For federal contractors, it is not an exaggeration to say that performance evaluations are the lifeblood of the business.  A less-than-satisfactory evaluation in the Contractor Performance Assessment Reporting System (CPARS) affects far more than just the agency’s assessment of performance on a particular project.  A negative evaluation follows a contractor around – impacting the ability to obtain future contracts due to the specter negative past performance ratings.

The good news for contractors is that the ability to challenge and – if successful – reverse negative CPARS evaluations is a quickly developing area of government contracting law.

The first step in any successful CPARS challenge involves meaningful participation in the evaluation process.  The Federal Acquisition Regulation (FAR) Part 42.15 entitles contractors to submit comments and receive an agency review of a disputed performance evaluation.  Specifically, contractors are entitled to submit comments, rebuttal statements, and/or other information in response to the agency’s evaluation.  The agency must then review those comments at a level above the contracting officer and update the evaluation, if necessary.

If the review and comment process is unsuccessful in resolving the issues, both the U.S. Court of Federal Claims and Boards of Contract Appeals recognize that contractors may bring a lawsuit to address performance evaluation disputes.  Generally speaking, in order to advance a performance evaluation dispute to the next level, the contractor must be prepared to prove that the agency’s evaluation is arbitrary, capricious, and contrary to law.

Although litigation over a performance evaluation dispute is a relatively new development – the law is now clear that a condition precedent to litigating the issue before a Court or Board is a certified claim.  That is – just like a claim for damages based on (for example) delay or a differing site condition – the contractor must file a written claim in accordance with the Contract Disputes Act (CDA) and receive a denial or “deemed denial” of that claim in order to move forward.

In a recent decision, the Court of Federal Claims reinforced the notion that there is no substitute for a CDA claim.  The case originated with a complaint filed by a contractor concerning an allegedly unreasonable negative performance evaluation issued by the United States Transportation Command.  The contractor sought a declaratory judgment vacating the evaluation.

Before the contractor could even begin to prove its case, the government filed a motion to dismiss, arguing that the contractor did not submit a CDA claim to the contracting officer.  Without a claim (the government argued), the Court lacks jurisdiction to hear the case.  In response, the contractor asserted that it engaged in a series of communications with the agency regarding the CPARS evaluation, but the agency would not change its allegedly improper position.

On review, the Court sided with the government and dismissed the contractor’s complaint.  In this instance – far from proving a legitimate dispute that could substitute for a CDA claim – the Court relied on the contractor’s communications with the government as evidence its the lack of jurisdiction.  The Court held that the on-going nature of the parties’ negotiations showed that the contracting officer had no notice that the contractor sought a “final decision” of any kind.

The takeaway for contractors is very simple – engage in the process and follow the required steps when disputing a CPARS evaluation.  The contractor must participate in the review and comment procedure articulated in FAR 42.15 – but if that fails, the next logical step is to proceed with a CDA claim (or, perhaps as an intermediate step, a request for equitable adjustment).  Before a performance evaluation dispute can escalate to litigation, the contractor must be armed with a denial or deemed denial of that claim.

 

Contractors seeking to recover additional time and/or costs on government contracts typically choose to proceed with either a Request for Equitable Adjustment (REA) or a Claim.  These remedies fall under the general umbrella of the Disputes clause (FAR 52.233-1).

Often times, REAs and Claims can be a study in contrasts.  From a procedural perspective, submissions to the government are the subject of numerous technical hurdles that require strict compliance.  For example, a Claim must be “certified” by the contractor if it includes a demand for a sum certain in excess of $100,000.  The proper certification language is set forth at FAR 33.207(c).  An REA does not require a corresponding certification unless it submitted to an agency of the Department of Defense, in which case the certification found at DFARS 252.243-7002 is required.

On the other hand, resolving REAs and Claims often involves informal negotiations and compromises.  Contractors seeking to resolve disputes with the government are well served by remaining flexible and engaging in the kind of give-and-take usually reserved for the alternative dispute resolution universe.

In order to achieve maximum effectiveness in resolving disputes, government contractors need to be able to excel with a foot in both worlds – that is, maintaining compliance with the applicable rules and regulations while remaining open to outside-the-box solutions.  Straying too far in either direction can result in a negative outcome.

For example, a recent Armed Services Board of Contract Appeals (ASBCA) decision highlights the case of a contractor that failed to comply with some hard and fast rules during its settlement negotiations with the government.  As a result, the Board denied its appeal – leaving the contractor empty handed.

The appeal involved an Army contract for the operation of a solid waste burn pit in Afghanistan.  The government terminated the contract for convenience and directed the contractor to submit a settlement proposal.  In response, the contractor submitted a properly certified claim for $160,000 in costs on October 24, 2013.  Just four days later, the contracting officer issued a final decision denying the claim and informing the contractor of its right to appeal (90 days, if filing at the ASBCA).

Even after the contracting officer’s final decision, the parties continued to negotiate.  The contractor floated a comprehensive settlement agreement including all labor and leased equipment expenses.  The contracting officer responded that the government intended to deny the proposal due to a lack of supporting documentation, but also invited the contractor to supplement the proposal.  The contractor responded with a revised settlement proposal.  Critically, the contractor did not certify this revised submission, which was also later denied by the government.

About three years later, the contractor filed its Notice of Appeal from the government’s denials with the ASBCA.  The government promptly filed a motion seeking to dismiss the appeal as untimely because it was filed well beyond the 90 day deadline included in the contracting officer’s final decision.  The Board agreed and dismissed the claim.  Tangentially, the Board also commented that it lacks jurisdiction over the contractor’s revised proposal due to the lack of a proper certification.

This decision offers a variety of lessons for contractors pursuing or considering claims against the government.  First, the case highlights the substantial latitude for negotiations during the dispute resolution process.  While they did not bear fruit here, the government and the contractor exchanged multiple volleys with the opportunity to refine and supplement the original submission.  Contractors should endeavor to keep an open line of communication during the REA/Claim process and promptly respond to requests for supplemental information.

The case also provides contractors with some good examples of what not to do.  Here, the contractor failed to certify its claim and then made matters worse by waiting an unreasonable amount of time to pursue its appeal.  Most claim miscues can be corrected or at least mitigated if they are discovered early in the process.  However, in this case, the nearly three year delay was simply impossible to overcome.

Government contractors must be prepared to perform their Federal contracts – even in the face of a dispute with the government over essential contract terms.  Failing to perform can have devastating consequences, including default termination.

In a recent case before the Armed Services Board of Contract Appeals, the Board considered a U.S. Army Corps of Engineers’ contract for HVAC system upgrades.  After the contract was awarded, the contractor promptly raised concerns over the Agency’s design.  The Agency acknowledged the disagreement, but directed the contractor to complete the project as originally intended.

The dispute did not end there.

Rather than accept the government’s decision and complete the project, the contractor continued to lobby the Agency to consider a re-design.  The Agency again refused – and matters only got worse.  The Agency and the contractor repeatedly butted heads over seemingly simple issues, such as the format of project submittals.  Finally, after issuing multiple Notices to Cure and receiving no response from the contractor, the Agency cut bait default terminated the contractor.

The contractor appealed the determination, arguing that the problems on the project were all caused by the Agency’s design errors – as well as the Agency’s failure to acknowledge and resolve those errors.  These arguments did not persuade the Board and the appeal was denied.

The Board’s decision includes some fairly detailed analysis concerning the competency of the Agency’s decision making.  Was the design defective?  Did the Agency wrongfully refuse to consider the contractors proposed alternatives?  The Board answered all of these questions in the negative.

In my opinion, however, the far more important aspect of the Board’s decision stays out of these technical weeds.  The Board explained that the contractor’s failure to continue the work during the contract dispute justified the default termination.

While the Board hinted that the contractor’s failure to perform could have been deemed “excusable” under the right set of facts, that would not be my advice.  Experience shows that government contractors very rarely come out on the winning end of a dispute when they refuse to perform.

Consider the options:

  • On one hand, a contractor that performs during a dispute has a better chance of completing a job with a satisfied customer.  And any issues of excess costs or delays resulting from the dispute can be taken up as part of a claim or REA – so a contractor that continues to perform is not releasing the ability to recover later if the government really is responsible (just be sure to read that bilateral modification or final payment form before you sign it).
  • On the other hand, a contractor that refuses to perform knows that its work is not getting done and that its customer is unhappy.  While it may ultimately prevail, will that victory be worth the damaged relationship?

Against this backdrop, government contractors should also consider the power of the performance evaluation.  A contractor that works through a dispute is far more likely to get the passing marks (or even flying colors) that will help in future past performance evaluations.  Can the same be said for the refusing contractor?  Performance ratings matter – and they tend to stick with your business – particularly when a default termination is part of the equation.

Timing and circumstances matter.  Sometimes a conflict presents an obstacle to performance so great that it cannot be overcome.  My experience shows that should be the exception to the rule.  Whenever possible, government contractors should perform through a contract dispute and simultaneously position themselves to recover those costs/time later down the line.

Government contractors need to be conscious of the paperwork they sign on Federal contracts.  Signing a waiver or release of claims at any point during a project can result in a lost opportunity to recover damages – even if the event giving rise to those damages was already discussed in detail with the Contracting Officer.

In a recent post, we discussed the hazard associated with bilateral project modifications.  Even when a modification includes requested relief (like a time extension), it also likely includes broad waiver/release language that will apply to all pending claims.  A contractor should not sign a bilateral modification without a full and complete understanding of what claims (if any) are being surrendered with the stroke of a pen.

The same logic and advice applies to requests for final payment – and really any other document executed during the course of a Federal project.

In a case before the Postal Service Board of Contract Appeals, the contractor notified the Agency that it underestimated the paving area for the project – resulting in a significant labor and materials overrun.  The contractor informally requested that the Agency share in the associated costs, arguing that the government was aware of the estimating mistake prior to award.  The Contracting Officer disagreed with the contractor’s position and referred it to the contract’s disputes clause.

As the project approached the finish line, the contractor – who still intended to pursue a cost overrun damages claim – requested final payment on the contract.  In connection with that submission, the contractor executed a “Contractor’s Release.”  The Release expressly stated that the contractor released the Agency from any further claims, without exception.

After signing the Release, the contractor proceeded to pursue its cost overrun claim.  The Agency denied the claim in full, relying on the Release language.

On appeal, the Board sided with the Agency and likewise denied the claim for damages.  Notably, the Board rejected the contractor’s position that its conversations with the Contracting Officer were sufficient to preserve the claim (in other words, the Agency was indisputably on notice of the claim).  The express language of the Contractor’s Release trumped any equitable argument.

The lesson here for contractors is an easy oneRead your paperwork and understand the consequences of a waiver/release before you sign it.  Broad releases are almost never in a contractor’s best interests, so develop a strategy in advance for preserving your right to recover what your company is lawfully owed on a contract.

One of the primary risks facing construction contractors is subsurface or unexpected physical conditions discovered after the work begins (commonly known as a Differing Site Condition).  When such conditions are encountered on a federal government project, contractors need to: (1) properly document the condition, (2) notify the government, and (3) preserve the right to bring a Request for Equitable Adjustment or Certified Claim.

Typically, any Differing Site Condition inquiry begins at Federal Acquisition Regulation 52.236-2.  The regulation defines a Type I differing site condition as a subsurface or latent physical condition at the site that differs materially from those indicated in the contract.  A Type II condition is defined as an unknown condition, unusual in nature, that differs materially from the conditions ordinarily encountered or typically expected of the work provided in the contract.

These definitions seem straightforward – either the conditions encountered align with the contract, or they do not.  However, contractors should not take documenting or proving Differing Site Conditions lightly.  There is still much room for disagreement.

One area where contractors and the government commonly diverge is whether the disputed site conditions were “reasonably foreseeable.”  That is, should the contractor have anticipated the conditions based on all of the information available to the contractor when it bid the project.

This particular issue was recently litigated before the Armed Services Board of Contract Appeals (ASBCA) in a dispute over an Army Aviation Support Facility construction contract.  In a nutshell, the contractor and the government disagreed about whether the soft, saturated soils encountered during excavation for the project constituted a Type I Differing Site Condition.

In discussing the issue of reasonable foreseeability, the Board specifically considered the government’s claim that the contractor had access to the site (during a pre-bid site visit) and, therefore, the ability to discover the condition.  The Board disagreed.  The site visit included a visual inspection only – no invasive investigation was permitted.  While Type I Differing Site Conditions do not literally need to be below ground, that made a difference in this case.

The ASBCA concluded that the contractor proved – by a preponderance of the evidence – that the soil conditions at the site were unsuitable for construction.  As a result, it awarded the contractor damages associated with the unexpected soil remediation costs.

Thinking specifically about Type I Differing Site Conditions, contractors should keep the following elements in mind:

  • Is the condition encountered materially different from that indicated in the contract?
  • Is the condition encountered reasonably unforeseeable based on the information provided by the government at the time of bidding
  • Did your firm reasonably interpret the contract and the related documents provided by the government? and
  • Did your firm incur actual damages due to the difference between the expected condition and the condition actually encountered?

If you can answer all of these questions in the affirmative, then your firm is likely entitled to an upward contract adjustment from the government.

Contractors intending to submit a Request for Equitable Adjustment or Claim on a government contract need to be aware of the implications of bilateral modifications.

In simple terms, a bilateral modification is a supplement to your company’s contract with the government that is signed by both you and the government.  The agency can use a bilateral modification to execute any number of contract changes or otherwise modify the terms of the agreement.

Sometimes, however, a contracting officer may use a bilateral modification to execute a change that the contractor believes is outside the scope of the original contract (also known as a Cardinal Change).  In those cases, the contractor has two options: accept the change and perform the work – or refuse to perform and risk a default termination (and all of the devastating negative performance ratings that will follow).

Given that no contractor ever wants to voluntarily take a default termination – that means the only real option is to continue to perform.  Therefore, contractors need to be smart about how to accept a Cardinal Change issued through a bilateral modification.

Specifically, when faced with a bilateral modification including disputed terms (such as scope of work, increased costs, or increased time to perform), contractors must reserve the right to pursue damages at a later date.  An important part of reserving those rights is reading and understanding all of the terms and conditions set forth in the modification.

In particular, contractors must be mindful of waiver language.  That is, specific language (routinely included by the government in bilateral modifications) that releases the agency from future claims for damages.

The impact of such a waiver was on full display in a recent Armed Services Board of Contract Appeals (ASBCA) case, where a contractor agreed to a Termination for Convenience and signed a bilateral modification zeroing out the CLIN deliverables and contract value.  The modification also included language stating the contractor waived any charges against the government due to the cancelation and that all obligations under the contract were concluded.

After signing the modification, the contractor submitted a claim to the agency seeking to recover certain costs associated with the agreed termination.  The agency denied the claim in full, citing the modification language.

On appeal, the ASBCA agreed with the agency and found against the contractor.  Importantly, the Board Judge refused to admit any outside evidence offered by the contractor suggesting that the parties agreed to different terms at the time the modification was signed.  According to the board, the language of the modification was clear, unambiguous, and “unconditional.”

Contractors need to be vigilant about recording and documenting contract changes – as well as preserving their legal right to seek compensation for those changes later down the line.

It is common for government contractors to file claims on federal projects where there are government-directed changes to the contract that add time or scope.

But what if – instead of adding time and/or scope – the government de-scopes work from the contract by issuing a partial termination?  A recent successful claim shows that the contractor can still recover its increased costs.

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In a decision by the Armed Services Board of Contract Appeals (ASBCA), the Board considered a contract for the provision of food service operations at 18 dining facilities at Fort Leonard Wood, Missouri.  After two years, the agency issued a partial termination for convenience and removed six facilities from the contractor’s scope.  The contractor continued to provide services at the remaining 12 facilities, but could not reach an agreement with the government for the cost of completing the contract.

After negotiations with the government broke down, the contractor filed a certified claim seeking to recover its increased costs.  The government denied the claim, but on appeal, the ASBCA agreed that the partial termination increased the contractor’s costs to complete the contract.  Specifically, the Board looked to calculations of the contractor’s fixed costs – which stayed the same despite the partial termination – and estimated production hours at the remaining facilities.

Notably, in finding in favor of the contractor, the Board rejected the government’s argument that no contract adjustment was required just because the agency failed to meet its estimated requirements.  The government’s argument is based on a common misconception that should not scare contractors away from pursuing claims for damages under Federal Acquisition Regulation (FAR) 52.249-2 (Termination for Convenience of the Government).

In sum, contractors need to be aware of all contract changes – both those that add scope and deductive changes that remove work from a contract.  Both can result in increased costs that can be recovered from the government as part of a request for equitable adjustment or certified claim.

 

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.