A Faster Way For Contractors To Recover On Claims

August 1, 2014Articles Law360
Reprinted with permission from Law360. (c) 2014 Portfolio Media. Further duplication without permission is prohibited. All rights reserved.

Filing claims against the government is not contractors’ preferred method of resolving problems on a federal project, but often contractors are left with little choice with federal procurement officials spread thin. For example, the U.S. Army Corps of Engineers has not moved on a significant number of pending changes and refused to pay the contract balance because the Corps has assessed an equal amount in liquidated damages for delay. The delay was caused by a differing site condition, for which the contractor submitted a claim for time and money. After waiting 60 days, the Corps responded by stating that it will issue the contracting officer’s final decision in seven months. Meanwhile, the contractor continues to spend money trying to close out the project.

How can contractors speed up the claims process, recover on favorable terms, and avoid throwing good money after bad on a multiyear dispute resolution process? The answer: Unbundle your claims and file as many under $50,000 or $100,000 as possible to take advantage of the various board of contract appeals’ expedited or accelerated procedures. Then consolidate all expedited appeals and push aggressively toward a fast and cost-effective global resolution.

Federal contracts include FAR 52.233-1 (the disputes clause), which notifies contractors that the contract is subject to The Contract Disputes Act of 1978, 41 U.S.C. § § 601-613. The CDA acts as a limited waiver of sovereign immunity so that contractors can legally pursue claims against the government. A claim means a written demand seeking as a matter of right a sum certain, an adjustment or interpretation of the contract terms, or other relief arising under or relating to the contract.”

Claims include such things as changes (directed and constructive), differing site conditions (Type I and Type II), suspension of work (directed and constructive) as well as for breach of implied duty of good faith and fair dealing or breach of contract (e.g., poor performance evaluation). The disputes clause requires all claims to be submitted in writing with six years of accrual of the claim and to be certified if they are over $100,000.

The typical claims process can take three or four years from the CO’s final decision to payment. For claims over $100,000, the disputes clause requires only that the CO tell the contractor within 60 days when she will issue a final decision. A contractor can wait the full 60 days only to learn that the CO will not issue a final decision until seven months later. That was the case recently in Appeal of SoCo-Piedmont J.V. LLC, ASBCA No. 59318-946 (July 11, 2014).

If the contractor can break down the amounts sought into smaller claims each $100,000 or less, the disputes clause requires the CO to issue a final decision within 60 days. FAR 52.233-1(e). In the SoCo-Piedmont case, that would have shaved seven months off the process.

If the CO’s final decision is a denial or partial denial, the contractor should proceed to file all of its appeals on day 61. Appeals to the various boards of contract appeals must be filed within 90 days of the CO’s final decision and appeals to the Court of Federal Claims must be filed within a year. But a contractor should not wait. Time is money. With board cases, a simple notice of appeal is required within 90 days and a formal, more detailed complaint is required 30 days thereafter. To save time, file both together.

The Armed Services and Civilian Boards of Contract Appeals both have “expedited” for claims under $50,000 (or $150,000 if the contractor is a small business concern) and “accelerated” procedures for claims $100,000 or less. See ASBCA Rules of Procedure 12.2 & 12.3 (July 2014); CBCA Rules of Civil Procedure 52 & 53 (August 2011).

For claims $50,000 or less, the expedited rules require that the appeal be heard (tried) and decided within 120 days. For claims $100,000 or less, the accelerated rules require the appeal to be tried and the decision issued within 180 days. These procedures can also be applied to specification disputes where the contractor has not yet incurred any cost, but if the government’s interpretation is accepted, the contractor will have to incur substantial costs with no ability to obtain payment from the government.

Once the appeals for all denied claims have been filed, move to consolidate them. Even if it is not possible to unbundle all of the claims, the best strategy is to push to resolve all claims, even the claims over $100,000, globally. Typically, the government is interested in settling all of the claims affecting a project at the same time. With the accelerated procedures, the contractor may also ask the government to agree to mediate using one of the board judges. Board judges can be helpful in persuading the government that the contractor’s position has merit.

In sum, the compressed time frames associated with smaller claims together with the expedited and accelerated procedures vault the contractor’s claims to the top of the “must-resolve” pile. Moreover, shortly after claims are submitted, the contractor is well versed with the details of its claims far more so than the government. These factors put pressure to advance these claims and create a more favorable climate to settle quickly.

Reprinted with permission from Law360. (c) 2014 Portfolio Media. Further duplication without permission is prohibited. All rights reserved.