The United States Court of Appeals for the Federal Circuit recently issued an important decision – K-Con Building Systems, Inc. v. United States, Case No. 2014-5062 – that highlights a few important takeaways for all government contractors.
K-Con Building Systems, Inc. (K-Con) entered into a contract to construct a building for the United States Coast Guard. After a delay in contract completion, the federal government imposed liquidated damages (or LDs). K-Con presented three discrete claims against the federal government in the Court of Federal Claims: (1) remission of LDs on the grounds that the LDs clause was unenforceable, (2) remission of LDs on the grounds that K-Con was entitled to a time extension, and (3) additional compensation for constructive changes.
Claim (1): LDs Clause Was Enforceable
K-Con requested remission of LDs on the grounds that the LDs clause – which called for $589/day of delay – was an impermissible penalty and therefore, unenforceable. The Federal Circuit disagreed, warning contractors that they face a “steep climb” to establish unenforceability. “The test is objective.” Is the amount of LDs “reasonable for the particular agreement at the time it is made”? If so, the LDs clause is most likely enforceable.
Claim (2): No Jurisdiction over Time Extension Claim
K-Con’s second claim was dismissed for lack of jurisdiction because K-Con did not present a valid time extension claim. Remember that a valid claim must contain “an adequate statement of the amount sought” and “an adequate statement of the basis for the request.” The Federal Circuit held that K-Con did not allege enough details in its letter to the Coast Guard to provide adequate notice of the nature of its claim for a time extension.
Claim (3): Must Give Timely Notice of Changes
The Federal Circuit did have jurisdiction over K-Con’s final claim seeking additional compensation for constructive changes. But K-Con failed to provide timely notice of the changes to the Coast Guard. K-Con waited over two years to provide written notice, and the contract required that notice be provided within 20 days. The Court found no “extenuating circumstances” or exceptions that would weigh against strict enforcement of the time limit.
The Federal Circuit’s decision reminds us that sometimes, you have to sweat the small stuff. When you are preparing a claim, be specific about the amount you are seeking and the basis for your request. Be familiar with your contract’s notice requirements and comply with them! And always be proactive – so that you are prepared in the event that you have to participate in claims litigation.