Contract Performance Issues

Disputes frequently arise because the government refuses to agree that a contractor is entitled to additional money or time resulting from constructive changes, differing site conditions, government-caused delays, or countless other reasons. These disagreements typically are dealt with through the submission of Requests for Equitable Adjustment (REAs) or certified claims and are ultimately resolved through the disputes process. They focus on the rights of the parties under the specific terms of the contract. The problem, however, is that contractors also incur costs because of government indecisiveness that has not yet generated an REA or claim under a particular contract clause. This places the contractor in a state of limbo, not knowing whether there will be a significant impact to the project.

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The Judgment Fund was established by Congress in 1956 to alleviate the need for specific legislation following every successful claim against the United States. The purpose behind the Judgment Fund was to eliminate the procedural burdens involved in getting an individual appropriation from Congress, allowing for the prompt payment of judgments and reducing the amount of interest accrued between the time the judgment was awarded and payment was made. Although the Judgment Fund successfully eliminated the need for legislative action in almost every case, and in most cases resulted in prompter payments to successful claimants, it also had the unintended consequence of incentivizing procuring agencies to avoid settling meritorious claims in favor of prolonged litigation. Specifically, an agency could avoid making payment from its own appropriated funds if it refused to settle a case and instead sought a decision from a court, subsequently providing it access to the Judgment Fund which draws money straight from the Treasury. Congress eliminated this problem when it passed the Contracts Disputes Act (CDA) of 1978, which requires agencies to reimburse the Judgment Fund with appropriated funds that are current at the time of the judgment against the agency. Although contracting officers are no longer incentivized to avoid settlement, the source and availability of funds can still impact whether or not they decide to settle a claim because there are differences between how a judgment is funded and how a settlement can be funded. 
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Government contractors know that an unfavorable performance review posted to the Contractor Performance Assessment Reporting System (“CPARS”) can be extremely costly. Many negotiated solicitations include past performance as an important or even primary evaluation factor for contract award. An unfavorable review on a past contract can impose significant costs on the contractor to address the unfavorable review with contracting officers on future solicitations. However, the contractor saddled with an unfair and inaccurate CPARS review may now have a means to challenge the review and recover some of these costs. 
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WelOnviaLegalLandscapecome to the second edition of Legal Landscape, a series we have developed with Onvia’s  blog to provide government contractors with a quick, but thorough, summary of important legal developments and regulations in government contracting, as well as a plain-English explanation of how those developments may affect contractors at all levels of government. In this issue, we discuss recent compliance and enforcement trends in federal as well as state and local government contracting. State and local contractors should keep in mind that state and local agencies often look to changes in federal regulations as a guideline; changes recently made in the federal arena are likely to trickle down to state and local governments soon.

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Several months ago, we told you about Ambuild Company v. LLC v. U.S., a very important case pending before the Court of Federal Claims (“COFC”).  The AmBuild case was of particular interest to our firm because it concerned the interpretation of a Department of Veterans’ Affairs (“VA”) regulation, which the VA revised following an

In a recent decision issued on July 6, 2007, Appeals of FFR-Bauelemente + Bausanierung GmbH, ASBCA Nos. 52152, 54563, 54808, 54809, 55017, the Armed Services Board of Contract Appeals held that the government had shown that the Contracting Officer was “justifiably insecure about the contract’s timely completion” and that a termination for default was justified.  The CO and COR (Contracting Officer’s Representative) believed, based on experience with other Corps of Engineers barracks renovations, that nine months was needed for a contractor to perform the barracks renovation work.  After 113 days of the 290 day revised performance period (or almost 40% of the period) expired with little or no work accomplished by FFR (i.e., clearly less than 5% of contract work completed), the CO terminated FFR’s contract for default.  While over 40% of the original performance period had passed, FFR had not yet obtained necessary approvals to commence the initial item of renovation work under the contract, the performance of asbestos abatement. The lack of activity by FFR with respect to the contract obviously made the CO insecure about FFR’s timely completion of the barracks renovation work. 

The contractor appeared to be having difficulty procuring a subcontractor to perform asbestos abatement work, failed to meet numerous contract progress milestones (timely submission of a BLG, mobilization within 15 days of issuance of NTP, and timely submission of its asbestos training certificates and other contract submittals), and apparently did not possess a contract performance history with respect to the barracks renovation that instilled confidence in the Contracting Officer.  These facts constituted further tangible, direct evidence that the CO was “justifiably insecure about the contract’s timely completion.”  Thus, the Board concluded that the government has met its prima facie burden of proving it was justified in terminating FFR’s contract for default.

A default termination is a drastic sanction, which should be imposed and sustained only on “good grounds and on solid evidence.” E.g., Lisbon Contractors, Inc. v. United States, 828 F.2d 759, 765 (Fed. Cir. 1987).  Government contract provisions authorizing termination of a contract for default are a species of “forfeiture” and are to be strictly construed.  Forfeitures are not favored, and one who asserts that there has been a forfeiture is held to the letter of its authority.


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A recent decision by the Court of Federal Claims, AAB Joint Venture v. United States, (January 26, 2007), illustrates some of the subtleties of the Contract Disputes Act of 1978.  The contractor was awarded a design-build contract for a military storage complex.  The government provided a geotechnical report in the solicitation for the contractor’s use in preparing its proposal and subsequent design.  The contractor discovered, during construction, that the actual subsurface conditions differed materially from those represented in the government’s geotechnical report. Specifically, the report stated that the material was “limy dolomite rock, mostly massive and hard.”  However, the contractor discovered that there was less hard rock and more expansive, clayey material.  The latter material adversely affected the contractor’s plan to use shorter piles and spread footings for the building foundations.

The contractor submitted a certified claim to the contracting officer for the impact of the differing site conditions on the length of piles required for the perimeter of the structures, contending that the softer material required longer pile lengths.  When the government failed to issue a contracting officer’s decision, the contractor appealed to the Court of Federal Claims on the basis of a deemed denial of its claim. 

In its complaint, the contractor included a claim for the removal of unsuitable subsurface material in the footprint of the structures and requested a $412,000 equitable adjustment. The government objected to that part of the claim, arguing that the claim had not been presented to the contracting officer and, consequently, had not been certified. The government sought dismissal of the unsuitable material claim because the Court lacks jurisdiction to hear a claim that has not been presented to the contracting officer and certified.
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