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.

Teaming Agreements in the world of federal procurement are commonplace.  They are formally encouraged by the government at FAR part 9.602 (wherein it states that “Contractor team arrangements may be desirable from both a Government and industry standpoint in order to…complement [contractor]’s capabilities; and [o]ffer the Government the best combination of performance, cost, and delivery…”) and can be critically important to small, and small disadvantaged, business concerns in winning small business set-aside contracts of all types.  Very often a government agency will consider the collective strength of a team’s credentials in awarding such contracts, particularly if the procurement is of the larger variety.  But what if a government agency awards a contract based on a teaming agreement, and you and your teammate cannot then reach accord on a subcontract agreement?  Can you sue to enforce the teaming agreement?  A recent decision from Virginia provides some guidance.

Cyberlock Consulting, Inc. v. Information Experts, Inc. was truly a tale of two agreements.  The plaintiff, Cyberlock Consulting, Inc. (“Cyberlock”), entered into two separate and distinct teaming agreements with the defendant, Information Experts (“IE”).  In both cases, IE was the prospective prime contractor.  In the first agreement, the parties very clearly set forth their intent to be bound to each other.  The language was clear.  Reinforcing that intent, the agreement had appended to it a very detailed breakdown of the scope of work to be completed by each party in the event of award.  Also attached was a formal subcontract agreement.  The teaming agreement clearly stated that, if IE was awarded the prime contract, IE would, “within five (5) business days from date of award…enter into the subcontract attached to this Agreement.”  Lastly, the first teaming agreement identified a number of bases that could result in its termination.  None of those bases included the failure to agree upon the terms of a subcontract agreement.

The second teaming agreement, which pertained to a different solicitation, stood in stark contrast to the first.  The second teaming agreement identified only a generic “percentage of work” to be completed by each party.  The attention to detail, and the explicit assignment of specific, discrete tasks, which was evident in the first teaming agreement, was conspicuously absent in the second.  Moreover, the parties did not attach a draft subcontract to the second teaming agreement, as they did with the first agreement.  In addition, the second teaming agreement contained language providing for a number of situations that could result in termination of the relationship, including the “failure of the parties to reach agreement on a subcontract after a reasonable period of good faith negotiations.”

While I find it a little odd that Cyberlock would agree to terms that were so drastically different than those contained in the first teaming agreement, I’m sure there were reasons that it did so.  Perhaps there was insufficient time to fully negotiate the second teaming agreement and Cyberlock simply trusted IE, especially after successfully negotiating the first agreement.  Whatever the reason, it would come back to haunt Cyberlock later.  Let’s consider what happened.

After entering into the first teaming agreement, the government agency awarded IE a prime contract; IE and Cyberlock quickly executed the subcontract agreement attached to the teaming agreement.  No problem.  The problems arose in connection with the second teaming agreement.  Although IE received the prime contract in connection with the second solicitation as well, after negotiating for a month, IE and Cyberlock were unable to agree on a subcontract agreement.  Cyberlock was NOT happy and sued IE.

It was up to a judge to determine whether the second teaming agreement was enforceable.  It was Cyberlock’s position that it had a deal with IE.  If IE was awarded a contract by the government, Cyberlock was entitled to a share of the work, in this case 49%.  IE saw it differently.  IE argued that the parties did not have an agreement at all.  All they really did was “agree to negotiate later.”  Such agreements, according to IE, were not enforceable.  The judge agreed with IE.

Citing to Virginia law, the judge concluded that the second teaming agreement simply was not definitive enough to qualify as an enforceable agreement.  The problem was that the parties left too many details up in the air, and subject to too many conditions, if IE were able to secure the prime contract.  Most disturbing, the court went on to state the following:  “Indeed, calling an agreement something other than a contract or a subcontract, such as a teaming agreement or a letter of intent, implies ‘that the parties intended it to be a nonbinding expression in contemplation of a future contract.'”  Wow…what is one to take from a statement like that?  The FAR specifically refers to, and encourages, teaming agreements.  How does that position comport with this court’s view?

While I think that the court went a hair too far in making that last statement, it does draw attention to something that is often taken for granted:  the assumption that the document that you’re signing is enforceable.  It’s actually something that you need to consider when it comes to teaming because, if successful, the parties do expect a second agreement, a subcontract (which, incidentally, is where all the money is) to follow their teaming agreement.  That said, it’s not an issue that arises very often in my practice.  Why?  Well, I think because, very often where teaming takes place, the parties have a distinct need for each other.  If, for example, a procurement is set aside for small disadvantaged businesses, such as 8(a) concerns or SDVOSBs, the small disadvantaged business may need a large business concern’s experience, or manpower, or bonding capacity to help it.  On the flip side, the large business concern needs the small business concern for it would not have access to this set-aside work at all without the small business.  It is assumed that things will work out just fine if an award is made.  Let this opinion be a lesson that you really do need to consider the terms of your teaming agreement and, moreover, consider the possibility that things could go wrong.

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.

Following recent congressional testimony, as well as a newsletter published by the Department of Veterans Affairs’ (“VA”) Center for Veterans’ Enterprise (“CVE”) last month,  it would appear that the Miles decision (discussed in detail here and here) has forced an important change in VA policy regarding transfer restrictions.

Prior to the Miles opinion, the VA had taken the position that any restriction on a service-disabled veteran owner’s right to transfer his or her ownership interest rendered ownership conditional.  As the regulations require “unconditional ownership” by a service-disabled veteran to be considered a legitimate SDVOSB concern, the VA reasoned that the presence of transfer restrictions embedded within formation documents eliminated an entity from eligibility.  That was then.

In Miles, the Court of Federal Claims ruled that transfer restrictions did not necessarily render a service disabled vet’s ownership “conditional.”  The provision Miles required the company’s service-disabled veteran owner to offer minority shareholders the right to purchase the veteran’s shares prior to a sale to a third party.  The VA argued that this provision denied the service-disabled veteran “unconditional” ownership and prevented Miles from being SDVOSB-verified.   In overruling the VA’s decision, the Court of Federal Claims concluded that provisions such as the “right of first refusal” provision in Miles’ shareholders agreement fell within the ambit of “normal commercial practice;” it did “not affect the veteran’s unconditional ownership.”  In short, the Court found that transfer restrictions do not render control conditional, as long as those restrictions are commercially reasonable.

In apparent recognition of this holding, the VA has changed its official policy regarding transfer restrictions.  As referenced by the VA’s Executive Director of Small and Disadvantaged Business Utilization, Mr. Thomas Leney, in his congressional testimony (check around the 1:05-1:10 mark), the VA’s position now is that “transfer restrictions on ownership that are part of normal commercial dealings, such as the right of first refusal, do not materially affect the ability of the veteran to unconditionally own or control the business.”  He went on to state that “the VA will no longer interpret the current regulation to mean that such restrictions constitute a reason for denying eligibility.”  This policy shift is reflected in a Verification Assistance Brief entitled “Transfer Restrictions“, found on the VA’s website, and is highlighted in a newsletter published by CVE on May 3, 2013.

Unfortunately, the VA has determined that this change in policy will not be applied retroactively to companies who were denied SDVOSB eligibility prior to March 1, 2013.

However, these entities are not completely out of luck.  For applicants that received denial letters before March 1, 2013, where the sole basis for denying SDVOSB verification was the existence of transfer restrictions, those applicants can request reconsideration without waiting the six months typically required to reapply pursuant to 38 C.F.R. 74.14.  Moreover, the VA has promised that these previously-denied companies will receive “priority” processing, and should have a determination within thirty business days (as long as they have previously undergone a full review and no changes have occurred within the company).

If your company was previously denied SDVOSB verification based upon a problem with transfer restrictions, and you wish to take advantage of the priority reconsideration process, send an email to vacorecons@va.gov, with the following subject line: TRANSFER RESTRICTION PRIORITY, with your company name and DUNS number.  If you have any questions, you can also send me an email and I will try to assist you.

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.

On May 13, 2013, the Department of Veterans Affairs’ (“the VA”) Office of Small Disadvantaged Business (“OSDBU”) published an advanced notice of proposed rulemaking, asking the public for guidance on how best to revise its verification regulations. Better late than never.

Since the verification program’s inception, it has been hampered by issues and problems. The hope was that the verification process would address concerns regarding fraud, and create a system that assured that those attaining verified status were entitled to recognition. Instead, service-disabled veterans have been largely frustrated by the system. Well, if you are a service-disabled veteran with an opinion on how to make the system better, you are being given your chance to make your opinions known.

The recent announcement stated that the OSBDU plans to revise the regulations governing the VA’s veteran-owned small business (“VOSB”) and service-disabled veteran-owned small business (“SDVOSB”) programs in order to “provide greater clarity, to streamline the program, and to encourage more VOSBs to apply for verification.” The OSDBU is specifically seeking comment from the public on the following eight (8) topics:

 

  1. What could be changed to improve the clarity of the regulations? Where might bright lines be drawn to more clearly indicate compliance with the regulations and reduce potential for misinterpretation? Where might the addition of bright line tests create unintended consequences?
  2. It has been suggested that VA should develop a list that would clearly delineate what constitutes ownership and control and what constitutes lack of control or ownership. Should a list like this be included in the rule, and if so, what should be on the list?
  3. Are there changes to VA’s regulations that could be made to reduce the economic impact on VOSBs?
  4. Are there changes to VA Form 0877 (the application) that could streamline the process?
  5. What verification process improvements could help to increase efficiency and reduce burden for VOSBs?
  6. What additional training tools or assistance might be offered to create more clarity for stakeholders and help them more efficiently and effectively navigate the verification regulations?
  7. What documents, records, or other materials could the Office for the Center for Veterans Enterprise use to distinguish legitimate VOSBs/SDVOSBs from businesses that fraudulently seek contracts from the Government?
  8. Would a special Hotline to report suspected ineligible VOSBs/SDVOSBs help the Government ensure that contracts are awarded to legitimate VOSBs/SDVOSBs.

Although the VA identified these eight topics for discussion, do not feel limited by this list. The OSDBU has emphasized that it is open to hearing any and all comments relating to the improvement of the process. As such, this is a rare opportunity to sound off in a very public way and make an impact on the processes that govern the verification program. We strongly urge you to make your voice heard!

Written comments should be submitted through www.Regulations.gov by mail or hand-delivery to Director, Regulation Policy and Management (02REG), Department of Veterans Affairs, 810 Vermont Ave. NW., Room 1068, Washington, DC 20420. Comments can also be faxed to (202) 273-9026. Comments should indicate that they are submitted in response to “RIN 2900-AO63—VA Veteran-Owned Small Business (VOSB) Verification Guidelines.” The comment period ends on July 12, 2013.

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.

 

We’ve all heard about the “glass ceiling” experienced by women in the workplace. The term “glass ceiling” first appeared in an article published by the Wall Street Journal in 1986 and was used to describe the invisible barriers that women faced as they tried to climb the corporate ladder. While things seem to be better today than they once were, I think many would agree that barriers (in some cases substantial barriers) still exist. Certainly, the Small Business Administration agrees.

In October of 2010, after many years of delay, the SBA issued a Final Rule allowing for the implementation of its Women-Owned Small Business Program. The program was gradually introduced and, as originally constituted, was stricken with statutory caps that inhibited its intended effect. Ironically enough, for both Women-Owned Small Businesses (WOSBs) and Economically Disadvantaged Women-Owned Small Businesses (EDWOSBs) set-aside contracts were subject to “ceilings.” For manufacturing contracts, the ceiling was $6.5 million; for any other contract the ceiling was $4 million. Thanks to the National Defense Authorization Act of 2013, however, these ceilings are about to disappear.

On Tuesday, May 7, 2013, in accordance with directives set forth in the NDAA, the SBA issued an Interim Final Rule, removing the statutory cap on WOSB and EDWOSB set-aside contracts. As a result of this change, government agencies will now be able to set-aside contracts for WOSBs and EDWOSBs at any dollar level, providing WOSBs and EDWOSBs with access to much larger federal contracts. Hopefully, this change will also allow the federal government to better meet its statutory contracting goals for women-owned small businesses, which have been consistently missed.

Either way, the shattering of the WOSB “ceilings” promises to greatly increase the number of large-dollar WOSB and EDWOSB set-aside contracts. If you are a WOSB or EDWOSB, you will want to make sure that you are properly registered as soon as possible so that you can take advantage of these opportunities. We’ve posted the requirements in previous articles. For additional information on the SBA’s Women-Owned Small Business Program go to www.sba.gov/wosb.

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.

Back in February, we provided readers with an overview of a case that we litigated at the end of last year, Miles Construction, LLC v. United States, No. 12-597C (Feb. 14, 2013). The major focal point of the decision was the court’s ruling that “a standard right of first refusal is a ‘normal commercial practice,'” which does not hinder an SDVOSB’s ability to comply with the VA’s “unconditional ownership” requirement. Before Miles, it was the VA’s position that a right of first refusal in an SDVOSB operating agreement prevented a veteran owner from “unconditionally owning” his or her company, rendering the company ineligible for verified status. So if, for example, you were a service-disabled veteran, who owned 51% of your company, but had in your operating agreement a provision that you were required to offer your minority shareholders the right to buy your shares at or above a price offered by a third party, you could not be verified by the VA. Sounds a little silly, right? Well, as set forth in Miles, the court thought it was silly as well.

This was a major victory for SDVOSBs, which ushered in a change in VA policy on transfer restrictions, generally. The VA has removed information from its website indicating that rights of first refusal, and other transfer restrictions, are impermissible barriers to verification. The VA has also publically acknowledged its about face on the issue. (See Testimony of Mr. Tom Leney, Executive Director of Veterans and Small Business Programs, March 19, 2013.) Despite all of the publicity on transfer restrictions, however, there are other aspects of the Miles decision that are just as disserving of discussion. The importance of due process is one of those issues.

In Miles, the Plaintiff, Miles Construction LLC, was a SDVOSB that had been previously verified by the VA. A few months after being verified, Miles submitted a bid on a VA solicitation set-aside for SDVOSB concerns. Miles was awarded the contract and a disappointed bidder filed an agency protest, challenging Miles’ eligibility. Specifically, the protestor alleged that Miles’ service-disabled veteran owner did not “unconditionally control” the company, as required by 38 C.F.R. § 74.4. Miles was notified of the protest and asked to “respond directly to the allegations made in the status protest.” Miles promptly responded and addressed each of the allegations. The VA accepted Miles’ position regarding each of the allegations lodged by the protesting party, yet sustained the protest anyway. Why? Not because of issues relating to “unconditional control,” but, rather, based upon an alleged failure of the service-disabled veteran to exhibit “unconditional ownership” over Miles, something never brought to Miles’ attention. Miles lost both the contract and its verified status based upon this decision.

Miles, of course, protested the decision. On the issue of process, Miles’ position was twofold. First, it argued that the VA violated 48 C.F.R. § 819.307 in rendering its decision. Under that regulation, the VA, through its Office of Small and Disadvantaged Business Utilization (OSDBU) “shall decide protests on service-disabled veteran-owned small business status whether raised by the contracting officer or an offeror.”  It goes on to state that “[a]ll protests must be in writing and must state all specific grounds for the protest.” Miles’ interpretation of this regulation was that either a contracting officer or a disappointed offeror could advance an eligibility protest and that protest would have to be specific and in writing. The point is to provide the VA with something substantive to consider, which can then be read, understood and responded to by the person being protested. While the court deferred to OSDBU on the ability to look beyond information contained in a protest (despite the wording of the regulation), it had a problem with not providing the party being protested with notice and an opportunity to be heard.

Citing to the Administrative Procedures Act, the court stated that where an agency performs an investigatory function, as OSDBU did here, an interested party (like Miles) must be given notice of what’s happening such that he or she is permitted to meaningfully participate in the process. That did not happen. Miles was not given an opportunity to address the “unconditional ownership” issues that led to its immediate dismissal from the SDVOSB program. Simply put, you cannot do that. It’s a procedural due process problem, which Miles argued as part of its protest. You cannot issue what amounts to a death sentence without first allowing the accused a chance to defend herself. To that end, the court stated that “an interpretation of 48 C.F.R. § 819.307(c) that does not allow this basic procedural due process is plainly erroneous and cannot be upheld.”

Going forward, this ruling should mean less surprise and more process from the VA. This is a welcome change and another positive, yet less publicized, aspect of the Miles decision.

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.

Next week, the Small Business Administration (“SBA”) is giving SDVOSBs a rare opportunity to voice their concerns about government small business programs — publicly, and directly to the SBA itself.

Yes, you read that correctly. The SBA recently announced that it will host a meeting of the Interagency Task Force on Veterans Small Business Development (“the Task Force”). The Task Force has been charged with various responsibilities in connection with SDVOSB programs. Its most recent focus has been the coordination of administrative and regulatory activities, and the development of proposals, related to several focus areas: (1) access to training, counseling and capital; (2) effective federal contracting verification; and (3) improved federal support. The upcoming meeting is meant to address not only these topics, but also various issues relating to agency efforts to improve business development opportunities for SDVOSBs. Also on the agenda: A discussion about ways in which the government can better meet its small business contracting goals.

The SBA has stated that the meeting will be open to the public, and that time will be set aside for public comment and presentations. This meeting will give service-disabled veteran small business owners a chance to speak out publicly about issues of concern and, based upon our experience, there is plenty to talk about.

The meeting will be held on May 10, 2013, starting at 9 a.m. and running through noon. The meeting will be held at the SBA’s Washington, D.C. District Office, located at 740 15th St., NW, Suite 300. Those planning to attend should provide advance notice by emailing vetstaskforce@sba.gov.

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.

It’s not all that surprising when contactors question the Department of Veterans Affairs’ authority, especially those who are denied SDVOSB verification.  It’s a little surprising, however, when members of Congress do it.  Late last month, two congressmen explicitly challenged the VA’s management structure, which could have an impact on how the verification process operates in the future.

On March 28, 2013, Reps. Richard Hanna (R-N.Y.) and Mike Coffman (R-Colo.) penned a letter to VA Secretary Eric Shinseki, arguing that the VA had violated the Small Business Act by allowing the director of the department’s Office of Small and Disadvantaged Business Utilization (OSDBU), Tom Leney, to also serve as director of the VA’s Center for Veteran’s Affairs (“CVE”).  In theory, the CVE and the OSDBU are meant to carry out very different functions within the VA.  The CVE is charged with the verification of SDVOSB entities – a responsibility delegated to the CVE by the Secretary of the VA under 38 U.S.C. 8127.  In that role it is supposed to serve as an “auditor” for the agency; its job is to police the verification process.  The OSDBU, on the other hand, is meant to serve as an advocate for SDVOSB entities, facilitating their participation in the program.

In their letter, the Congressmen explained that Section 15(k) of the Small Business Act, which created the position of OSDBU for every federal agency, specifically requires that the director of the OSDBU “carry out exclusively the duties enumerated in this Act, and shall, while the Director, not hold any other title, position, or responsibility, except as necessary to carry out responsibilities under [Section 15].”  Given this definition, the Congressmen opined that Mr. Leney’s service as both the director of the OSBDU and head of the CVE presented a problem.  As they coined it, the dual role constitutes an “inherent conflict,” given “the advocacy role assigned to the OSDBU and the auditing function now associated with CVE.”

This is not the first time this issue has been raised.  On March 19, 2013, Mr. Leney was questioned about his dual role during a joint subcommittee meeting.  At that hearing, Mr. Leney testified that he did not feel that he was in a position of conflict.  His explanation: “I personally do not have any issue with a conflict of interest because we are helping vets.”  Apparently, members of the legislature were not convinced.  Congressmen Hanna (the chairman of the Small Business Committee’s Contracting and Workforce Subcommittee) and Coffman (the chairman of the Veterans’ Affairs Committee’s Oversight and Investigations Subcommittee) were certainly not swayed.  In their subsequent letter, they specifically directed VA Secretary Shinseki to document how the department intends to achieve compliance with the Small Business Act.  Implicit in such a direction, of course, is the idea that the current structure is not compliant and, therefore, illegal.

To date, VA officials have not commented on the letter, but it is generally assumed that the VA will have to formally respond at some point soon.

The VA does appear to have a problem here and the problem is not going away.  When two subcommittee chairmen send a letter to follow up on an issue raised during hearing, they are expecting an answer.  Whatever the response, the real issue for SDVOSBs, and prospective SDVOSBs, is what does it all mean for them?  I hope it means that the VA uses this as an opportunity to address some of the administrative issues at CVE that have generated so much frustration amongst veterans.  While most veterans understand and appreciate the need to “police” the verification system, I have heard way too many stories from veterans who feel victimized by that system.  We will keep our eye on this one as it could result in a real shake-up at the VA.

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.

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: 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.