, any defect may be corrected. Nor, said the court, is there a statutory basis for finding a defective certification uncorrectable based on reckless or negligent disregard of FAR 33.207. The court noted that the language relied on by the CBCA to find Congressional intent was removed from the legislation prior to final vote. Therefore, the court held that certification defects are not limited to those that are technical in nature nor does the law limit a contractor's right to correct a failure if the initial certification was made with negligent disregard for the certification requirements.
The lesson is that the prime must certify the subcontractor's pass through claim. That is an absolute requirement. However, if the prime shows an intend to provide a certification but the certification is defective under FAR 33.207, the contractor may cure that defect regardless of the nature of the defect. The cure is no longer limited to so-called technical language defects.
bill@spriggsconsultingservices.com bill@spriggslawgroup.com
Thursday, January 9, 2020
COST REASONABLENESS
In pricing an equitable adjustment, costs must be reasonable. They may be estimated, if actual costs are unavailable. See our discussion on the use of estimates. The FAR used to state that incurred costs are presumed to be reasonable. However, that was changed to place the burden on the contractor to prove reasonableness. So what rules apply?
The case law says an equitable adjustment involves the contractor which experiences the change and the effect of the change on that contractor, not some other contractor who might have been able to perform the work for a lower cost. So, the equitable adjustment requires the use of the contractor's actual costs, provided they are "reasonable" under the FAR test. The fact that the contractor may not be as efficient as some other contractor is immaterial. The government chose to deal with the particular contractor involved with the change.
The contractor does have the burden of proving reasonableness of the costs. However, evidence that the costs were incurred in the course of following normal business practices has been held to be sufficient. Submitting accounting records stating that costs were incurred has been held to satisfy the requirement. Bath Iron Works Corp., ASBCA No. 54544, 06-1 BCA para. 33158. However, the burden is on the contractor to satisfy FAR 31.201-3, which states the test for reasonableness. The test boils down to whether a reasonable prudent business person would have incurred the costs.
The case law says an equitable adjustment involves the contractor which experiences the change and the effect of the change on that contractor, not some other contractor who might have been able to perform the work for a lower cost. So, the equitable adjustment requires the use of the contractor's actual costs, provided they are "reasonable" under the FAR test. The fact that the contractor may not be as efficient as some other contractor is immaterial. The government chose to deal with the particular contractor involved with the change.
The contractor does have the burden of proving reasonableness of the costs. However, evidence that the costs were incurred in the course of following normal business practices has been held to be sufficient. Submitting accounting records stating that costs were incurred has been held to satisfy the requirement. Bath Iron Works Corp., ASBCA No. 54544, 06-1 BCA para. 33158. However, the burden is on the contractor to satisfy FAR 31.201-3, which states the test for reasonableness. The test boils down to whether a reasonable prudent business person would have incurred the costs.
The basic purpose of the equitable adjustment is "to keep the contractor whole when the government modifies the contract." Bruce Constr. Corp. v. United States, 324 F.2d 516 (Ct. Cl. 1963). Making the contractor whole requires that the government to make whole the contractor it chose to deal with when it made changes.
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