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: Edward T. DeLisle & Maria L. Panichelli

Many contractors know that there is a six-year statute of limitations on claims brought under the Contract Disputes Act (“CDA”) and Section 33.206 of the Federal Acquisition Regulations (“FAR”). However, most contractors incorrectly assume that for claims pertaining to delay, or acceleration, the six-year statutory period begins to run only upon project completion or at some point in close proximity to completion, when the contractor is able to more accurately quantify its loss. This assumption is incorrect and can have severe consequences: once the limitations period expires, a claim is forever waived. As such, it is critically important to accurately assess the time at which the six year limitations period begins to run.

Pursuant to the CDA and the FAR, a claim must be submitted to the Contracting Officer within six years of the date upon which that claim “accrues.” Accrual occurs when all events that fix liability are known, or should be known, by the contractor. For liability to be fixed, an injury, or some type of impact or harm, must have occurred. However, monetary damages need not have been incurred, or do not have to be known, for accrual of a claim to take place (See FAR § 33.201). As such, events that result in delay, or acceleration, are likely to occur well before project completion, especially on large, complex projects and, even though the extent of the harm may not be known at that time, a “claim” has been born. To most contractors, this is rather counterintuitive -- it seems almost nonsensical to require a contractor to pursue, or even certify, a claim before a project is complete and the full range of excess costs are known. While this might be true, courts and agency review boards regularly rule against contractors who wait too long to assert a claim and attempt to make such an argument. (E.g. In Re Robinson Quality Constructors, ASBCA No. 55784, 09-1 B.C.A. (CCH) ¶ 34048 (Jan. 6, 2009)).

Contractors have attempted to argue that the six-year limitations period should be “equitably tolled” based on government misconduct. Equitable tolling essentially means that the limitations period stops running based upon issues of fairness. Historically, these arguments have been premised on the notion that the clock should stop ticking if a litigant can establish: (1) that he had been pursing his rights diligently; and (2) that some extraordinary circumstance stood in his way that was not his fault. (E.g. Arctic Slope Native Association, Ltd. v. Sebelius, 583 F.3d 785, 798 (Fed Cir. 2009); Menominee Indian Tribe of Wisconsin v. United States, 2012 WL 192815 (D.D.C. 2012)). However, in a recent opinion, the United States Court of Appeals for the Federal Circuit held that 28 U.S.C. § 2501 (the statutory provision defining the CDA’s limitations period) creates an absolute bar of any claim submitted beyond 6 years, if that claim is pursued in the United States Court of Federal Claims (“CFC”), thereby eliminating the equitable tolling argument in that forum. FloorPro, Inc. v. United States, 2012 WL 1948997 (May 31, 2012). While other opinions suggest that the CDA’s statute of limitations might, nonetheless, be subject to equitable tolling if the contractor’s claim is pursed before an agency or board of contract appeals (see, e.g. Arctic Slope, supra), the CFC is often viewed as a more favorable forum. Therefore, contractors should, if at all possible, avoid triggering the limitations bar, which would preclude adjudication of their claim before the CFC. This can only be accomplished if the contractor acts promptly and accurately determines when liability was “fixed.”

Accurately assessing when a party’s liability becomes “fixed” in relation to a claim can involve a complicated analysis, and is very fact specific. Accordingly, contractors should track any increased costs as they are incurred, and seek professional advice as soon as it appears that there is a basis for a claim, regardless of when the project may attain completion.

Edward T. DeLisle is a Partner in the firm and a member of the Federal Contracting Practice Group. Maria L. Panichelli is an Associate in the firm’s Federal Practice Group.

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By: Edward T. DeLisle

Pursuant to the Contract Disputes Act of 1978 (CDA), every claim on a federal construction project that is in excess of $100,000 must be certified. The reasoning behind this policy is simple: the government wants to discourage the submission of questionable and/or inflated claims. As such, for each claim in excess of the threshold amount, a contractor must append the following language to its claim:

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.

If a contractor submits a claim that it has reason to believe runs afoul of this affirmation, it is subject to a variety of penalties. Those set forth in the False Claims Act (FCA) are the most daunting and represent those that the government will most likely pursue if it becomes aware of a potential violation.

In order to be liable under the civil version of the FCA, the government (or an individual in a qui tam action) must prove that the contractor submitted false information and had actual knowledge that the information was false; acted in deliberate ignorance of the truth or falsity of that information; or acted in reckless disregard of the truth of falsity of the information. If, after an evidentiary hearing, a fact finder determines that a violation took place, a contractor can be assessed fines, damages, or both. Fines can range from $5,000 to $10,000 per violation. This can amount to quite a penalty indeed. For example, in Ab-Tech Const., Inc. v. U.S., 31 Fed.Cl. 429 (1994), a contractor was successful in obtaining the award of a contract issued as an 8(a) set-aside. It subsequently pursued a claim for an equitable adjustment of its contract. The government filed a counterclaim under the FCA, alleging that the contractor was not eligible to receive the award, thereby forfeiting its claim. The government also demanded penalties in the amount of $10,000 for each instance that the contractor submitted an invoice for payment, arguing that in each case the contractor was effectively asserting that it was an eligible participant under the 8(a) program. The court ultimately agreed that the government was entitled to a penalty of $221,000, $10,000 for each payment application submitted by the contractor.

The government can also seek treble damages under the FCA. While many of the reported cases that involve the assessment of treble damages pertain to egregious violations, that does not preclude the government from pursuing such a remedy in more benign situations. See Morse Diesel Intern v. U.S., 79 Fed.Cl. 116 (2007)(assessing treble damages where contractor billed the government more than $1.6 million for reimbursement of bond premiums that were not paid and in excess of $650,000 for false indemnity payments to a parent company).

The above must be taken very seriously based upon the current trends in federal government contracting. The GAO has issued a number of reports over the last several years identifying instances of fraud in the government procurement process. Those reports have generated intense interest on Capitol Hill, resulting in legislation such as the Small Business Contracting Fraud Prevention Act of 2011. The Act would allow for stricter enforcement of the regulations governing small business procurement and increase prosecutions, suspensions and debarments for violations. Similarly, there is a push to amend the FCA to increase the statute of limitations for offenses from six (6) to ten (10) years, expand the ability of the government to obtain awards in excess of any actual losses incurred and apply these principals in a retroactive fashion. All of this suggests increased vigilance in the prosecution of potential instances of fraud. Inevitably, as the government attempts to vigorously root out the evils in the system, there will be honest, hard-working contractors who find Justice knocking on their door. Contractors must be aware of the FCA and the world we now live in and have sufficient controls in place to avoid any unwanted visitors.

Edward T. DeLisle is a Partner in the firm and a member of the Federal Contracting Practice Group.

This article was originally published on Law360.

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By: Michael H. Payne

The growth of contracting by negotiation or “best value” procurement, has had a chilling effect on the submission of claims by construction contractors. There seems to be a growing fear that claims are frowned upon by contracting officers and that they will be counted against a contractor during future proposal evaluations. This fear, in my opinion, is misplaced provided that the claims are not frivolous and are technically and legally supported.

The Contract Disputes Act of 1978, 41 U.S.C. § 601 et. seq., requires contractors to certify that claims in excess of $100,000 are “made in good faith,” that all “supporting data are accurate and complete to the best of [the contractor's] knowledge and belief,” and that the amount requested “accurately reflects the contract adjustment for which the contractor believes the government is liable.” 41 U.S.C. § 605(c)(1). A contractor who is willing to make that certification should not be denied the opportunity to recover the additional costs, or time, that the contract and the law specifically allow. There are a number of clauses in federal construction contracts, including “Changes” (FAR 52.243-4), “Differing Site Conditions” (FAR 52.236-2) “Suspension of Work” (FAR 52.242-14) “Termination for Convenience” (FAR 52.249-2), etc., that afford contractors with the right to seek an equitable adjustment to the contract. These clauses apply to sealed bidding and negotiated procurements alike, and the fear of retribution on proposal evaluations should not be used to deny contractors the very rights that the contract and the law provide.

It is also important to note that contracting officer’s are required to deal with claims fairly, and there is a duty of good faith and fair dealing in government contracting. As the U.S. Court of Federal Claim noted in Lavezzo v. United States, a contracting officer is obligated to “put his own mind to the problems and render his own decisions.” Such decisions must be “personal [and] independent,” and “even the appearance of coercion [must] be avoided.” 74 Fed.Cl. 502, 509 (2006). In addition, a Contracting Officer's outright denial of meritorious contractor claims to gain some advantage over the contractor will not be condoned by the Court. In other words, a contracting officer's review of certified claims submitted in good faith is not intended to be a negotiating game where the agency may deny meritorious claims to gain leverage over the contractor. Moreland Corp. v. U.S., 76 Fed.Cl. 268 (2007). Contractors are legally entitled to submit claims, to have those claims fairly and impartially reviewed, and contractors are entitled to do so without fear of the impact on future source selections.

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 teaming arrangements, negotiated procurements, bid protests, claims, and appeals.

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