Protection of Contractor Rights

On January 8, 2015 the U.S. Court of Appeals for the Fourth Circuit issued a decision in United States v. Triple Canopy, which broadened the reach of the False Claims Act (FCA) by embracing the theory of implied certification. While it is too early to speculate about the impact of the decision, it certainly could result in a rise in whistle blower and government initiated actions under the FCA.

Money Exchange

The case stems from a security services contract at Al Asad Airbase in Iraq, which was awarded to Triple Canopy in 2009. As a part of the contract, Triple Canopy was required to provide security personnel who possessed specific firearms training and who were able to pass a U.S. Army qualifications course with a minimum score. Scorecards indicating that personnel passed the qualifications course were to be maintained in each employee’s personnel file.

Triple Canopy hired 332 Ugandan guards to work at the Airbase. The guards’ personnel files indicated that they met the training requirements; however, once they arrived on site and were retested, it was discovered that they were unable to properly perform. To overcome this, Triple Canopy falsified scorecard sheets indicating that its personnel were, in fact, qualified.

For the 12 month contract period Triple Canopy presented monthly invoices to the government and received payments totaling over 4 million dollars. Sometime later, a former employee filed a qui tam action in the Eastern District of Virginia alleging that the FCA had been violated. The government intervened alleging that Triple Canopy knowingly presented false claims to the government. Specifically, the government alleged “that Triple Canopy knew the guards did not satisfy [the contract’s] marksmanship requirement but nonetheless billed the government the full price for each and every one of its unqualified guards and falsified documents in its files to show that the unqualified guards each qualified as a Marksman on the U.S. Army Qualification course.”

Triple Canopy filed a motion to dismiss. The basis for this motion was the government’s failure to sufficiently plead that Triple Canopy submitted a demand for payment that contained a false statement. The motion went on to state that the government failed to prove that a false record was created by Triple Canopy, which the government relied upon in paying Triple Canopy. The Court agreed. In its opinion, the Court asserted that the government did not plead “that Triple Canopy submitted a demand for payment that contained an objectively false statement.” In other words, because the actual claim for payment did not contain a false statement, there was no violation of the FCA. Further, the Court held that the “Government … failed to allege that the [Contracting Officer’s Representative] ever reviewed the scorecards,” demonstrating that the government did not rely upon a false record because it did not examine the scorecards before it made payment. The United States (along with the former employee) appealed to the Fourth Circuit.

On appeal the Fourth Circuit reversed the District Court’s ruling. The Court held that the “Government pleads a false statement when it alleges that the contractor, with the requisite scienter, made a request for payment under a contract and withheld information about its noncompliance with material contractual requirements. The pertinent inquiry is whether, through the act of submitting a claim, a payee knowingly and falsely implied that it was entitled to payment.” The Fourth Circuit further found that, although Triple Canopy had not submitted certifications that were false on their face, the government plead sufficient evidence to sustain a FCA claim under a theory of implied certification.

In making this finding, the Court acknowledged the broad purpose of the FCA by stating that “claims can be false when a party impliedly certifies compliance with a material contractual condition [which] gives effect to Congress’ expressly stated purpose that the FCA should reach all fraudulent attempts to cause the Government to pay out sums of money or to deliver property or service.” Here, the material contractual condition was the guards’ qualifications, which Triple Canopy falsified. As the Court explained “common sense strongly suggests that the government’s decision to pay a contractor for providing base security in an active combat zone would be influenced by knowledge that the guards could not, for lack of a better term, shoot straight….[and further] if Triple Canopy believed that the marksmanship requirement was immaterial to the government’s decision to pay, it was unlikely to orchestrate a scheme to falsify records on multiple occasions.” Essentially, the Fourth Circuit found that the claim itself did not have to be false as long as the underlying information that formed the basis of the claim was material and false.

Prior to this ruling, it was difficult to bring a claim under the FCA under circumstances such as these because it was generally only permissible where there was fraud found in an actual certification for payment. Based upon this decision, a FCA claim can be sustained as long as the material upon which payment is based is false. This is yet another example of the expansive nature of the FCA. If you are a government contractor beware of its implications and if you have any questions, call a legal professional.

Edward T. DeLisle is Co-Chair of the Federal Contracting Practice Group. Ed frequently advises contractors on federal contracting matters including bid protests, claims and appeals, procurement issues, small business issues and dispute resolution.

Amy M. Kirby is an Associate in the firm’s Federal Contracting Practice Group and focuses her practice on government construction litigation. Amy’s practice includes a wide variety of federal construction matters.

Over the last few years the world of federal contracting has seen an increased focus on the False Claims Act, the prevention of fraud, and the strengthening of fraud-related penalties. 2015 will certainly be no different. However, the new year brings with it a slightly different take on fraud prevention, one aimed not at the contractor, but on the government. Mobile phone with scam message speech bubble

On January 22, 2015, the United States’ Office of Special Counsel (“OSC”) issued a proposed rule that would give federal contractors and subcontractors a new way to report agency wrongdoing. The rule implements a “pilot program” identified in the National Defense Authorization Act (“NDAA”) of 2013, the purpose of which is to “enhance contractor protection from reprisal for a disclosure of information that the contractor reasonably believes is evidence of gross mismanagement of a Federal contract or grant; a gross waste of Federal funds; an abuse of authority relating to a Federal contract or grant; a substantial and specific danger to public health or safety; or a violation of law, rule or regulation related to a Federal contract or grant.” (Public Law 113-1421, 41 U.S.C. 4712). Consistent with the NDAA, the proposed rule would allow employees of federal contractors and subcontractors to disclose wrongdoing of government employees if they work at, or on behalf of, a U.S. government component for which OSC has jurisdiction to accept disclosures. (See OSC’s Website for more detail.)

So what does this mean for federal contractors and subcontractors? Well, it means that federal contractors and subcontractors who observe mismanagement or misconduct by a federal agency can bring their complaints directly to the OSC. Contractors can also go to OSC if they believe they have suffered retaliation for prior disclosures or statements made about agency misconduct. The hope is that this new program can provide contractors a more effective way to report wrongdoing within the government.

Comments to the rule are due March 24, 2015. We will keep you posted on any new developments.

Edward T. DeLisle is a Partner in the firm and a member of the Federal Contracting Practice Group. Ed frequently advises contractors on federal contracting matters including bid protests, claims and appeals, procurement issues, small business issues and dispute resolution.

Maria L. Panichelli is an Associate in the firm’s Federal Contracting Practice Group. Her practice includes a wide variety of federal contracting and construction matters, as well as all aspects of small business procurement.

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 adverse ruling in our case, Miles Construction, LLC v. United States.  AmBuild was of particular interest to SDVOSBs because of its potential impact on their due process rights in the context of status protests. Gavel and book

Well, the COFC issued its opinion.  The decision is a major victory for veteran-owned businesses, wherein the Court rejects the VA’s attempt to circumvent the ruling in Miles, and reaffirms that the VA cannot cancel a concern’s SDVOSB status without first allowing it an opportunity to respond to potential eligibility issues.

As those of you that follow this blog know, Miles involved the cancellation of our client’s SDVOSB status.  The cancellation stemmed from a protest lodged by a competitor.  However, the VA’s basis for cancellation was something that was never raised in that competitor’s protest.   Rather, the cancellation was based upon a new issue that the VA brought up on its own when deciding the protest, which Miles knew nothing about prior to cancellation.  When Miles protested the cancelation of its status, the COFC found that the VA had violated Miles’ due process rights.  The Court reasoned that an agency performing an investigatory function must provide the investigated party with notice, and afford that party an opportunity to meaningfully participate in the investigation.  The Court said: “an interpretation of 48 C.F.R. § 819.307(c) [the regulation pertaining to SDVOSB/VOSB eligibility protests] that does not allow this basic procedural due process is plainly erroneous and cannot be upheld.”

Following the Miles decision, the VA revised its regulations.  The amended version of 48 C.F.R. § 819.307 (which went into effect on September 30, 2013) added language that gave the VA the ability to determine the status of a protested concern based upon “a totality of the circumstances.”  (48 C.F.R. 819.307(e)).  In AmBuild, the VA relied on this language, arguing that it allowed the VA to consider facts or issues not specifically raised by the protesting party when reviewing a concern’s SDVOSB status.  In effect, the VA argued that “totality of the circumstances” meant that it could review any potential issue affecting a concern’s eligibility under the SDVOSB Program, whether or not it was raised as part of a protest.

In the AmBuild decision, the COFC squarely rejected the VA’s argument.  The Court again emphasized the importance of a protested party’s due process rights, and the necessity of giving a protested party a chance to respond to any allegations affecting its status.  It stated that: “The requirements of due process rest at the core of our nation’s Constitution and governmental institutions and are ingrained in our national traditions. . .”  As a result, “[b]efore adverse action is to be taken by an agency, the individual immediately concerned should be apprised not only of the contemplated action with sufficient precision to permit his preparation to resist, but, before final action, he should be apprised of the evidence and contentions brought forward against him so that he may meet them.”  Accordingly, the Court reasoned that the VA’s “strained construction” of 48 C.F.R. § 819.307 “would convert [the VA’s] scope of review into a general license to act on a protest without giving notice of issues not raised by the protesting party or contracting officer but rather generated sua sponte by [the VA]. The requirements of procedural due process cannot be so easily cast aside.”  The Court concluded that the 2013 amendment to 48 C.F.R. § 819.307 may be interpreted to establish a scope of review only – not to abrogate the requirements of procedural due process.  Thus, going forward, the “totality of the circumstances” language in 48  C.F.R. § 819.307(e) must be read to include only those issues to which the protested party was afforded an opportunity to respond.   That is, the VA may consider the totality of the information available relating to a protested concern’s eligibility for the SDVOSB Program, but only within the context of the issues raised in the protest itself.  The Court ruled that AmBuild was entitled to reinstatement to the VetBiz database, that it must be considered for the award of the contract at issue in the protest, and that AmBuild was entitled to its costs of suit.

This is a major victory for VOSB/SDVOSBs.  AmBuild reaffirms that the VA cannot cancel a concern’s VOSB/SDVOSB status without explicitly notifying that concern of any and all potential issues concerning its eligibility status, giving that concern an opportunity to provide a meaningful response, and allowing that concern to participate in the investigatory process.  It will be interesting to see if the VA attempts to amend its regulations again to circumvent the ramifications of this decision.

Edward T. DeLisle is a Partner in the firm and a member of the Federal Contracting Practice Group. Ed frequently advises contractors on federal contracting matters including bid protests, claims and appeals, procurement issues, small business issues and dispute resolution.

Maria L. Panichelli is an Associate in the firm’s Federal Contracting Practice Group.

There is no question that documentation is an important part in the resolution of any construction dispute. Particularly contemporaneous documents – documents that are created at the time that events occur. Quality control reports, daily logs, and timely letters all fall into the “contemporaneous” category. Another type, however, has an instantaneous characteristic that not only makes it contemporaneous, but so current as to be potentially dangerous – e-mail. This form of documentation cannot only be useful to record events virtually as soon as they occur, but it also has become a vehicle for the expression of emotions without the benefit of reflection.

Sending sms

Every contractor, for example, has had the occasion to be angered by something that another contractor, vendor, or owner has done during the performance of a construction project. If the subject of that anger, or disagreement, could lead to a request for additional compensation, there is often a knee-jerk reaction to put something in writing. Many of us have hurriedly drafted a letter and then, feeling better for having written it, crumpled the paper and tossed it into the nearest wastebasket. It has a therapeutic value and no harm is done. In our Information Age, however, with the ability to compose e-mail messages on our computers, iPads, and smartphones, the opportunity for reflection is gone as soon as we hit the “Send” button.

As an attorney, this often creates a serious problem when those messages are sent by a prime contractor to a sub, or by a sub to the prime. What both parties seem to fail to recognize is that these instantaneously transmitted messages not only record past events and express current thoughts, they may also have a dramatic effect on the future outcome of a dispute. What happens when the prime accuses the sub of poor workmanship and later seeks to blame the owner for providing a defective specification that actually caused the problem? That e-mail message, sent hastily to the subcontractor before all the facts were known, may become a useful document to the owner during litigation. The question, on cross-examination, will be “Isn’t is true that you believed that the problem was poor workmanship by your subcontractor, and not any defect in the specifications?” If the problem really is a defective specification, the ill-advised e-mail message has provided a potential defense to the owner and has introduced uncertainty into the dispute where none may have otherwise existed.

The lesson in all of this is that all parties should think about the possible consequences of the emotions and feelings they are expressing. There is no question that the facts, such as the working conditions, equipment, and manpower at the site must be recorded promptly and accurately. If the accurate recording of events affects the outcome of a dispute, it probably means that justice has been done. Expressions of emotions and opinions that are not well thought-out are in a different category, however and, when conveyed in e-mail messages, they are an unwelcome byproduct of the Information Age. E-mail messages, and all forms of Electronically Stored Information (“ESI”), are just as discoverable by the other side as paper documents. My advice is to be careful and think about the possible future impact of writing, and instantaneously transmitting, things that do not need to be said. Not every form of contemporaneous documentation is a good idea.

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.

By: Edward T. DeLisle, Kayleen Egan & Maria L. Panichelli

Is the Small Business Administration’s (“SBA”) minority business development program, also known as the “8(a) Program”  unconstitutional?   The legality of the program has been a hot topic of debate over the year, most recently due to a significant DC District Court case.  That case, Rothe Development Inc. v. U.S. Department of Defense et al., C.A. 1:12-cv-00744, began in 2012 when Rothe Development, Inc. (“Rothe” or “the Company”) filed suit against the Department of Defense (“DOD”) and the SBA, claiming that the 8(a) program violates the Fifth Amendment due process clause.

Scale & Book

The Company argued that race-based laws are constitutional only when they’re narrowly tailored to address a historic wrong.  Claiming that there was not sufficient evidence of historic discrimination in federal contracting, Rothe argued that the DOD and the SBA did not have a compelling government interest justifying the racial classification of businesses.  Rothe further argued that the remedial effect of the 8(a) program was speculative, and that the 8(a) program was not narrowly tailored to remediate discrimination.   According to the company, the government was increasingly setting aside contracts for minority-owned or minority-controlled businesses, and the 8(a) program unfairly prevented it from competing for those contracts by giving companies owned by members of disadvantaged racial groups an unconstitutional advantage.

In May of this year, two conservative interest groups, the Pacific Legal Foundation (“PLF”) and the Mountain States Legal Foundation (“MSLF”),  joined in, filing amicus briefs. These groups argued that the 8(a) program unconstitutionally deprived Rothe (and similarly situated companies) equal protection under the law, in violation of the Due Process Clause of the Fifth Amendment.  Therefore, the NAACP Legal Defense and Educational Fund, Asian Americans Advancing Justice and the Leadership Conference on Civil and Human Rights fired back, filing their own amicus briefs and arguing that Congress was justified in enacting the 8(a) Program because discriminatory policies and practices have prevented the business development of minority entrepreneurs throughout our nation’s history.

The case now sits before the DC District Court on cross-motions for summary judgment, prompting small business insiders to wonder if Rothe will successfully lodge yet another challenge to minority owned businesses. That’s right, Rothe has filed numerous suits challenging the constitutionality of  small business programs over the past few years, most recently Rothe Development Corp. v. U.S. Department of Defense, where Rothe successfully challenged a practice employed by DOD, NASA and U.S. Coast Guard to adjust prices by up to 10 percent to assist “small disadvantaged businesses” and to help the agencies meet the small, disadvantaged contractor goal.  Rothe also previously intervened in a case filed by DynaLantic Corp., which protested the DOD’s decision to set aside a contract for military simulation and training services for minority-owned businesses.  In that case, a D.C. District judge ruled that the 8(a) program was generally constitutional, but found that the DOD couldn’t use the program in the context of military simulation contracts because there was no evidence of discrimination in that industry.

Indeed, over the past few years, the federal courts have dealt two significant blows to government programs designed to increase the amount of contracts awarded to minority businesses.  If the latest Rothe challenge is successful, it would be a huge blow to such programs.  Considering almost 16 billion dollars in federal contracts were awarded to 8(a) contractors in 2012, this ruling could significantly change the way government contracts are awarded.   We will keep you posted as this case progresses.  Stay tuned for more updates.

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.

Kayleen Egan is a Summer Associate at Cohen Seglias.

Federal contractors and subcontractors will soon be subject to new regulations, which increase those contractors’ obligations to hire both veterans and individuals with disabilities (“IWDs”). On March 24, 2014, two final rules promulgated by the U.S. Department of Labor’s Office of Federal Contract Compliance Program (“OFCCP”) will go into effect. The veterans rule updates the Vietnam Era Veterans’ Readjustment Assistance Act of 1974 (“VEVRAA”), as amended by the Jobs for Veterans Act of 2002; the IWDs rule implements the nondiscrimination and affirmative action regulations of Section 503 of the Rehabilitation Act of 1973 (“Section 503”), which prohibits discrimination by covered federal contractors and subcontractors against individuals on the basis of disability, and requires affirmative action on behalf of qualified IWDs.

Vethireme.jpg The cornerstone of both rules is an adjustment to federal contractors’ and subcontractors’ affirmative action program requirements. As many contractors know, any contractor that meets the dollar threshold ($100,000 for VEVRAA and $50,000 for Section 503) and has 50 or more employees (“Covered Contractors”) is required to have an affirmative action plan (“AAP”). Pursuant to these new rules, Covered Contractors must now include in their AAPs a “hiring benchmark” for veterans and a “utilization goal” for IWDs. In other words, contractors must now set goals with respect to the number of veterans, and IWDs, they plan to hire for federal projects.

The veterans rule directs federal contractors to set this “hiring benchmark” in one of two ways. First, contractors can chose to set a hiring benchmark equal to the national percentage of veterans in the civilian labor force (currently, 8%). The OFCCP publishes this information, and updates it annually. Alternatively, a contractor may set a hiring benchmark by analyzing a combination of national, state and local data, including:

  • The average percentage of veterans in the civilian labor force in the state(s) where the contractor is located over the preceding three years, as calculated by the Bureau of Labor Statistics and published on the OFCCP website;
  • The number of veterans, over the previous four quarters, who were participants in the employment service delivery system in the state where the contractor is located, as tabulated by the Veterans’ Employment and Training Service and published on the OFCCP website;
  • The applicant ratio and hiring ratio for the previous year, based on the data collected by the contractor for its affirmative action plan data analyses;
  • The contractor’s recent assessments of the effectiveness of its external outreach and recruitment efforts; and
  • Other factors, including, but not limited to, the nature of the contractor’s job openings and/or its location, which would tend to affect the availability of qualified protected veterans.

While the second method is more complex, it could yield a significantly lower “benchmark” if the contractor is located in a low-veteran area. Contractors will have to determine which “benchmark” derivation system is best for them. Regardless of how it is derived, the hiring benchmark will be calculated using the percentage of veterans among the employer’s hires, as opposed to current workforce. The benchmark can be applied to affirmative action job groups, EEO-1 categories, or the overall workforce, at the contractor’s election.

The IWDs rule requires contractors to set goals relating to the hiring of IWDs. Here, however, the OFCCP has not left the determination of that benchmark up to the individual contractor, but, rather, has set a blanket 7% “utilization goal” for the employment of qualified IWDs for each of the job groups established in the contractor’s AAP. Utilization is to be measured by job group, with the same seven-percent goal applying for each job group without regard to any data regarding the availability of individuals with disabilities who are qualified for the relevant jobs in the relevant geographic area. Unlike the “hiring benchmarks” required by the veterans rule, the IWDs rule’s “utilization goal” relates to the contractor’s entire workforce, not just new hires.

Other notable effects of these new rules include: periodic reviews of personnel policies and physical/mental job qualifications; the obligation to offer job applicants the opportunity to self-identify as a veteran or IWD; additional internal and external affirmative action policy dissemination requirements; new responsibilities relating to training employees involved in the hiring and disciplinary process; added requirements concerning specific subcontract language relating to federal contractors’ affirmative action responsibilities; and increased obligations concerning the collection and analysis of data relating to the hiring, and employment of, veterans and IWDs. If you have specific questions relating to the obligations imposed by these new rules, contact a legal professional.

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.

Maria L. Panichelli is an Associate in the firm’s Federal Practice Group. 

There is no doubt that the government has the right, and even the responsibility, to terminate a contract completely or partially for default “if the contractor fails to (a) make delivery of the supplies or perform the services within the time specified in the contract, (b) perform any other provision of the contract, or (c) make progress and that failure endangers performance of the contract.” FAR 49.402-1 and 52.249-8. The issue that frequently arises, however, is what should the government do if claims have been submitted that, if successful, would extend the contract completion date and thereby render a termination for default inappropriate? All too often Contracting Officers employ a termination for default as a weapon, or as a pre-emptive measure, to force a contractor into a position where it will offer to waive its claims in return for a rescission of the default termination.

The Court of Appeals for the Federal Circuit has held that a termination for default is “a drastic sanction, which should be imposed (or sustained) only for good grounds and on solid evidence.” Under the law, the Government bears the burden of proof to show that the contractor was in default at the time of termination and, if the government meets that burden, then the contractor must show that its default was excusable. A contractor can demonstrate that the default was excusable “by showing that improper government actions were the primary or controlling cause of the default.” If the court finds that the default was excusable, the termination for default is converted into a termination for convenience.

Unfortunately, it can take considerable time and effort to challenge a termination for default before a board of contract appeals or court, and the contractor suffers the consequences of the termination in the interim. Those “consequences” may include loss of bonding, poor past performance evaluations on upcoming solicitations, and the resulting inability to sustain the company. It is therefore incumbent upon the government to use its immense power wisely, and not as a means to “take the offensive” in order to defend itself against legitimate contractor claims. Contractors, however, must recognize that they are operating at a tactical disadvantage when a termination for default occurs and they should do everything possible to adequately address any issues raised in a show cause or cure notice. Most of the time, a termination for default is not in the interest of either the government or the contractor.

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.

By: Edward T. DeLisle & Robert Ruggieri

Last week the U.S. Supreme Court announced that it will review an important Circuit Court case, which focuses on the enforceability of forum selection clauses.  These contract clauses identify where parties must litigate claims in the event of a dispute.  Contractors, especially federal contractors who perform work for the Government across the country and throughout the world, should, and most often do, include these clauses in their subcontract agreements. 

Forum selection clauses can give a prime contractor a “home court” advantage if litigation should become necessary.  Contractors, when forced to litigate, generally prefer to litigate where they are primarily situated for a variety of reasons, almost all of which pertain to cost.  By litigating in a court near its home base, a prime contractor can likely save on travel costs for key personnel, have its case tried in a court familiar to its legal counsel and make an adversary come to it, escalating the costs incurred for that company.  It’s a huge advantage.  Further, for companies that conduct business over a broad geographic area, forum selection clauses provide more certainty.  It allows them to anticipate costs better by avoiding litigation in multiple venues.      

As evidenced by a recent decision of the U.S. Court of Appeals for the Fifth Circuit, however, forum selection clauses may not always be as iron-clad as they appear, and in some circumstances, may be ignored entirely.  In In re: Atlantic Marine Construction Company, Inc., despite clear language in a subcontract that identified a specific federal court in Virginia to resolve disputes, the Fifth Circuit ruled that a plaintiff subcontractor could file suit in Texas, where the project and witnesses are located, as the forum selection clause represented but one factor to consider when determining whether the contractually specified forum could be enforced.  This decision follows decisions in several other Circuit Courts, but remains the minority position among the Circuits.  The majority of the U.S. Circuit Courts will enforce forum selection clauses, unless there is fraud or the chosen forum is unreasonable.  The U.S. Supreme Court’s review of the Atlantic Marine decision will likely resolve the current split among the Circuits.

The Fifth Circuit did, however, suggest ways in which a contractor could draft a forum selection clause to improve its likelihood of being enforced, including identifying only specific state courts or arbitration tribunals, as opposed to federal courts, as appropriate forums.  The wisdom of the Fifth Circuit’s decision will be scrutinized by the Supreme Court, which will hopefully provide some clarity to this increasingly cloudy issue.   

As you can imagine, forum selection clauses, and the ability to enforce them, have important legal and business consequences.  Contractors that have a national and/or international platform should include well thought-out and effective forum selection clauses in their subcontracts to give themselves the best chance of securing that home court advantage.  You should certainly consult with a legal professional on how best to achieve this result, especially considering Atlantic Marine.  We will keep you updated on this interesting and important case.

Edward T. DeLisle is a Partner in the firm and a member of the Federal Contracting Practice Group. Robert Ruggieri is a Senior Associate in the firm’s Federal Practice Group. 

By: Edward T. DeLisle

We are frequently asked whether attorneys fees are recoverable as part of the federal claims procedure. The answer is sometimes. A case just decided by the Court of Appeals for the Federal Circuit assists in explaining when such a recovery is possible.

In Tip Top Construction v. Donahue, the United States Postal Service required a contractor to perform additional work to complete an air conditioning repair project in the Virgin Islands. While it approved a change order to perform the additional work, the contractor incurred other additional costs, including attorneys fees, to convince the USPS to accept its request for additional money. Those monies were submitted in the form of a claim and denied.

The U.S. Postal Service Board of Contract Appeals upheld the denial stating that the costs included in the claim "had nothing to do with the performance of the changed work or genuine contract administration." The Federal Circuit disagreed.

The Federal Circuit took the position that the monies included in the claim reasonably flowed from negotiations associated with the change order process. This conclusion was important, for the Federal Circuit framed the issue as follows: "If a contractor incurred the cost for the genuine purpose of materially furthering the negotiating process, such cost should normally be a contract administration cost allowable under FAR 31.205-33, even if negotiation eventually fails and a CDA claim is later submitted." Here, the facts revealed that the parties were, in fact, making attempts to negotiate an amicable resolution regarding price for a number of months prior to submission of the claim. Consultants and attorneys were used by the contractor to assist it in its presentation to the Postal Service. Because the evidence suggested that the contractor’s underlying purpose was to resolve the dispute, the Federal Circuit held that these costs were recoverable.

Tip Top illustrates the fine line one must walk when it comes to the collection of attorneys fees. Certainly, once an actual claim is submitted by a contractor, there can be no expectation to collect fees from that point forward. The dispute has traveled too far down the road of dispute resolution. Prior to that point, however, if a contractor can prove that the costs incurred for counsel stemmed from a desire to negotiate an amicable resolution to a change order dispute, recovery of fees is possible.

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

By: Edward T. DeLisle

If a government agency terminates a construction contractor for default, it cannot then sit on its hands. The agency must re-procure and complete that project within some reasonable amount of time. Failure to do so may result in the dismissal of any subsequent claim for excess costs to reprocure and finish the work. That was one of the very important messages delivered by the Court of Federal Claims last month in M.E.S., Inc. and Traveler’s Casulty & Surety Company of America v. The United States.

In September of 1998, the United States Postal Service (USPS) retained MES to build a new postal facility for it at a cost of $3,954,000. Prior to completion of the work, the USPS terminated plaintiff for failure to timely perform. The contractor disputed the termination, taking the position that defective plans and specifications prevented timely performance. While the parties attempted to amicably resolve their differences, their efforts failed, requiring the USPS to reprocure. The termination was issued on June 2, 1999.

The USPS did not reprocure until April 26, 2004, almost five years later. When questioned about the reason why it took so long to reprocure, the Contracting Officer for the USPS merely stated that there was “no reason” for the delay. In the meantime, the costs of completion escalated due to site deterioration, changes in the applicable construction codes and postal department standards, as well as certain “betterments” that the USPS desired upon reflection five years later. While, as part of its excess cost calculation, the agency’s experts attempted to eliminate certain costs that could not have reasonably been assessed to the defaulted contractor, the Court determined that the undue delay in reprocurement eliminated the USPS’s ability to demand any excess costs. Those costs were initially identified as $803,909 and later adjusted to $727,707.

In her opinion, the judge specifically stated that “a claim for excess reprocurement costs must be dismissed where an agency unreasonably delayed reprocurement and if that delay resulted in higher costs or otherwise prejudiced the contractor.” All of these elements were present in MES. Moreover, the USPS made no attempt to explain the basis for the delay, or rebut evidence provided by the contractor that the delay was unreasonable. For these reasons, the court threw out the government’s claim.

If anyone is interested in how not to properly terminate and then complete a project, I encourage you to read this opinion. As the court made a number of interesting rulings, stay tuned for more on MES.

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