COVID 19 RELATED CLAIMS UPDATE

The Court of Federal Claims adheres to the time honored doctrine of constructive terminations and it has recognized for some time compensable delays for the convenience of the government under the Suspension of Work clause.  That clause specifically refers to suspensions "for the convenience of the government".  The Court of Federal Claims has held that, despite lack of fault or actions of the government, a contractor "cannot reasonably be expected to bear the risks and costs of the delay". 

The Suspension of Work clause says you do not use the Suspension of Work clause for redress if another clause provides for an equitable adjustment.  That is precisely what is provided for in the Changes clause and all the cases interpreting the recovery of an equitable adjustment for the costs and schedule adjustment occasioned by the delay.

None of the aforementioned cases involves a pandemic.  And, the limits of the Sovereign Act Defense have not been fully tested in procurement law.  The Supreme Court in Winstar did not apply the defense because the government acted in its self interest rather than on behalf of the general public.  The Court of Federal Claims recognizes a no fault suspension.  If the government acts for its convenience, it has acted in its self interest even if also on behalf of the public.  In our opinion, Section 3610 of the CARES Act waives any application of the sovereign act defense.
 

Winstar was not a procurement case.  Congress changed the law adversely affecting savings and loan companies.  An act of Congress is by nature for the public good but the court said it was also an act in the government's self interest.  We think the balance also tips that direction in the case of constructive suspensions for pandemics especially in the case of procurement contracts governed by long standing precedent compensating contractors who in all fairness and equity should not bear the cost of the delay.

bill@spriggsconsultingservices.com                           bill@spriggslawgoup.com

PANDEMIC: A FIRST LOOK AT CLAIMS

This is a reminder that an epidemic or pandemic is an excusable cause for delay of a government contract and a defense to a termination for default.  The fixed price supply and services default termination clause in FAR 52.249-8 and the fixed price construction default termination clause in FAR 52.249-10 list an epidemic as an excusable cause of delay and failure to perform.  But ignoring the contracting officer and hoping for the best is not a good idea.

As with any disruption of performance, documenting events as they occur is of the upmost importance.  Keep good records of delays and disruptions.  Assign separate charge accounts for collection of costs associated with these delays and disruptions.  And put the contracting officer on notice of that you will be seeking relief.  In fact, now is an excellent time to get to know your contracting officer even better.  Often a contracting officer can be a good source of information on the government's view of how to handle the crisis.

What about affirmative relief?  A pandemic is an excuse for delay or non performance and a defense to a termination for default, but can a contractor also recover losses resulting from the pandemic?  The answer is yes under the Suspension of Work and Changes clauses.  The government may suspend performance for its own convenience and the case law holds a contractor should be compensated even though the government is not at fault in ordering the suspension.  The Suspension of Work clause precludes recovery under the clause where provision is made for an equitable adjustment in price and schedule in another clause.  The Changes clause is one such clause.

The sovereign act defense may apply to suspensions and therefore preclude recovery.  However, it has been held that the defense does not apply if the contracting officer orders the suspension of work.  The boards and courts recognize constructive suspensions.  The Suspension of Work clause states the suspension can be for the convenience of the government and the Court of Federal Claims has held that "despite the lack of fault in the actions of the government. . .the contractor cannot reasonably be expected to bear the risk and costs of the delay."

Relief also may be available under Public Law 85-804, FAR Subpart 50.1.  The act, and implementing regulations, permit agencies such as the Department of Defense, the Department of Homeland Security, the General Services Administration, NASA, other agencies listed and any other agency authorized by the President to provide monetary relief.

Relief can take the form of a contract modification without consideration to cover the contractor's loss if there is a finding it will inure to the benefit of national defense.  A request for relief must be submitted to the contracting officer supported by information described in FAR 50.103-3 and 50.103-4.  Agencies also have established Contract Adjustment Boards with authority to approve, authorize, and direct appropriate actions under FAR Subpart 50.1.

bill@spriggsconsultingservices.com              bill@spriggslawgroup.com

EFFECTIVE MEDIATION IN THE PUBLIC SECTOR

The contracting officer says the parties are at an impasse.  The contractor has not submitted a claim nor taken an appeal.  The contracting officer has threatened default termination but not issued a final decision.  The parties are at loggerheads over the interpretation of the contract.  Each side has an interpretation of the contract language but the parties cannot agree the contract is therefore ambiguous and must be construed against the government.  The contractor wishes a court injunction action were available which it is not.  What hope do the parties have that the impasse may be resolved short of litigation?

It is high time to remind ourselves that federal procurement is based on contracts of adhesion.  What are the contracts of adhesion?  In this context, and in the legal sense, they are contracts in which the government dictates the terms and conditions.  Our mentor, Gil Cuneo, was fond of reminding all of the audiences before which he spoke that one must start with the understanding that when you enter the government marketplace, you must be prepared to deal with contracts of adhesion.  The closest commercial counterpart is the insurance contract, to which we all can relate.  The insurance company dictates the terms and conditions.  How many times has each of us negotiated the terms of our insurance policies?

Yes, government contract terms and conditions are dictated by the government.  And if the term or condition is not written in the contract, chances are it will be read into the contract by operation of law.  See our article on the Christian doctrine.  There are no changes or termination for convenience clauses in the commercial marketplace contracts.  Making changes unilaterally and terminating for convenience would be breaches of contract there.  But, like it or not, the government contract will contain these clauses whether they are written in the contract or not.  (Of course, if the contract is for a "commercial item", the unilateral change is eliminated in government contracts.)  Here, we've picked but two of the hundreds of clauses dictated by the government that will be found in government contracts.  In most every case, the contractor has no control over whether the clause is included or not.  And in many instances, it is there even if you can't see it.

So, what do we make of these contracts of adhesion?  Contractors play on a tilted and even uneven playing field.  Tilted in the sense that the government controls the entire system, from clauses to remedies.  Uneven, in the sense that the professional contract administration staff for the government often does not understand the rules and applies them unevenly and even unfairly.

But help is close by and affectionately known as free rent a judge. 

Both the Civilian Board of Contract Appeals (CBCA) and the Armed Services Board of Contract Appeals (ASBCA), have procedures for Alternative Dispute Resolution (ADR) which permit the parties to request a judge to act as a neutral to conduct ADR even in advance of a claim, final decision or appeal.  That is, if both parties agree, they may request an independent actual judge hear their positions and mediate a resolution of the impasse.  CBCA Rule 53 says the Board may provide ADR services for "pre-claim and pre-final decision" matters.  A judge can be appointed as an independent neutral.  ADR Procedures at the ASBCA mimic the CBCA procedures.

ADR procedures are tailored to the particular needs and desires of the parties.  The procedures can be simple and pragmatic.  The request to the Board must be in writing, signed by both parties and the parties must agree on a written ADR procedure plan.  The Boards will assist with the preparation and implementation of that plan.  The role of the judge must be clear and the Boards can assist in defining that role.  The parties can actually request that a certain judge be assigned.

The types of ADR procedures available include facilitative mediation, evaluative mediation, mini-trial, non-binding advisory opinion, and summary binding decision.  Facilitative mediation involves informal presentations followed by the judge meeting with the parties separately and together to facilitate the settlement of differences.  Evaluative mediation adds the element of the judge reciting the strengths and weaknesses of the parties' positions.  In a mini-trial, the judge sits with the parties' principals to hear presentations and evaluate evidence.  The judge mediates a settlement or renders and non-binding or binding decision.  If binding, the decision is non-precedential.  The Boards encourage the parties to tailor the ADR procedures to their particular needs. 

So if the parties are truly at an impasse, there is a way out.  It is possible even before the issues arise to the level of a claim or final decision, the parties may get a real judge involved.  That is probably the smartest thing they can do to avoid the trouble, delay and expense of litigation.

bill@spriggsconsultingservices.com            bill@spriggslawgroup.com

ANTICIPATORY REPUDIATION

Contractors often encounter contract interpretations by the contracting officer which seem incorrect and overreaching.  Disputes arise as to the meaning of contract language which place the contractor and the government at odds over what performance is required.  The contractor takes the position that the government's demands are "out of scope" and the government reacts by threatening to terminate for default if the contractor does not follow the contracting officer's directions.  Totally frustrated by the looming possibility of having to invest more time and money in the project, the contractor considers refusing to follow the contracting officer's directions.

While there is old case law supporting the proposition that the contractor "has no right to make a useless thing and charge its customer for it", the contractor must always remember the Changes and Disputes clauses, unique to government contracts, require the contractor to perform the work and seek relief afforded by those and other appropriate clauses in the contract.  The cardinal change doctrine allows a contractor to avoid performance of material changes to the contract, but stopping work under any circumstances most likely will result in termination for default.

For those contractors who are new to government contracts, the government's power to compel continued performance is strange indeed.  Directions to perform work when the contractor disagrees with contract interpretation might well entitle the contractor to refuse to do the work in the commercial setting.  Government contracts are contracts of adhesion in which the government dictates the terms and conditions.  The government requires continuation of the work while the contractor seeks remedies under the Disputes clause. 

Government contractors need especially to be wary of anticipatory repudiation.  If, through words or deeds, the contractor communicates an intention not to perform, the government may immediately terminate for default on the basis of anticipatory repudiation.  The words or deeds must be definite, unconditional and unequivocal, but any suggestion the contractor intends not to perform work directed by the contracting officer may well result in termination for default.  The anticipatory repudiation grounds for termination for default apply even to the most outrageous demands by the government.  Displaying an intent not to perform probably will result in termination for default.

bill@spriggsconsultingservices.com         bill@spriggslawgroup.com