CHAPTER
25
CLAIMS
The government and a contractor sometimes get into arguments. Usually these arguments get solved informally. But sometimes they don’t. In those rare cases where the parties cannot solve their problems peacefully, it becomes necessary to litigate them. A claim is a formal fight between the government and a contractor. Either one—the government or the contractor—can file a claim.
What does a claim consist of?
Claims typically have three parts. A claim is not just the money involved; a claim also involves interest and costs.
Interest
A claim starts to earn interest as soon as it is received by the contracting officer (CO). The rate changes every six months and is never as high as what the banks charge their customers to use their money. But while the interest rate is not high, it beats what banks are paying for CDs. The important point is that interest can add up. If a large claim takes several years to resolve, the interest can be in the thousands.
Costs
It costs money to make a claim. Sometimes a contractor needs an accountant to help determine how much money was lost on the claim. Other times, like when contractors lose money because the government has delayed them, the contractors may need the help of an expert in construction scheduling or delay analysis. Or the government claims a contractor’s work was defective so the contractor needs an expert to say the work was industry standard and correct. Or the claim is complex and the contractor needs a lawyer. The money spent for these experts is called “claim costs.” And a contractor can get these costs back.
Both of these components of a claim can add up. One small claim resulted in a judgment for approximately $45,000 for the claim, about $8,000 for interest, and almost $40,000 for costs—the accountants, the lawyer, and deposition expenses including air fare to the scene of the project.
What is the difference between a request for equitable adjustment and a claim?
The big difference between a request for equitable adjustment (REA) and a claim is interest. A claim earns interest; an REA does not. It’s important, however, to thoroughly understand their differences, and the claims process in general:
• The phone call to the government
• The letter to the government
• Investigation and preliminary negotiations
• The request for equitable adjustment
• The claim
• More information gathering and negotiation
• The CO’s final decision
• The appeal to a board of contract appeals or court of federal claims.
The Phone Call to the Government
The first step in the claims process is usually the phone call to the CO or technical person putting the government on notice that something is wrong. This is not a claim. No interest is running.
The Letter to the Government
The government’s typical response to the phone call or other oral notice of a problem is to get the contractor to put it in writing. Then the contractor sends a letter to the government describing the problem. Of course, this letter could be more than simple notice to the government that there is a problem. It could be a request for an equitable adjustment or it could be a claim. Usually, though, it’s too early in the process. The contractor doesn’t know exactly how big a problem it will be, or how to fix it, or all of its consequences, or how much it will cost to fix it. Without this information, a request for equitable adjustment or claim is premature. A contractor is usually not ready at this early stage to get too formal, by filing either a request for equitable adjustment or a claim.
Investigation and Preliminary Negotiations
The contractor and the government then try to gather information on the issue and negotiate over whether the contractor is due more money and, if so, how much more.
The Request for Equitable Adjustment
At some point in the process, the contractor knows what the problem is and how much it will cost the contractor. The contractor will then send a formal written REA to the government.
On the other hand, it’s possible that the contractor’s negotiations with the government have convinced the contractor that the government doesn’t want to settle the issues or doesn’t have the money to settle. If so, the contractor may decide to file a claim at this point.
The Claim
If the REA doesn’t get the contractor more money, the contractor usually will file a formal claim demanding a CO’s final decision.
More Information Gathering and Negotiation
Often, the CO does not want to issue a CO’s final decision until he or she gathers more information and tries to negotiate some more with the contractor. Settlement discussions could take place at this point.
The CO’s Final Decision
When a CO receives a claim, the CO must issue a formal CO’s final decision that resolves the claim.
The Appeal to a Board of Contract Appeals or Court of Federal Claims
If the contractor is not happy with the CO’s final decision, the contractor can appeal the decision. The contractor can appeal to a board within 90 days or to the Court of Federal Claims within one year. The contractor cannot do both. The contractor must make an “election,” or decide between the two options.
However, none of these steps in the claims process is set in concrete. For example, it is possible for the first notice the contractor gives the government requesting more money to be formally labeled a claim, and thus be more than just a simple notice that there is a problem. Or the contractor could skip the REA and go straight to a claim.
The claims process also involves the government, since there are numerous occasions on which the government wants to file a claim against the contractor. Examples are the assessment of liquidated damages and excess reprocurement costs.
One common mistake the government makes in asserting claims against the contractor is that the government does not go through the CO’s final decision process itself. Often, it simply adds on to a contractor claim a government counterclaim that has never had a CO’s final decision. The absence of a CO’s final decision is critical because this decision sets the boundaries for any further appeal. Generally, issues that are not addressed in that document cannot be heard by a board or a court on appeal. And while a board or court will let the parties to an appeal argue their case with some deviations from the CO’s final decision, they cannot hear appeals of claims not included in that decision.
For example, a CO issued a final decision over money due the government for a 1978 contract. The contractor fought it in court. The government then filed a counterclaim for government recoveries based not only on the 1978 contract, but also on a 1984 contract. The court threw out the counterclaim since there had been no CO’s final decision on the 1984 contract. All the court could deal with was what the CO had dealt with. The CO had not addressed the 1984 contract. While the court could consider a request for more damages from the same claim considered by the CO, the court could not consider the claim if it had never been considered by the CO in the first place.
When should the contractor start out with a request for equitable adjustment? And when should the contractor go straight to a claim?
A contractor might start with a request for equitable adjustment when any of the following is true:
• The contractor is in a long-term relationship with the government and doesn’t want to rock the boat.
• The contractor does yet not have final cost figures so the contractor does not know how much money it will be asking the government for.
• The issues are complex or involve technical matters, and the contractor needs an expert.
A contractor might start out with a claim when any one of the following applies:
• The contractor knows there is no likelihood that the government is going to voluntarily part with any of its money without a fight because there is no money available for an REA.
• Animosity on both sides is so high that no amount of negotiations will pry money out of the government.
How does a contractor make a claim?
How the contractor makes a claim depends on what the claim deals with: whether the contractor wants more money, wants an interpretation of contract language that is confusing, or wants something legally called “other relief.”
Claims for Money
Depending on the dollar amount, a claim for money has three or four simple elements:
1. A sum certain. To make a claim, the contractor must demand a specific dollar amount from the government. There can be no claim if the contractor tells the CO vague things like “I demand fair compensation for this” or makes other unquantified demands that lack a specified dollar amount.
2. Specific demand for a CO’s final decision. The contractor must demand a final decision from the CO. There’s nothing difficult about this. The contractor simply states, “I demand a final decision of the contracting officer on this issue.”
3. Stated basis and amount of the claim. The contractor must tell the CO the rationale for filing the claim. For example, it could be having to do extra work without additional pay, encountering a differing site condition without getting any additional money, being delayed by the government, or having the government make the contractor responsible for warranty work when the damage is not the contractor’s fault.
4. Certification. If the money the contractor wants is more than $100,000, the contractor must certify the claim. The exact language the contractor must use is stated in the particular disputes clause in the contract. The contractor must simply parrot back in the letter to the CO the words of the clause. If the contractor doesn’t use the exact words, the CO may think that the contractor is trying to avoid the certification because the contractor cannot truthfully say all that the certification requires.
For years, the government and contractors argued over the correct words of the certification. The fight was not over words per se. It was over the entitlement to interest that accompanied a properly certified claim. If the government could prove that the claim was not properly certified, it could invalidate the claim and save itself a lot of money in interest.
But it got to the point where more time and effort were being spent on the certification than on the underlying claim. In 1992, Congress decided to simplify the certification process. The FAR now has a “defective certification” provision at 33.201. The FAR defines a defective certification as “a certificate which alters or otherwise deviates from the language in 33.207(c) or which is not executed by a person duly authorized to bind the contractor with respect to the claim. Failure to certify shall not be deemed to be a defective certification.”
If a claim has a defective certification, FAR 33.207(f) says: “A defective certification shall not deprive a court or an agency board of contract appeals (BCA) of jurisdiction over that claim. Prior to the entry of a final judgment by a court or a decision by an agency BCA, however, the court or agency BCA shall require a defective certification to be corrected.”
But there is a significant limit on the use of the defective certification provision. It applies only to “technically” defective certifications, not to those certifications that are intentionally defective. The congressional history of the correction law gave some examples of what could be corrected: a “certification with each document submitted as part of the claim when all claim documentation is not submitted simultaneously, missing certifications when two or more claims not requiring certification are deemed by the court or board to be a larger claim requiring certification, and certification by the wrong or incorrect representative of the contractor.”
Defective certifications that are knowing and intentional ones—ones that miss the mark by miles—cannot benefit from the defective certification provisions. In one case, the board analyzed the legalese that accompanied the first REA and found that the language used was nowhere near the precise language that Congress demanded. It concluded that the first certification was not correctable and therefore was not a claim that could be appealed.
What attachments usually go with a claim? If the contractor has documentation that helps the case, the contractor should send it along to the CO. Typically, this would include invoices or canceled checks showing that the contractor actually spent the money that it’s seeking reimbursement for.
Legally, however, the contractor doesn’t have to send any documentation along with the claim. The CO also cannot refuse to issue the contractor a final decision on the claim on the basis that the contractor didn’t provide enough supporting information. If the CO thinks there is not enough supporting information, the CO can deny the claim. The CO cannot refuse to issue a final decision on the basis of lack of information.
What is the advantage to providing as much documentation as possible? It is perhaps better to look at it the other way around. First, there is no advantage to withholding information. The contractor should give the submission the best shot possible from the very beginning. Second, there could be a big disadvantage in withholding information. It all centers on attorneys’ fees and costs. Giving the CO as much information as possible takes away one of the government’s arguments that prevent the contractor from getting attorneys’ fees if it wins.
Here’s why. There is a general rule that the government pays attorneys’ fees if the government forces a contractor to litigate to get any claim money. But if the government refuses to give the contractor any money because the contractor has not proved its case, the government may not have to pay attorneys’ fees. If the contractor has a good case but the contractor has not given the CO the supporting information to prove it, the board or court could find that the CO’s denial of the claim was justified. In that case, the contractor would not be entitled to any attorneys’ fees or costs, even though it won the claim.
Claims for Interpretation of Contract Terms
Every contract is full of language problems that must be solved. Whenever the contractor says that the contract means one thing and the government says that it means another, the contractor has a claim over contract interpretation.
And while these issues will involve money down the road, they don’t involve money right now. So a claim for money is not yet appropriate. (The contractor certainly could provide the disputed goods, etc., and file a claim for the additional cost.) The immediate issue, however, is “what does it mean?” That makes the claim one involving the interpretation of contract terms. The contractor can file a claim that forces the government to give the contractor a formal answer to any contract interpretation issue. And it’s much easier than a money claim. There is no need to provide back-up or invoices or to certify the claim.
How does the contractor file a legally sufficient claim over a contract interpretation issue? The contractor sends the government a letter describing the controversy: what the contractor thinks it means and what the government has told the contractor it thinks it means (if it has done so). The contractor ends by demanding a formal decision of the CO on the issue.
There is no need for a certification, and there is no need for back-up materials such as invoices. A one-page letter will do it.
Claims for Other Relief
What is this catch-all “other relief”? Typically, it is a claim involving a termination for default. When a contractor asks the government to reconsider its termination because there was an excusable delay, such as the government slowing the project down, that’s a claim for “other relief.” Also, asking the government to reduce or eliminate the assessment of liquidated damages could be “other relief.”
How does the contractor file a claim for other relief? The contractor simply sends the government a letter describing what happened and why the contractor wants relief. As in a claim for contract interpretation, the contractor does not need any certifications. But the contractor should include support for its claim. For example, if the contractor thinks the government delayed it, the contractor should send the government copies of documents that support this belief.
What documents does the contractor have the right to see on filing a claim?
When a contractor files a claim, it has a right to see what documents the government has that support or hurt its case. These documents come to light through the discovery process.
The standard for the release of these documents is that “relevant but not privileged” documents are releasable. One type of privilege, the informant’s privilege, has been mentioned. Others are the attorney-client privilege and the work product privilege. A more detailed discussion of privilege is beyond the scope of this book. But relevancy is not.
The eight essential elements of attorney-client privilege are (1) where legal advice of any kind is sought (2) from a professional legal advisor in his capacity as such, (3) the communications relating to that purpose, (4) made in confidence (5) by the client, (6) are at his instance permanently protected (7) from disclosure by himself or by the legal adviser, (8) except the protection be waived.
The attorney work product privilege protects from disclosure documents prepared in anticipation of litigation. They are discoverable only if they are really needed. This means that documents prepared by a consultant to the government are not protected. The consultants are not clients of the government attorney. Also not privileged are a government lawyer’s drafts of the CO’s final decision if the attorneys were acting as the CO’s “ghost writers.” Nor are the drafts of the CO’s decisions prepared by government attorneys covered by the attorney work product privilege, because the purpose of those documents is to fulfill the Contract Disputes Act and the FAR requirements of preparation of the CO’s decision in this matter. They are not prepared because of litigation.
Interestingly, it pays a CO to write legibly—illegible documents can be released.
Is there a statute of limitations on filing a claim?
There are two, sometimes three, statutes of limitations on filing claims.
One is six years, which applies to all claims. The contractor must file the claim within six years of the claim accruing. FAR 33.201 defines “accrued” as “the date when all events, that fix the alleged liability of either the Government or the contractor and permit assertion of the claim, were known or should have been known. For liability to be fixed, some injury must have occurred. However, monetary damages need not have been incurred.”
The contractor must also observe other deadlines depending on the specific clause under which the contractor seeks relief. These deadlines are found in the specific clauses. The changes clause, for example, has two additional deadlines. This clause says that any claim must be filed within 30 days and before final payment. As a practical matter, the 30-day deadline is not strictly observed. The “before final payment” deadline, however, is strictly observed.
So the contractor should carefully read the clause under which it is seeking help. It probably contains deadlines in addition to the six-year statute of limitations applicable to all claims.
Does it matter what clause the contractor uses?
It does matter—sometimes dramatically—what clause the contractor uses to seek a claim; it can really affect the amount of money the contractor will get. Every claim involves at least two clauses: the disputes clause and another clause. The disputes clause describes the process for getting the help authorized by the other clause. In government contracting, some types of harm can be covered by more than one clause.
Reducing the work under a contract—often referred to as de-scoping or deductive change—can be done either as a deductive change order under the changes clause or as a partial termination for convenience under the termination for convenience clause. Typically, minor (ten percent) reductions can be done under the changes clause. Larger changes must be made under the termination for convenience clause. The difference is that the contractor can get settlement costs, such as the costs of having an accountant tally up the damages or legal fees, under the termination clause, but not under the changes clause.
Delay is even more complex. The contractor can get delay damages under the suspension of work clause, the changes clause, and the differing site conditions clause. One big difference is that under the suspension of work clause, there is no profit. Thus, a contractor would try to avoid making its claim under that clause. Under the differing site conditions clause, any delay waiting for the government to decide how to fix the condition gets compensated under the suspension of work clause (no profit). But if the delay is due to a defective specification, the delay gets paid for under the changes clause, which does include profit.
Does the contractor have to keep working on the project while it has a claim pending?
Generally, the contractor does have to keep working on the project while it has a pending claim. Specifically, it depends on what disputes clause is in the contract—the basic disputes clause or the alternate disputes clause.
If the contractor has the basic disputes clause, it’s difficult to walk away from the project until the government resolves the claim. If the contractor does, the government can terminate the contract for default, according to the disputes clause at section (i), which says: “the contractor shall proceed diligently with performance of the contract….” However, there is one exception—when the dispute “relates to” the contract—to having to keep working under the basic disputes clause. This exception allows the contractor to walk away from the project while the contractor fights it out with the government.
Where does the contract say that? In clause (i), it says: “the contractor shall proceed diligently with performance of the contract, pending final resolution of any … claim … arising under the contract….” Most claims “arise under” the contract. Some, however, “relate to” the contract. Since the basic disputes clause requires the contractor to proceed only for claims arising under the contract and not claims relating to the contract, the contractor can stop work if the contractor has a claim that relates to the contract. For example, disputes about wrongful government withholding of payment, or when the government interferes with the work or does not tell the contractor what to do when it has promised that it would, are disputes that relate to the contract.
A contractor must be very careful, however. If the contractor believes that a dispute relates to a contract but in actuality it only arises under the contract, the contractor is in default and could be penalized for not continuing with the work.
The second disputes clause, called alternate I (FAR 52.233-1), offers the contractor no choice—the contractor must keep working while the dispute is worked out with the government. The contractor cannot walk away from the project while the government resolves the claim. The contractor must proceed pending resolution of any claim “… arising under or relating to” the contract. Thus, the contractor has no grounds for stopping the work.
However, if the contracting officer makes a “cardinal change” to the work, a contractor may abandon its work. In one case, the government tried to add more work to a postal route. The contractor refused to do the work and won an appeal of the government’s termination of the contract. The judge said that “an exception to the duty to proceed exists in situations in which the government has attempted to effect a change which fundamentally alters the party’s contractual undertakings.” How significant must a change to a contract be to make it a cardinal change? Admitting that there is no easy answer, the court in this case cited factors such as “(i) whether there is a significant change in the magnitude of work to be performed; (ii) whether the change is designed to procure a totally different item or drastically alter the quality, character, nature or type of work contemplated by the original contract; and (iii) whether the cost of the work ordered greatly exceeds the original contract cost” (Keeter Trading Co. Inc. v. United States, U.S. Court of Federal Claims No. 05–243C, July 19, 2007).
Does the government have any time limits for responding to the claim?
This too depends on the particular disputes clause in the contract. It also depends on the amount of the claim. So first the contractor must read the clause at section (e) to see what time limits are imposed on the government. Currently, claims $100,000 and under must be resolved within 60 days, but only if the contractor specifically asks in writing for a decision within 60 days.
Claims over $100,000 must be resolved within 60 days or the CO, within 60 days, must give the contractor a date by which the contractor will get an answer. The CO cannot waffle on this. A promise from the CO that he or she will respond by a specific date “barring unforeseen circumstances” is not good enough. The promise to respond was a waffle because it was qualified by the “unforeseen circumstances” language. The CO did not give a specific date by which he or she would issue a CO’s final decision.
Can a contracting officer stall indefinitely and simply fail to issue a contracting officer’s final decision?
A CO can stall indefinitely, but it doesn’t hold up the process. A CO must follow the time limits described above. If the contractor doesn’t get an answer by the deadline, the contractor has received what is called a “deemed denial” from the CO. The CO’s silence is considered to be a denial. The contractor then can write the BCA that handles the claim and ask it to order the CO to issue a CO’s final decision. Bottom line: The government cannot stall.
What about arbitration?
Arbitration is a possibility. The disputes clause at clause (g) allows the contractor and the government to agree to alternative dispute resolution (ADR). The contractor should explore this possibility because it can be very effective in quickly resolving the dispute.
What is ADR? Basically, it’s an attempt to keep the dispute from the courtroom and have it arbitrated in the conference room. Various boards have various forms of ADR. Ask the board handling the case what alternatives it provides for ADR.
What if the contracting officer gives only partial relief? What does the contractor have to lose if it appeals?
The contractor has the potential to lose quite a bit if it appeals.
The contractor has a tough decision. Does the contractor take what the CO has offered and run, or does the contractor gamble and go to the board or court for more? It is a gamble because going for more jeopardizes what the CO gave the contractor. For example, if the CO gives the contractor $20,000, but the contractor thinks it should receive $40,000, the contractor could appeal the CO’s decision and try to get the extra $20,000 from the board or the court. But the contractor could fail to get the extra $20,000 and worse, the board could order the contractor to return to the government the original $20,000. Simply because the CO gives the contractor some money does not guarantee that the contractor will get at least that much if the contractor goes to a board or court.
What are the deadlines for appeals?
If the contractor wants to appeal, it must appeal to the board within 90 days of receiving the decision or to the court within one year. A contractor should not wait until the last minute. These deadlines are strictly followed; there are no exceptions.
What are the advantages of going to the board or the court?
The advantage of appealing to the board is that the board is cheaper and less formal. Contractors can handle the appeal by themselves.
Appealing to the board can also help a contractor save money. First, a board can decide a claim based solely on paperwork in the file that the contractor submits. The contractor does not need to have an in-person hearing in Washington, D.C., or anywhere else. Some small-dollar claims can be handled very effectively this way—no travel, no time spent in hearings, no post-hearing briefs or summaries. Just the existing paperwork.
Second, and best of all, a board has small claims and accelerated procedures. The small claims process is for claims less than $25,000, for which an answer will be given within 120 days. There is no appeal to a higher court, the Court of Appeals for the Federal Circuit (CAFC). The accelerated procedures are for cases under $100,000 and can be appealed to the CAFC. In both the small claims and accelerated processes, discovery through written interrogatories and depositions is available, but the boards like to keep things simple and streamlined. So the possibility of unlimited discovery is not great if these two processes are used.
Hearings can be long or short depending on the case’s complexity. One-day hearings are possible, but so are month-long ones. Hearings can take place in Washington, D.C., or elsewhere, depending on the circumstances. For example, if many of the witnesses are out of town, the board will travel.
The Court of Federal Claims generally requires the contractor to have a lawyer, thus making it a much more expensive option. It’s a good option, however, when the 90-day deadline for appeals to the board has passed. This court becomes the only option at that point.
Appealing to the Court of Federal Claims could be expensive. The court is much more formal than a board. Hearings are usually held in Washington, D.C., although like the board, the court will travel.
When does the interest clock start to run?
Interest starts to run from the day the CO receives the claim. The interest is simple, not compound; the interest rate changes every six months.
Can the contractor get paid for filing a claim?
It costs money to file a claim. The contractor might need an accountant to help develop cost figures. The contractor also might need an attorney to help with the process. It takes up the contractor’s time and the contractor’s staff’s time. The contractor can recover these costs depending on when—at what point in the claims process—the contractor spends the money.
For analyzing whether claims cost are allowable, there are only three points in the analysis:
1. The request for equitable adjustment
2. Preparing the claim that goes to the CO
3. Appealing a CO’s final decision to the Court of Federal Claims or a board.
When the costs are incurred is critical:
1. Allowable REA costs—These are the costs of the extra help the contractor needs to complete the request for equitable adjustment. In one case, the government wanted a contractor to do additional construction work. The extra work required environmental clearances from the local government. The contractor didn’t know anything about how to get them, so it hired an attorney to help. The contractor was reimbursed for the attorney’s fees because they were considered to be costs associated with the request for equitable adjustment.
2. Unallowable claim preparation costs—The government will not pay the contractor to sue it. When the contractor itself prepares the claim that will go to the CO, the costs are on the contractor’s tab.
3. Allowable claim litigation costs—If the contractor has to go to a board or a court to get the money, the contractor may well get the costs back. If the government forces the contractor to litigate to get any money for the claim, and the contractor wins, the government will usually have to pay attorneys’ fees and costs. This is because of the Equal Access to Justice Act (EAJA).
What are EAJA costs? What costs can the contractor get back from the government under EAJA?
Congress did not want government lawyers on a salary to file abusive lawsuits against taxpayers and force taxpayers to hire attorneys to fight the government. In passing the Equal Access to Justice Act (EAJA), Congress made it known that if the government litigates, it had better have a good argument. If the government has not thought out its legal position, it may well end up paying attorneys’ fees and costs.
For the contractor to recover the attorneys’ fees and costs paid, the contractor must successfully jump through three hoops:
1. Eligible parties—It must be an “eligible party.” Individuals with a net worth of $2,000,000 or less are considered eligible parties, as are companies with fewer than 500 employees and a net worth of less than $7,000,000.
2. Prevailing parties—The contractor has to win, or “prevail,” some part of the claim to qualify for attorneys’ fees and costs. If the contractor loses completely, it doesn’t matter how bad the government’s argument was—the contractor must pay its own expenses. On the other hand, the contractor does not have to win completely. Winning just a small part of the claim makes the contractor eligible for attorneys’ fees and costs.
3. Government has bad facts or bad law—In legalese, the government pays unless its facts and law are “substantially justified.” The government can lose and still not have to pay attorneys’ fees and costs, as long as it had a good argument.
The contractor can get back accountants’ costs, attorneys’ fees, transcript costs, and hotel costs, but not the cost of the time fighting the claim. (It gets back attorneys’ fees at the rate of $125/hour.)
Can the government come after the contractor and make the contractor pay its costs if the contractor loses?
It’s rare that a losing contractor pays the government’s costs. The rare cases where a contractor would be forced to pay the government’s costs involve frivolous cases.
One way the U.S. judicial system discourages frivolous lawsuits is by making losers in litigation pay, for the litigation completely, for simply the court costs, or some other amount. The problem is that discouraging one litigant might discourage other litigants who have a good argument but can’t gamble their money on winning. Courts in the United States usually are very sympathetic to litigants, finding frivolous lawsuits only on rare occasions.
First, let’s define a “frivolous” case. Simply because an appeals court does not issue a decision on an appeal does not make that appeal frivolous.
For example, a company was sued by an individual who served as his own lawyer. He lost in the federal district court and appealed to the CAFC. He lost there, too. The court did not even issue an opinion in the case. The company then went back to court to get damages for filing what the company thought was a frivolous case. (No doubt, the individual himself probably thought that the company’s retaliation damages suit itself was frivolous.) The court did not find the suit frivolous and took the opportunity to discuss frivolous cases.
The court was not prepared to call the case frivolous simply because it had not issued an opinion in the case. “This case, like some others we hear, was an easy one to decide. The trial court’s explanation for its decision was clear and sound and no useful purpose would have been served by our writing an opinion.” Deciding a case without a written opinion shortens the time the parties have to wait to get a case resolved. Issuing no opinion “indicates our view that the appeal lacked merit, but not necessarily that it was frivolous.”
But, if cases that had little merit were to be considered frivolous, “we would be assessing substantial damages. That is not our practice, at least currently. No doubt, if that were our practice, many poor appeals would not be brought, the courts would be less congested, and meritorious cases would receive more prompt hearings and decisions. However, parties who lost their cases in a lower tribunal would be seriously deterred from pursuing an appeal, which, to the intermediate appellate court level, is usually a matter of right.” Appeals allow more judges to decide whether the first court made a mistake. Such appeals are particularly helpful when the issue is a straight issue of law, like the interpretation of a contract.
The court acknowledged that the U.S. system is “currently biased toward maintaining open courts rather than deterring appeals. It favors the allowance of appeals, even in cases having little chance for success, without subjecting appellants to an undue risk of damages for a frivolous appeal.” Thus, simply because the case had little merit was not enough to make it frivolous.
The court identified two types of appeals it considered frivolous. The first type is an appeal that is “frivolous as filed” because it raises issues “beyond the reasonable contemplation of fair-minded people,” and “no basis for reversal in law or fact can be or is even arguably shown.”
A second frivolous appeal is one that is “frivolous as argued” because the litigant “has not dealt fairly with the court, has significantly misrepresented the law or facts, or has abused the judicial process by repeatedly litigating the same issue in the same court.”
Neither of these types of appeals was present here. Here, the plaintiff raised the same issues on appeal and doing so “is hardly a ground for a conclusion of frivolousness. The whole point of an appeal is to claim that the court below erred in its conclusion as to arguments raised.”
But if an appellant simply raised issues without saying why the lower court was wrong, that could be a frivolous case.
The court summed up well the traditional American view of courts on frivolous cases: “We regret the fact that nonmeritorious appeals are brought as much as do winning appellees. However, the doors of the courthouse must remain open for losing appeals as well as winning appeals” (Lawrence N. Sparks v. Eastman Kodak Company, U.S. Court of Appeals for the Federal Circuit, No 00-1049, October 31, 2000).
There have been cases, however, where the government has been paid for its costs by a losing company. But it’s the reverse of the usual situation where a winning contractor gets its attorneys’ fees and court costs back from the government under EAJA. This law benefits only the contractor—it does not apply to the government.
Government procurement personnel often wonder why turnabout is not fair play. Why can’t the government get its costs paid for by a losing contractor? Although it is not widely known, the government often gets back some of its court costs when it wins a case. This is allowed not by EAJA but by court rules. Typically, items like transcripts and copying charges (but not attorneys’ fees) are assessed against a losing contractor in the Court of Federal Claims and the Court of Appeals for the Federal Circuit.
One way to get a losing contractor to pay the government’s costs is if the contractor doesn’t get more from the court than it got from the CO’s final decision. For example, a contractor sued the government in the Court of Federal Claims for claims relating to delays, differing site conditions, and defective specifications. When the litigation was over, all that it won was what the CO had allowed in the CO’s final decision plus the amount of contract hold-back that the government had conceded the contractor was due. Technically, the contractor “won” because these two amounts, about 2 percent of what it had sought, were part of the final judgment.
At the end of the case, the government asked the court for costs. One of the rules of the court allowed the court to give the “prevailing party” its costs. The critical issue was whether the government was a prevailing party. Technically, the government had to pay the contractor when the case was over, so the contractor argued that the government was not a prevailing party.
The court did not agree. Part of the contractor’s recovery was conceded by the CO. The other part was sought by the contractor under the belief that the amount had not been previously paid to it when in fact it had been, certainly by the time the case was coming to its conclusion. The court found the government to be a prevailing party and awarded it its costs.
Can an invoice be a claim?
An invoice can be considered a claim under certain circumstances.
The Contract Disputes Act (CDA) clearly separates routine requests for payment such as invoices from nonroutine requests for payment such as claims. In the definition of claim in the disputes clause and in FAR 33.201, invoices and other routine requests for payment are distinguished from claims: “A voucher, invoice, or other routine request for payment that is not in dispute when submitted is not a claim. The submission may be converted to a claim, by written notice to the CO as provided in 33.206(a), if it is disputed either as to liability or amount or is not acted upon in a reasonable time.” Thus, an invoice under certain circumstances may be a claim. There are two critical requirements: the certification and a “dispute.”
Invoice Was Not a Claim—No Certification and No Dispute
A contractor sent the government a final invoice after the cost-plus-fixed-fee contract was over. Since the invoice was for more money than was left in the contract, the CO sent it back. She said that the government could not pay because the invoice included an overrun for which the government was not responsible. When the contractor appealed the CO’s decision to the board, the board found that there was no claim. First, the invoice was not in dispute when submitted so it could not be a claim. Second, it was not certified as required by the CDA.
Invoice Was a Claim—Certification and Dispute
During a contract, the government and the contractor disputed several points, including whether a modification was the result of a defective specification and whether certain items should be included in the percentage completion of the progress payments. After the contract was terminated for default, the contractor submitted an invoice that billed the government for, among other things, progress payments consistent with the contractor’s arguments on percentage completion and contrary to the government’s arguments on that issue. The contractor’s letter gave the CDA certification.
The board found this invoice to be a claim. It had been submitted after the termination for default and concerned the contractor’s rights to payments for a specific percentage completion. The board said that the invoice “could not be considered a routine request for payment and even if it were, was disputed.”
What does it take to make a termination for convenience settlement proposal a claim?
It takes a dispute. Unless the parties to a termination for convenience settlement have reached an impasse in their negotiations over the settlement proposal, no interest will be due on the amount eventually paid by the government.
Figuring out when a termination for convenience settlement proposal is a “claim” is tricky. When a contract is terminated for convenience, the parties begin to negotiate a settlement. Letters go back and forth. When does a claim exist and interest start running on the settlement proposal?
A contractor submitted a settlement proposal to the government that was audited by DCAA. The government agreed to give the contractor 90 percent of the amount recommended by the audit. Settlement negotiations over the remaining amount dragged on for months and through three termination COs. At one point, the contractor asked the government to negotiate a settlement or issue a CO’s decision. At no point, however, did the contractor specifically demand a CO’s final decision from the government. Eventually the parties settled the termination. The contractor wanted interest, but did not receive it from either the government or a court.
As the court viewed it, a settlement proposal is theoretically submitted to the government for the purpose of negotiation, not to get a CO’s decision. As a result, when a termination settlement proposal is submitted to the government, it is not a claim. Once negotiations reach an impasse, the settlement proposal can become a claim.
An impasse is reached, according to the court, when there is “an explicit request for a CO’s decision or by some other conduct implying a desire for the issuance of a CO’s decision.” More specifically, before a termination for convenience settlement proposal could be a claim, there had to be “objective evidence” that the parties had reached an impasse. The rationale behind requiring objective evidence is that to require anything less would leave far too much ambiguity in the definition of an impasse and allow a finding of an impasse even though both parties were going through further negotiations.
Previous decisions showed what facts indicated an impasse:
• “Fruitless” negotiations
• Subsequent written requests by the contractor that the CO “settle” its claims
• Unilateral decision by the CO, i.e., an adjudicated claim
• Refusal by the CO to consider the contractor’s termination settlement proposal, in which case there was an impasse as soon as the CO received the submission
• Contractor’s explicit request for a final decision, in conjunction with the CO’s refusal to meet to negotiate.
The situation here was missing objective evidence that the negotiations had reached an impasse and a clear indication by the contractor that it sought a final decision. The settlement between the parties showed that the contractor had not abandoned negotiations—a requirement of the court.