NONMONETARY CLAIMS LEAD TO DECLARATORY RELIEF

Nonmonetary claims can be used to truncate the appeal process and to obtain relief on the question of whether the contractor is free to stop work.  This process also can lead to a negotiated resolution of disputes.

We've written about obtaining declaratory relief during contract performance. A nonmonetary claim can be submitted during contract performance.  The 60 decision delay does not apply, and the board or court can have jurisdiction to hear the claim and enter declaratory judgment. Let's drill down and examine the rules on obtaining declaratory relief.  In the case from which we quote in the remainder of this article, the Civilian Board of Contract Appeals (CBCA) ultimately declared the contractor was permitted to stop work.  The portion quoted here established the contractor's right to be heard.

In Alliant, the Federal Circuit concluded that the boards of contract appeals and the Court of Federal Claims have broad discretion to issue declaratory relief during performance of a contract, including the adjustment or interpretation of contract terms, or other relief arising under or relating to the contract.  Alliant, 178 F.3d at 1270-71.  Thus, declaratory relief in situations involving a “fundamental question of contract interpretation or a special need for early resolution of a legal issue” is appropriate.  Id. at 1271.  See also Kellogg Brown & Root Services, Inc., 13 BCA ¶ 35,411 (KBR).

Alliant has set forth three criteria for a court or board to consider when evaluating the appropriateness of declaratory relief: (1) whether the claim involves a live dispute between the parties, (2) whether a declaration will resolve that dispute, and (3) whether the legal remedies available to the parties would be adequate to protect the parties’ interests.

Regarding the first criteria, the parties agree that the claim involves a live dispute between the parties.  KT has been ordered to proceed with CLIN 0002, the construction phase of the contract, on plans that it claims will cost hundreds of millions of dollars over the FTP specified in SA-007.  The disagreement clearly exists, it has significant ramifications, and it continues to impact appellant.  KBR at 173,712.

Here there is clearly a dispute as to whether the contractor has an obligation to perform.  The Federal Circuit advises that to hold that a contractor has a contractual obligation to perform in accordance with the contracting officer’s decision until it receives a different ruling on the scope of the contract does not mean that it must postpone seeking such a ruling until it has performed in full and seeks compensation for the additional work that the contract did not require.

If appellant must continue work when it believes it is not obligated to do so, a fundamental issue is implicated in the contract, and in the face of potential cost overruns of hundreds of millions of dollars, it has a special need for early resolution of this issue.  Were the Board to find that the Government has breached the contract, and that therefore the appellant, in the face of the Government’s breach, is entitled to stop work, the essential dispute between the parties would be determined.  Though every detail in dispute would not be resolved, the parties would at least have a fundamental framework within which to analyze those remaining issues.  See, KBR at 173,713.  Therefore, the Alliant second prong is satisfied.

When taken in the light most favorable to the appellant, the facts alleged suggest that appellant’s legal remedies short of a declaratory judgment are inadequate to protect its interests.   The VA proffers that KT can rely on the contract’s changes clause to recoup funds it must expend while performing the construction.  But the Alliant court found that to file a claim under the changes clause for compensation when the work is completed can be an inadequate remedy.  178 F.3d at 1269.  Here, the appellant alleges that completion of the work would increase its price for completion of the project, as currently designed, by at least $200 million, or more than 30% of the initial ECCA.  This  would be, at the least, a cardinal change to the contract, and would require appellant to serve as long-term banker for the Government, while it makes its way through the pitfalls of submitting claims under the changes clause to a contracting officer who, according to KT, does not have funds allocated to the contract beyond the $582,000,000 ECCA.1 At this stage, appellant’s legal remedy must be assumed to be inadequate and it has a special need for early interpretation of the contract. As the Federal Circuit suggests, to hold that KT has a contractual obligation to perform in accordance with the contracting officer’s decision until it receives a different ruling on the scope of the contract does not mean that it must postpone seeking such a ruling from the Board until it has performed in full and seeks compensation.  Id. at 1266.

 

MOTION TO DISMISS DENIED:

May 22, 2014

CBCA 3450

KIEWIT-TURNER, A JOINT VENTURE,                                           

Appellant,

v.

DEPARTMENT OF VETERANS AFFAIRS,

Respondent.

bill@spriggslawgroup.com

 

INFLATION

This will be short and sweet.  In government contracting, if the government caused change affects the original unchanged work, the original work can be repriced to recognize the effects of inflation.  We'd be happy to explain.  Cost escalations can be allowable costs for changed (delayed) work,  The changes clause permits recovery on work "whether or not changed". 

bill@spriggslawgroup.com 

IMPASSE? GET A JUDGE AS A NEUTRAL - FOR FREE

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 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 declaratory relief and injunction action were available which it is not.  What hope the parties have that the impasse may be resolved short of litigation?

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 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@spriggslawgroup.com

WHEN CAN YOU REFUSE TO PERFORM CHANGED WORK?

When is a change out of the scope of the contract?  Judge Marian Horn of the Court of Federal Claims (COFC) has written the definitive treatise on the rules used to decide when a change exceeds the scope of the original contract. Two types of facts are implicated.  The first is when a contractor on an awarded contract complains the change is beyond the scope of the contract.  The other is when a competitor complains that the change is beyond the scope of the original contract and, therefore, should, under the Competition in Contracting Act (CICA), be open for competition.  Judge Horn had the latter complaint before her.  In either case, however, the central question is whether the modified contract calls for essentially the same performance.

The rule has always been that modifications of an existing contract are permissible as long as the modification is within the scope of the original competitive procurement.  (The same rule applies to the scope of the changes clause.)  Since the Federal Acquisition Regulation (FAR) is no help here, the judicial tribunals have relied on the "cardinal change" doctrine to test whether the modification or change is in scope or violates the competition requirements of CICA.  The cardinal change doctrine addresses whether a change or modification exceeds the scope of the contract changes clause.  In the case before Judge Horn, the issue was whether the modification was within the scope of the original competition.

What is a cardinal change?  A cardinal change occurs when the government alters the work so drastically that it requires the contractor to perform duties materially different from those initially needed.  Just as the cardinal change doctrine prohibits an agency from compelling a contractor to perform beyond the scope of the original bargain, the CICA prevents an agency from ordering work materially different from the contract for which the competition was held.

What is "materially different"?  Lack of resemblance to the original work. Substantial changes in the type of work, performance period, and cost. It's a question of fact for which there is no mechanical or arithmetical answer.  The courts and boards look to changes to the quantity of work, an increase in the cost of the work, the sheer number of changes, the cumulative effect of the changes to the work, and changes to the time and place of the work.

But in the bid protest arena, there is another factor to consider.  Did the solicitation for the original contract adequately advise the bidders of the potential for the type of changes that occurred?  Is the modification of a nature that potential bidders would reasonably have anticipated?  Is it something potential bidders would have expected to fall within the contract changes clause?

Suppose the court concludes as a matter of law that the modification was contemplated in the original procurement and the type of work, quantity, performance period, and costs have not substantially changed. CICA is not implicated in that case, and the protest will be dismissed.  Which is precisely what Judge Horn did.  Case dismissed.

The cardinal change doctrine articulates a firm set of rules.  Whether you are a disgruntled bidder or a contractor tearing out your hair over the nature or size of a modification, you can avail yourself of the argument that you have encountered a cardinal change.  

As a contractor, you don't have to perform such a change.  It's a breach of the contract. But refusing to perform will invite termination for default based on anticipatory repudiation; you can seek declaratory relief that there was a cardinal change.  As a disgruntled bidder, you can protest your right to compete for the work under CICA.

bill@spriggslawgroup.com

UNCONSCIONABILITY IN GOVERNMENT CONTRACTING

The Uniform Commercial Code addresses unconscionable contracting.  Back in 2013, we encountered a contractor who was distressed that because of sequestration at the time, he had been asked to reduce his price by 10%.

Yes, believe it or not, one of our government employees, with a warrant, who is supposed to be the conscience of our system, asked a contractor to provide the same level of service for 10% less money.  This is unconscionable behavior.  Sequestration may cause a reduction in services and therefore the price of those services.  But it is strikingly unfair and unjust (the meaning of unconscionable) to require a contractor to provide the same services for less money.  Naturally, the contractor did not agree but offered to provide reduced services for a reduced price.  That sounds reasonable.

Unconscionability doesn't get talked about much.  The Armed Services Board of Contract Appeals (ASBCA) occasionally uses the term to describe egregious government behavior, usually in the context of the failure to cooperate or communicate or where the government seeks to impose drastic contractual penalties.  The Uniform Commercial Code (UCC) uses the term to describe strikingly unfair behavior in the commercial marketplace.

We believe that contracting officers are indeed the conscience of the procurement system.  Or, they should be.  FAR 1.602-2, dealing with the responsibilities of contracting officers, states at sub paragraph (b) that the responsibility of the contracting officer is to "ensure that contractors receive impartial, fair and equitable treatment."  The duty of good faith and fair dealing falls most heavily upon the shoulders of contracting officers and that duty is implied in all phases of government contract activity.

Budget constraints are here to stay forever.  But Congress did not intend to place the burden on contractors to provide the same services for less money.  That is not sequestration.  That is unconscionable manipulation.  And, if combined with the threat of termination, it is unconscionable extortion.  Other government behavior many be so extreme as to be a breach of contract.  Cardinal change comes to mind. An argument can be made that a particular contract interpretation requirement is so onerous as to be unconscionable and therefore unenforceable.

We expect more from the people to whom we entrust the warrant to act on our behalf in spending our taxpayer money.  Yes, we want them to spend it wisely.  But we do not expect them to drive contractors from the marketplace we depend upon because they are not treated impartially, fairly and equitably.  The point of this piece is that it is not enough to be fair.  Contracting officers are the conscience of the system and must avoid unconscionable behavior, especially in times of severe budget constraints.

bill@spriggslawgroup.com                                   www.spriggslawgroup.co

HOW TO NEGOTIATE A T FOR C SETTLEMENT PROPOSAL

You should not have to litigate a termination for convenience settlement proposal.  The government has admitted entitlement and turned the contract into a cost reimbursement contract.  Moreover, the rule is to settle and to that end the law could hardly be more helpful in encouraging prompt equitable resolution.

Too many people overlook one of the most important parts of the procurement regulations:  FAR 49.201.  But an understanding of its importance begins with knowledge of an even more important and even less understood section of FAR Part 49, FAR 49.113, which reads:

The cost principles and procedures in the applicable subpart of Part 31 shall, subject to the general principles in FAR 49.201--(a) Be used in asserting, negotiating, or determining costs relevant to termination settlements under contracts with other than educational institutions, and (b) Be a guide for negotiation of settlements under contracts for experimental, developmental, or research work with educational institutions (but see 31.104).  (Emphasis added.)

Thus, it is mandatory that application of the cost principles is subject to FAR 49.201.

FAR 49.201 is well worth repeating:

(a) A settlement should compensate the contractor fairly for the work done and the preparations made for the terminated portions of the contract, including a reasonable allowance for profit.  Fair compensation is a matter of judgment and cannot be measured exactly. In a given case, various methods may be equally appropriate for arriving at fair compensation.  The use of business judgment, as distinguished from strict accounting principles, is the heart of a settlement.

Some contracting officers treat this as an invitation to deny recovery of allowable costs.  They have things backwards.  FAR 49.201 is a fairness doctrine.  The contractor is to be treated fairly.  The cost principles are not rigid rules necessarily to be followed if unfairness results.  Various methods may be used to arrive at fair compensation. The regulation is designed to provide flexibility from rigid accounting rules.

In the end, FAR 49.201 is designed to promote settlement.  A settlement, as we all know, is based on judgment and fair dealing.  The government has used a contract clause not found in the commercial world.  It has unilaterally decided to walk away from the contract.  But not with impunity.  It must pay for the privilege.  And with that privilege comes the responsibility to act fairly and give the contractor its due. This does not mean a further penalty.  It means fair compensation even in the face of cost principles which may, in other circumstances, dictate otherwise.

And that's what FAR 49.201 really means.

bill@spriggslawgroup.com

WHAT IF YOU NEED IMMEDIATE JUDICIAL RELIEF DURING CONTRACT PERFORMANCE?

This is the fourth in a several part series directed at project managers based on actual experiences.

What if you are immersed in a veritable quagmire of performance problems with a contracting officer who is in over his head and is practically useless if not very much in the way of solutions. Your monthly briefings become weekly as you are bleeding valuable resources with no end in sight.  In fact, your biggest problem may not be the losses to date.  An even bigger concern is when will this contract go away.  You see no end in sight.  The contracting officer demands more work and do-overs as the weeks and months slug by.

You are not accustomed to micro management but someone told you in government contracts, you had better understand the rules if you are to guide the ship through the dangerous shoals.  That, and hire the experts.  So, you hire the experts.  It will be a teaching experience and maybe, just maybe, the problem may be solved.  You pass the first test.  Get yourself up to speed with the help of the experts.

In government contracts, you cannot get immediate relief during performance by filing an injunctive relief action in court.  We carried over the pond the notion that the king can do no wrong.  Sovereign immunity.  You can't sue the government without its consent granted through statutes and regulations.  Too bad?  Can't get timely judicial relief?  You are told you must follow your administrative remedies.

There is an administrative claims process.  Most often it is used to pursue monetary claims known as requests for equitable adjustment that also include schedule relief.  The claim must first go to the contracting officer who has at least 60 days to render a decision on the claims before you can appeal to a judicial tribunal. In the meantime the law requires you to continue performance notwithstanding the urgent need to get out of the contract.  Yes, you have now decided what you want is to get out.

Enter the expert.  There also are non-monetary claims mostly consisting of matters of contract interpretation and abuse of discretion.  Most disputes involve a heavy element of contract interpretation. When all else fails, read the contract, he says.  As it turns out, a careful review of the contract and the facts, reveals that the disputes with the contracting officer mostly involve contract interpretation issues.

At last, a plan forward.  You are told you do have an immediate remedy of judicial relief.  The experts put together a two page non-monetary claim for relief that includes the salient facts and citations to and application of the pertinent contract interpretation rules.  You send it to the contracting officer and request his final decision.  Wait 60 days?  No.  that requirement applies only to monetary claims. You can appeal a deemed denial within a reasonable time which could be one week if the issues are well known, as they usually are, by the contracting officer.

The expert files the notice of appeal and complaint in one document and immediately files a motion for summary judgment on the contract interpretation issues. The action seeks declaratory relief over which the tribunals have jurisdiction and also alleges cardinal change and the right to stop work.  A cardinal change is a material breach often based on the number of changes which change the nature of the bargain. All of this takes place within a couple of weeks and is the next best thing to injunctive relief.  And you are before a judicial tribunal.

Prompt action by the tribunal is critical and it may not be timely.  However, the result of taking this bold action may precipitate settlement.  The expert should be able to find a way to impress on the tribunal the need for immediate relief.

There you have it.  The medicine to take affirmative action to get rid of your headache.

bill@spriggslawgroup.com