Federal Construction Contracting Blog : Federal Construction Contracting Law Firm : Cohen Seglias Pallas Greenhall & Furman PC : Construction Law, Dredging and Claims

By: Michael H. Payne

The question of whether to submit a Request for an Equitable Adjustment, commonly referred to as an “REA,” or a claim, is one that clients ask on a frequent basis. It is not always an easy question to answer and our advice depends upon the history of the dispute, and the nature of the relationship with the Contracting Officer and his, or her, representatives. At the outset, however, it is necessary to clear up the confusion between the terms “REA” and “Claim.”

A claim is defined in FAR § 2.101 as “a written demand or written assertion by one of the contracting parties seeking, as a matter of right, the payment of money in a sum certain, the adjustment or interpretation of contract terms, or other relief arising under or relating to the contract. However, a written demand or written assertion by the contractor seeking the payment of money exceeding $100,000 is not a claim under the Contract Disputes Act of 1978 until certified as required by the Act.” Although the term “equitable adjustment” appears in the FAR in 111 places, and the term “request for equitable adjustment” appears in 11 places, there is no official definition, in the FAR or anywhere else, of the terms “Request for Equitable Adjustment” or “REA.” Nevertheless, an REA is commonly understood to be a request for compensation (time, money, or both) that falls short of a claim in terms of its procedural requirements.

A “Claim” must be certified pursuant to FAR § 33.207(c) when the claim amount exceeds $100,000, and it must be submitted to the Contracting Officer in a manner that clearly provides the factual, technical, and legal basis for an equitable adjustment to the contract. Whether the claim exceeds $100,000 or not, the best practice is to identify the request as a claim under the Contract Disputes Act of 1978, 41 U.S.C. 601-613, together with a request for a Contracting Officer’s Decision. Those procedural steps will assure that the clock starts running on the 60 day time limit for the issuance of a decision (or longer under some circumstances), and it further assures that interest starts to run from the date the claim was submitted. An REA does not require a certification under the Contract Disputes Act, but REAs submitted to Department of Defense agencies require the certification found in DFARS 252.243-7002.

There are a number of clauses that allow an equitable adjustment to the contract if the government is responsible for additional costs, or time, and the most significant clauses are: Variation in Estimated Quantity, FAR 52.211-18, Differing Site Conditions, FAR 52.236-2, Suspension of Work, FAR 52.242-14, Changes – Fixed-Price, FAR 52.243-1, and Termination for Convenience, FAR 52.249-2. In general terms, an equitable adjustment means that the contractor is entitled to his actual costs, plus reasonable profit (except for suspensions), overhead, and bond. It is also important to note that the additional costs must be allowable, allocable, and reasonable.

With that brief background, there are some practical considerations about whether to file an REA or a claim. If the contractor has a good working relationship with the agency, and particularly with the government personnel assigned to the project at hand, an REA is usually the best way to begin. This is particularly true when the government has indicated flexibility on the issue and a willingness to reach an amicable resolution. On the other hand, if there is animosity, or a clear indication in prior discussions and correspondence, that the government does not believe that the contractor is entitled to an equitable adjustment, it is best to file a claim. Unlike an REA, a claim starts the clock ticking on the time when the Contacting Officer must issue a decision (there is no time limit on an REA), and interest begins to run. It should be noted, however, that in cases where there is doubt, there is no harm in starting out with an REA. If progress is not made within a reasonable time, an REA can easily be converted to a claim under the Contract Disputes Act.

Michael H. Payne is the Chairman of the firm's Federal Practice Group and, together with other experienced members of the group, frequently advises contractors on federal contracting matters including bid protests, claims and appeals, procurement issues, small business issues, and dispute resolution.

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By: Joseph A. Hackenbracht

From August 2, 2002 until July 14, 2004, Todd Construction, a general contractor located in Oklahoma, was awarded five indefinite delivery/indefinite quantity (ID/IQ) contracts by the Savannah District of the Corps of Engineers for design and construction of projects in Georgia, North Carolina, and South Carolina. Each contract was for a period of up to three years and together the task orders issued under the contracts could have added up to $65,000,000. On two of the task orders, each of which was for less than $500,000, Todd received unsatisfactory performance evaluations; it challenged those ratings.

Back in 2008, we reported (see our earlier blog article) about a decision by the U.S. Court of Federal Claims, Todd Construction, L.P. v. U.S., 85 Fed.Cl. 34, 2008, where the Court held that it had jurisdiction to hear a challenge to a performance rating. In that case, Todd submitted a CDA claim asserting that it received an erroneous performance evaluation. The Court concluded that the challenge constituted a “claim” within the meaning of the Contract Disputes Act, thereby giving the Court jurisdiction of what amounted to a non-monetary dispute.

In the years that followed, Todd proceeded on a legal odyssey in what came to be known as Todd I, Todd II, and Todd III. Todd’s counsel battled with government attorneys in written brief and after written brief over nuances regarding one’s ability to challenge a performance evaluation. In 2009, the Court issued Todd II, finding that plaintiff’s must “do more than recite the elements of a cause of action; they must make sufficient factual allegations to ‘raise a right to relief above the speculative level.’” Todd v. U.S., 88 Fed.Cl. 235 (2009). The Court then granted Todd the opportunity to amend its pleadings. In Todd III, decided in 2010, the Court of Federal Claims concluded that, even after revising its complaint, Todd failed to state a claim upon which relief could be granted, and dismissed Todd’s challenge of its rating. The Court also found that Todd lacked standing to bring the action because there was no discernable injury from the alleged errors in the evaluation. Todd v. U.S., 94 Fed.Cl. 100 (2010).

Once Todd’s journey in the Court of Federal Claims came to an end, Todd had two choices: abandon pursuit of its claim or appeal the decision to the United States Court of Appeals for the Federal Circuit. Todd chose to appeal. On August 29, 2011, the Circuit Court issued its decision. The Circuit Court agreed with the lower court’s finding that, in the absence of a showing of prejudice or injury in fact, Todd lacked standing to challenge the alleged procedural violations in the agency’s evaluation. Furthermore, the Court of Appeals agreed with the lower court’s dismissal of the case for failure to state a claim. Todd Const. L.P. v. U.S., 656 F.3d 1306, C.A.Fed. 2011. The Court noted that the complaint did not “state a claim to relief that is plausible on its face,” and that Todd failed to “plead factual content that allows a court to draw the reasonable inference that the defendant is liable for the misconduct alleged.” The Court of Appeals did confirm the jurisdiction of the Court of Federal Claims to hear challenges of performance ratings since, it concluded, the ratings are “related to” the contract and the challenge is a claim under the Contract Disputes Act.

So, on a contract that was performed between 2003 and 2005, concerning a performance evaluation issued on July 23, 2006, that was challenged in a claim submitted in August, 2006, which was denied in a Contracting Officer’s decision dated April 25, 2007, that was the subject matter of the Complaint filed on May 25, 2007, Todd learned on August 29, 2011, that the merits of the government’s evaluation of its performance would go unchallenged and unreviewed. Although Todd could appeal to the Supreme Court of the United States, there is no indication that Todd pursued the matter any further.

Decisions of the Court of Appeals for the Federal Circuit are precedent for both the Court of Federal Claims and the boards of contract appeals. Going forward, therefore, contractors can expect that both the boards and the Court will hear challenges of adverse performance ratings. However, in order to avoid the negative result suffered by Todd, contractors must plead the facts specifically and in detail, and identify individually which ratings are arbitrary and capricious and why they are erroneous. Contractors must also allege what the ratings should have been and that the outcome would have been different if the errors had not been made. In order to avoid dismissal based on standing, contractors must be ready to provide evidence that the negative rating has caused injury, or has prejudiced the contractor.

Based upon the above, contractors should consult with a professional to the extent that they wish to challenge a performance rating to assure themselves that the prerequisites of Todd I, II and III have been met.

Joseph A. Hackenbracht is a Partner in the firm and a member of the Federal Contracting Practice Group.

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By: Joseph A. Hackenbracht

For many years, the boards of contract appeals have considered challenges to performance evaluations and declined, for various reasons, to hear those cases. Then, in 2008, the U.S. Court of Federal Claims held that it possessed jurisdiction to address a contractor’s challenge of the performance rating it had been given by the Corps of Engineers. Todd Construction Company, Inc. v. U.S., 85 Fed.Cl. 34, 2008. (see our earlier blog article) Todd had submitted a “claim” pursuant to the Contract Disputes Act (CDA) challenging its performance rating and the Court concluded that submission of the claim satisfied its “jurisdictional prerequisite.”

In 2010, after the Todd decision was issued by the Court of Federal Claims, the Armed Services Board of Contract Appeals decided that it also could address challenges to performance ratings based on the board’s jurisdiction to determine the rights and obligations of parties under the terms and conditions of their contract. Appeal of Versar, Inc., ASBCA No. 56857, 10-1 BCA ¶ 34437, May 6, 2010. Also in 2010, in a case where the contractor submitted a CDA claim challenging the performance rating, the Board held that under the CDA, it has jurisdiction to “decide any appeal” involving a claim “relating to a contract.” Appeal of Colonna’s Shipyard, Inc., ASBCA No. 56940, 10-2 BCA ¶ 34494, June 24, 2010.

Last month, the Board issued a follow-up decision in Versar addressing the merits of claimant’s position that its performance rating was issued in error. The Board found that Versar had failed to show that its performance rating was arbitrary and capricious, the requisite standard, and, therefore, denied Versar’s claim. In so doing, the Board stated that “bare or insufficient allegations cannot sustain a claim that the government issued an unjustified performance rating.”Appeals of Versar, Inc., ASBCA Nos. 56857 et al., 2012 WL 1579539, April 23, 2012. In its discussion, the Board referenced a decision of the United States Court of Appeals for the Federal Circuit, Todd Const. L.P. v. U.S., 656 F.3d 1306, C.A. Fed. 2011, where the Circuit Court affirmed the decision of the Court of Federal Claims to dismiss a challenge to a performance rating on the basis that the contractor failed to state a claim upon which relief could be granted. In its decision, the Circuit Court affirmed the lower court’s determination that it had jurisdiction to hear cases involving challenges of performance ratings issued by the government.

Decisions of the Court of Appeals for the Federal Circuit are precedent for both the Court of Federal Claims and the boards of contract appeals. Going forward, therefore, contractors can expect that both the boards and the Court of Federal Claims will address challenges of performance ratings in accordance with the Circuit Court’s decision in Todd Const. L.P. v. United States. Contractors can be encouraged that it is now settled that both the boards and the court have jurisdiction to hear challenges of adverse performance ratings.

Upon receipt of an unacceptable performance rating, a contractor should submit a claim under the Contract Disputes Act challenging the rating as arbitrary and capricious. The contractor needs to raise specific objections to individual ratings and demonstrate the errors in the government’s evaluation. After receiving a decision, or in the event a decision is not issued, the contractor should file an action in either the appropriate board of contract appeals or the Court of Federal Claims.

Contractors must be prepared to plead the facts specifically and in detail, and identify individually, which ratings are arbitrary and capricious and why they are erroneous. Contractors also need to be sure to allege what the ratings should have been and that the outcome would have been different if the errors had not been made. In order to avoid dismissal based on standing, it may also be necessary to establish that the negative rating has caused injury, and has prejudiced the contractor. One way to demonstrate the prejudice and injury may be to present facts that the negative rating resulted in the contractor not receiving a contract.

As the ASBCA noted in Versar, the contractor did not provide the board with “specifics of the rating, ratings process, categories, and details,” as well as evidence of what the rating should have been. If contractors want the court to step into the fray, they must furnish the court with the specifics to establish that the government’s evaluations are erroneous and the subsequent ratings are arbitrary and capricious. Unsupported allegations and conclusory statements will not win the day.

Joseph A. Hackenbracht is a Partner in the firm and a member of the Federal Contracting Practice Group.

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