Civilian Board of Contract Appeals

Do contractors need to wait for a project to be complete to file a delay claim? The answer is a resounding NO! There is no reason for a contractor to finance a government-caused delay for any longer than absolutely necessary.

The Civilian Board of Contract Appeals (CBCA) recently drove this point home in CTA I, LLC v. Department of Veterans Affairs, CBCA 5826 (2018). In that case, CTA filed an Appeal in August 2017 seeking approximately $2 million in delay, inefficiency, and other costs for impacts occurring between notice to proceed and September 30, 2016. To date, the project is still not complete and the contractor is showing a contract completion date of November 2018, which is over three years late.

Near the close of discovery, the VA moved to stay the Appeal until contract completion on the grounds that until the contract is complete, the full delay impact is unknown.

The CBCA rejected the VA’s motion to stay, noting:

CTA is entitled to try to prove at this juncture that the VA caused compensable delay to activities on the critical path up to and including September 30, 2016, thereby delaying the future completion date. CTA need not wait until contract completion to litigate its delay claim for that completed, discrete period. Indeed, the very thing that defines work on the critical path is that the work has no leeway and must be performed on schedule; otherwise, the entire project will be delayed.

The CBCA further noted that the Suspension of Work clause requires contractors to submit delay claims “as soon as practicable.” Nothing in the FAR requires contractors to wait until contract completion to file a delay claim.

Takeaway:

If a contractor encounters a delay impact, it need not wait until contract completion to submit a delay claim. The process of litigating a delay claim to judgment is surprisingly lengthy and it is often in the contractor’s best interested to get the process started. An added benefit of filing your claim during contract performance is the early accrual of Contract Disputes Act (CDA) interest, which begins to accrue the date your claim is filed.  Although the current CDA interest rate of 2.625% is relatively low, given the size of the claim and the length of the dispute, CDA interest can grow to be quite substantial.

 

Government contractors are frequently faced with the situation where they are owed additional time or are entitled to damages from the government on a contract.  For example, the government might be responsible for delays to the project schedule.  Or it might direct changes to the contract that make it more expensive to perform.

There are generally two methods for the contractor to pursue recovery – (1) filing a Claim under the Contract Disputes Act or (2) submitting a request for equitable adjustment (REA) to the contracting officer.  There are pros and cons to both methods and Contractors should take the time to consider these options carefully before moving forward.

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What is the Difference between a Claim and an REA?

Claims and REAs are very similar (but not identical) in both form and function.  The basic concept is that the contractor is owed time or money (or both) on a contract and is providing the government with a written request for compensation.  The well-drafted Claim or REA will include a basic summary of the contractor’s performance and an easy-to-understand explanation of why it is entitled to the damages sought.

So what are the differences?  The primary difference is the government’s obligation to promptly respond.  A Claim puts the government “on the clock” and establishes a fixed deadline for a formal response (typically 60 days from the date it is filed).  On the other hand, there is no firm or fixed deadline for the government to respond to an REA.  For this reason, many contractors favor filing Claims (rather than having an REA sit unanswered by the government for months, or even longer).

There are also a few key differences in what a Claim must include.  Unlike an REA, the Claim must include an expression of damages in the amount of a “sum certain” – in other words, the exact amount of damages, in dollars, being claimed.  A Claim of $100,000 or more must also include a formal Contractor Certification (the exact language is provided at FAR 33.207).  The Certification is the contractor’s assurance that the claim is current and accurate as of the date of submission.

Is a Claim or an REA Better for You?

As outlined above, a Claim offers the immediate advantage of requiring a response from the government by a specified date.  For that reason alone, Claims are usually considered more advisable than REAs.  The government will either grant or deny the Claim, or offer a partial settlement.  If the contractor is unhappy with the decision, it has the option to file an appeal and argue its case before a board of contract appeals or the U.S. Court of Federal Claims.

However, while a Claim is certainly the most direct way to proceed, it is not always the best for the contractor.  Your firm might have a good working relationship with the contracting officer.  Or you might want to proceed cautiously in order to preserve your relationship with a particular client.  In those cases, an REA offers the opportunity to reach a mutually-beneficial settlement without having to file a formal Claim.  Bear in mind, a contractor can also convert an REA into a Certified Claim at any time (in the event that the government does not respond to the REA, or negotiations stall).

Is There Anything Else to Consider?

Before making a final decision, contractors should also think about the potential hidden money in Claims and REAs.  For example, contractors can include “contract administration” costs as part of the damages sought in an REA.  These costs can include the attorneys’ fees and consultants’ fees incurred in preparing and submitting the REA.

Attorney and consultant fees are not recoverable as part of a Claim.  However, the Contract Disputes Act does provide for the recovery of interest on any amount that becomes due on a claim.  Depending on how long the Claim takes to resolve and the amount at stake, the interest collected can be considerable and should not be overlooked.

Final Thoughts

The decision of whether to file a Claim or submit an REA should be made on case-by-case basis.  One size does not fit all, and it is very likely that the right answer will change from contract to contract.

Making the right decision could save you time and money – and result in a better overall outcome for your company.

Today, we have a question for our federal construction readers — If your project is operating within an anticipated budget, are you still entitled to the additional costs associated with a differing site condition?  Recently, the Civilian Board of Contract Appeals (CBCA) answered our question with a resounding yes.

This point is particularly important in the context of requests for equitable adjustments or claims asserted against the government.  You may think (or the government may try to convince you) that there is no entitlement when the project is below budget.  That is simply not the case.  The CBCA decision makes the point that damages are based upon the actual cost of performance — your bid should not be used against you.  In short, extra costs due to differing site conditions should always be tracked and documented — even if you are meeting or below a projected budget.

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The case in question involved construction contractor Tucci and Sons Inc., which filed a claim seeking more than $80,000 on a DOT Federal Highway Administration contract for the reconstruction of a 9.7 mile stretch of highway in Mount Rainier National Park.  Tucci claimed that it experienced extra costs based on the unexpected need to work around a number of larger boulders impeding the work.

The government filed a motion to dismiss, arguing that Tucci could not have been damaged because its alleged costs of performance – including the alleged increased costs associated with the boulders – were still lower than the anticipated costs bid at the beginning of the job.

The Board disagreed with the government, holding that it applied the wrong standard for calculating damages – and that the contractor’s anticipated costs were wholly irrelevant to damages based on a differing site condition.  Instead, the Board focused only on the additional costs incurred by the contractor – in other words, the difference between what the work would have cost if the unforeseen condition had not been encountered.

One note of warning – the Board did indicate the possibility of less than clear sailing for Tucci moving forward.  Specifically, it expressed a certain amount of uncertainty over Tucci’s ability to prove its claimed damages.  In this context, it is always worth a reminder to contractors that extra costs must be verified and backed by sufficient supporting documentation in order to prevail on a claim.

After filing a claim under the Contract Disputes Act (CDA), the contracting officer may notify you that a final decision will be issued within “X” days after certain pre-conditions are met, such as:

  • Providing additional documentation supporting your claims or damages;
  • Attending a meeting to discuss your claims; or
  • Answering certain question allegedly required for the government’s review of your claim.

Are you required to cooperate?  For claims over $100,000, the CDA requires a contracting officer, within 60 calendar days, to either issue a final decision or notify the contractor of the date by which a final decision will be issued.  The Armed Services Board of Contract Appeals (ASBCA) recently held that a conditional final decision date, as described above, does not comply with this CDA requirement.  Thus, in such instances, a contractor may file an Appeal on a deemed denial basis without waiting for a final decision.

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In Aetna Government Health Plans, ASBCA No. 60207, Aetna filed a claim for damages associated with a termination for convenience.  The Contracting Officer responded that the Government needed additional documentation to review the claim and would issue a final decision within 90 days after receipt of such documentation.

Aetna appealed to the ASBCA on a deemed denial basis without providing the requested documentation. The Government moved to dismiss the Appeal arguing that the Contracting Officer had not issued a final decision and that the additional documentation was reasonably necessary for review of the claim.

The Board held that the CDA requires a contracting officer to pinpoint the exact date by which a final decision will be rendered. “It is not enough to state that a final decision will be issued within a specified number of days after the occurrence of some future event.”  Accordingly, the Board determined that the Contracting Officer did not comply with CDA and Aetna correctly appealed the decision as a deemed denial.

The take-away here is that if the government is requiring you to jump through hoops in order to get a final decision, there is no requirement to cooperate.  Sometimes it may make strategic sense to cooperate and provide additional information necessary for government review of your claim.  But, if you have fully supported your claim and the government is still requiring you to provide more and more information or documentation, you may be doing more harm than good.  Many times the government has already decided to deny the claim and is simply seeking additional justification for its decision.  In such instances, there is no requirement for you to continue to wait for the government to bolster its position.  If, within 60 calendar days after filing your claim, you do not receive a final decision or a date certain on which the final decision will be issued, you may file an Appeal without waiting for a final decision.

Everyone knows the old adage about a tree falling in the woods that makes a sound (or does it?).  Recently, we’ve had to consider a similar question about a contractor’s claim certification under the Contract Disputes Act.  If a certification is made, but later lost, does it still count? 

In a word:  No.

Contractors submitting claims on federal contracts that exceed $100,000 must include the following certification as part of the submission to the contracting officer:

“I certify that the claim is made in good faith; that the supporting data are accurate and complete to the best of my knowledge and belief; that the amount requested accurately reflects the contract adjustment for which the contractor believes the Government is liable; and that I am duly authorized to certify the claim on behalf of the contractor.”

On a recent VA contract claim appealed to the Civilian Board of Contract Appeals, the contractor represented in its complaint that a proper certification was provided, but it was unable to “locate” a copy among the six boxes of supporting materials provided to the CO.

Despite the contractor’s argument that the claim never would have made it to the final decision stage without a proper certification, the Board was not convinced.  Instead, the claim was denied because, as the Board Judge stated, the burden to provide evidence of the certification falls on the contractor.

Importantly, the Board left the window open a crack for cases where a certification is provided, but then lost.  Under such circumstances, a contractor should be prepared to provide affidavits or declarations from the fact witnesses who prepared and signed the certification.

The Board’s decision stands as another reminder that contractors must be sure to meet all of the procedural requirements when pursuing a claim.  A seemingly minor defect can be all that stands between you and the money you are legitimately owed.

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Bottom Line Up Front:  It is hard to get through a large-scale construction project without hitting a bump in the road in the form of dispute between the owner, general / prime contractor, subcontractors, suppliers, sureties, and so on.  Construction projects have tight deadlines and multiple moving parts, which tends to breed costly and time-consuming disputes.  The best defense to avoiding disputes is to conduct significant upfront planning before the project starts.  The following big-picture tips will help you minimize your risks and avoid project disputes down the road. 

(1) Read the Contract:  It is imperative that contractors know and understand their contract / subcontract backwards and front before it is executed and before a project starts.  Oftentimes, contractors do not obtain a full understanding of the contract documents until a dispute is raised and they walk through the contract in detail for the first time.  This is never a good situation.  All contracts should be fully understood and negotiated in a manner to cut down on potential disputes.  This is usually best accomplished by ensuring that the contract is fair and evenhanded for both parties.  Contracts that are too one-sided for one party tend to back the other party into a corner where litigation is their only option when a dispute arises, which should not be the goal of any contract.            

(2) Pre-Con, Pre-Con, Pre-Con:  It is often said that for every hour of pre-construction work spent before a project begins, you save 2 hours of work during the project.  A rigorous pre-con process is imperative to a successful project.  Contractors that don’t spend time up front putting together solid estimates and schedules, lining up subcontractors, ordering long-lead items, and taking other key steps are certain to hit snags during the project.  As is generally the rule, an ounce of prevention is worth a pound of cure.   

(3) Prepare Realistic Schedules:  Unrealistic schedules create realistic problems during the course of a project.  One misstep (delay) tends to lead to a snowball effect where all activities scheduled to occur after that delay are disproportionately affected by the delay.  Schedules should be well-planned to take into account contingencies that tend to appear during construction projects.  To the extent delays do occur, the schedule must be revised to properly account for that delay and to implement a plan to mitigate the delay.  

(4) Document project issues in real-time:  Nothing is more important to avoiding construction disputes than preparing solid, detailed, and contemporaneous documentation during the project. Daily reports should be treated as the most important document on a construction project, and should be used to notate the daily work performed, labor on site, problems encountered, delays incurred, differing site conditions, and so on.  It is generally not until after a dispute occurs that contractors realize the true importance of daily reports.  Solid daily reports provide you an upper hand in a dispute, whereas deficient daily reports put you at a significant disadvantage.    

(5) Don’t kick the can down the road:  When a problem comes up on a project, deal with it head-on.  Many times, a general / prime contractor will convince its subcontractor to deal with a delay or extra cost issue after the project is over in order to avoid spending time during the project negotiating costs.  Owners frequently do this with general / prime contractors as well.  Do not let this happen.  Once a project is completed, you lose almost all of your leverage to negotiate fair value for the extra work performed and extra costs incurred, and oftentimes, contractors are forced to take pennies on the dollar for their claim.  While it may cause some friction to deal with these issues during a project, it keeps both parties honest and usually ends better for the contractor. 

(6) Know your disputes clause:  If you wait to review your disputes clause until after a dispute actually arises, you are doing it wrong.  Contractors must have an intimate understanding of the processes involved in negotiating / settling a dispute.  Some clauses call for mediation / arbitration and others call for litigation as the primary means to settle disputes.  Many clauses have rigid notice provisions that require a contractor to submit formal notice of a dispute shortly after it arises, or run the risk of waiving that dispute forever.  The best way to succeed in a dispute is to ensure that your disputes clause provides favorable parameters to limit and mitigate disputes to the extent possible.   

Lessons Learned:  Disputes can never be completely eliminated from construction projects, but contractors that follow the steps above will be better protected from disputes than contractors that do not follow these steps. 

Doug Hibshman is a partner in Fox Rothschild LLP’s Federal Government Contracts and Procurement, Construction, and Infrastructure Practice Groups in Washington, DC, and routinely represents owners, contractors, subcontractors, and suppliers in construction-related disputes.