Resolving Disputes on Public
Contracts
James F. Nagle
Oles Morrison Rinker & Baker, LLP
nagle@oles.com
Phases of Dispute Resolution
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Pre-contract
During performance
Making a claim
The formal disputes process
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Pre-contract—Advice to the
Government
• Pick a good contractor
– Don’t just use past performance ratings
• Don’t scare good contractors away with onesided contracts
• Don’t ignore the red flags
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Pre-Contract—Advice to the
Contractor
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Negotiate changes
Consider alternate bids
Avoid mistakes
Bid properly or run away
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Pre-Contract—Advice to Both
Sides
• Resolve the disputes process up-front
– Partnering
– The disputes process itself
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During Performance– Advice to the
Government
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Acknowledge problem
Offer consideration
Don’t mindlessly try to be tough
Understand the differences between legal rights
and practical value
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During Performance—Advice to the
Contractor
• Recognize that suing your customer is not the
best way to make friends and influence people
• Recognize that suing the sovereign is fraught
with problems
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Making a Claim—Give Appropriate
Notice
• Give notice to proper person
• Consider the form of notice
• Be as precise as possible regarding the
quantum portion
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Resolving the Claim—Advice to the
Government
• Litigation is a drain on your resources
• Fear of precedents
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Resolving the Claim—Advice to
Contractors
• The longer it goes on, the more it will cost you
• How to resolve it
– ADR
– Litigation
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Typical Dispute Scenarios
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•
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US
Prime
Prime
Subcontract
—> Prime
—> US
—> Subcontractor
—> Prime
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Typical Disputes
• Government/Buyer
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–
–
Warranties
Deductive/Substitution Changes
Over Payment
Delay damages
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Typical Disputes
• Seller
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Changes—constructive changes
Delays
Differing site conditions
Property issues
Terminations
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The Changes Clause
Subparagraph (a)
“The CO may, at any time, by written order, and
without notice to the sureties, make changes
within the general scope of the contract.”
Subparagraph (b)—Equitable Adjustment
Subparagraph (c)—Notice Requirements
Subparagraph (d)—Disposition of Property
Subparagraph (e)—Duty to Proceed
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Scope of the Contract
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No guidance in the regulations
Based on Statement of Work
No automatic test
Consideration of several factors
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Changes Outside Scope of Contract
Cardinal changes
• Not covered by changes clause
• Contractor does not have to perform
• Others can protest
• Must be funded with different money
• Contractor can reprice contract
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Determining if Change is Out of Scope
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Nature of the item
Purpose of the contract
Dollar value
Complexity of the contract
Number of changes
Fairness to the contractor
Effect on the competition
Cumulative impact
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Constructive Changes
Implied or Inferred
• What are the changes?
• Why are the changes occurring?
• Who can approve the change?
• What factors should be considered before approval?
Elements
• A change
• An order
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Who Can Constructively Change the
Contract?
Virtually anyone other than the contractor
• COs
• Other CO representatives
• Specially authorized representatives
• Inspectors
• Project managers and officers
• Auditors
• Negotiators
• Other contractors
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Disclaimer Statement
COR/COTR disclaimer
You are hereby notified that I do not have the authority to
direct you in any way to alter your obligations or change
the SOW in your contract. Further, if the government, as
a result of the information obtained from today’s
discussion, does desire to alter your contract obligations
or change the contract SOW, changes will be issued in
writing and signed by the CO. You should take no action
on any change unless and until you receive such a
change order.
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Factors in Determining Constructive
Changes
• Authority of person giving “order”
• Specifically expressed (not apparent)
• Implied
• Amount of discretion or authority
• Disclaimers
• Actions of CO
• Vested person with implied authority
• Ratified
• Acquiesced—imputed knowledge
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Factors in Determining Constructive
Changes (continued)
• Reasonableness of contractor’s action
• Reasonable reliance
• Duty to inquire—suspicion
• Time to inquire
• Contractor’s experience
• Contractor’s knowledge
• Did the government get a benefit?
• Volunteer not favored
• Good faith
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Types of Constructive or Implied
Changes
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Contract interpretation
Interference and noncooperation
Defective specifications
Government information deficiencies
• Superior knowledge
• Misrepresentation
• Acceleration
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Differing Site Conditions
• Differing Site Conditions Clause (FAR 52.236-2)
• Required in all fixed-price construction,
dismantling, demolition, and removal of
improvements contracts exceeding $25,000
• Stop
• Give notice
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Differing Site Conditions (continued)
• Two types of differing site conditions allow adjustment:
• Subsurface or latent physical conditions at the site
that differ materially from those indicated in the
contract
• Unknown physical conditions at the site, of an
unusual nature, that differ materially from those
ordinarily encountered and generally recognized as
inherent in work of the character provided for in the
contract
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Notice
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•
Who must you tell?
What must you tell?
When must you tell?
So, what if you don’t tell?
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Equitable Adjustment
• Difference between what would have cost
to perform the original contract and the
cost to perform the contract as changed
• “Leave ‘em as you find ‘em”
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Understand the Basis of Claims
• Some clauses exclude cost/profit or cap costs
• Excluding cost/profit
• Suspension of work or government delay of work
• Multiyear SCA clauses
• Capping cost
• Special termination cost in DOD
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Measure of an Equitable Adjustment
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Request for Equitable Adjustment
• Whichever side wants the benefit bears the burden
• Must prove two things:
• Entitlement
• Quantum-costs/time caused by the claimed
event
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Types of Changes Warranting
Equitable Adjustments
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Adding work
Deleting work
Substituting work
Delaying work
Accelerating work
Disrupting work
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Admiral Corp.
ASBCA No. 8634, 1964 BCA 4161
Original component
Substituted component
Included in bid for this item
What result occurs?
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Cost
$7.52
11.63
12.48
32
Types of Delay
• Inexcusable
• Contractor responsible
• Neither time nor money
• Excusable
• Contractor not responsible
• Contractor receives time but no money
• Compensable
• Government responsible for a contractual act
• Contractor receives time and money
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Concurrent Delays
• Inexcusable and excusable
• Neither time nor money
• Inexcusable and compensable
• Neither time nor money
• Neither party can collect money damages from
the other
• Excusable and compensable
• Time but no money
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Delays
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What was supposed to happen (as planned)?
Why did the delay occur?
What did happen (as-built)?
Who has assumed the risk?
How long did the delay last?
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Weather Delays
• Standard—unusually severe weather
• Meeting the standard
• What is usual?
• Time
• Place
• Yardstick—rainy days, inches of rainfall,
temperature, windchill, and so on
• Length of historical database
• Probability—above average?
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Weather Delays (continued)
• What was experienced?
• Types of records
• Where recorded
• Work days and times
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Weather Delays (continued)
• Proving the delay
• Impact on critical path
• Whole or partial days
• Types of impact (assess the damage)
• Lost time
• Reduced productivity
• Unplanned work
• Lingering effects
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Weather Delays (continued)
• Did the contractor mitigate?
• Reasonable precautions
• For type of weather experienced
• For common effects
• Reasonable mitigation
• Rescheduling
• Substitutions
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Typical Delay Damages
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Idle labor
Idle equipment and facilities
Labor, material, and other cost escalation
Unabsorbed overhead
Disruption
Acceleration
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Equipment Costs
Entitlement requirements
• Equipment was dedicated specifically to project
• Equipment would have been used, if not for delay
• Equipment could not have been used elsewhere
• Equipment was in sound workable condition
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Equipment Costs (continued)
How to prove damages
• Rented equipment
• Rent
• Owned Equipment
• Actual costs
• Contract rates
• Industry rates
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Unabsorbed Overhead
• What is it?
• What must the contractor prove for entitlement?
• How does the contractor prove quantum?
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Unabsorbed Overhead (continued)
• Calculation
• The difference between the amount bid and the
amount you were able to allocate or
• The amount calculated using Eichleay formula
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Eichleay Formula
contract billings
X contractor overhead = overhead allocable to contract
contractor billings
contract overhead = daily overhead rate (DOR)
days of performance
DOR X days of delay = unabsorbed overhead
*Includes period of delay
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Unabsorbed Overhead – Eichleay
Method
Pro[p]serv, Inc., ASBCA No. 20768, 78-1 BCA ¶ 13066
$143,646
675,748
X 60,221.00 = $12,801
$12,801
365
$35.07 x 150 =
Profit at 15% =
= $35.07
$5,261
$ 789
$6,050
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Disruption, Loss of Efficiency, Loss of
Productivity
“Death by a thousand cuts”
• Work not necessarily stopped, just more difficult
• Anything that affects the productivity the contractor
would have achieved
• Can be combined with added, deleted, substituted,
delayed or accelerated work
• Can be sole basis
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Disruption, Loss of Efficiency, Loss of
Productivity (continued)
Causes
• Delay due to adverse weather
• Changes
• Learning curve disruptions
• Out-of-sequence work
• Trade packing
• Anything else that affects productivity
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Disruption, Loss of Efficiency, Loss of
Productivity (continued)
• Increased labor costs
• More direct hours to do the work
• More time lost to absenteeism and tardiness
• More time lost to rework
• Increased material costs due to rejects
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Proving Loss of Productivity
• Flexy Plan Industry—GSBCA 4117, 76-1 BCA 11713
• Batteast Construction Co., Inc.—ASBCA 35818, 92-1
BCA 24697
• Shea, Proving Productivity Losses in Government
Contracts, 18 Pub. Cont. L.J. 414 (1989)
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Acceleration Costs
• Hidden
• Disruption—Loss of efficiency
• Clear
• Overtime wages
• More workers
• More equipment
• Expedited deliveries
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Actual Cost Method—Profitable
Contract
Contract Price (A)
Cost to perform original contract (B)
Cost to perform revised contract
because of claimed event (C)
Extra cost caused by the claimed
event (C – B)
Contract price is irrelevant
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$1,200,000
$1,000,000
$1,500,000
$ 500,000
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Actual Cost Method—Loss Contract
Contract price (A)
Cost to perform original contract (B)
Cost to perform revised contract
because of claimed event (C)
Extra cost caused by the claimed
event (C – B)
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$1,200,000
$1,400,000
$1,500,000
$ 100,000
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Total Cost Method
Total Cost
Less bid price
Costs claimed
Plus profit @ 10%
Total claim
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$2,000,000
(1,200,000)
800,000
80,000
$ 880,000
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Total Cost Method #2
Total Cost
Less bid price
Costs claimed
Plus profit @ 10%
of $2,000,000
Total claim
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$2,000,000
(1,200,000)
800,000
200,000
$1,000,000
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Total Cost Method #3
Total Cost
Less contract price
Costs claimed
Plus profit in original price
Plus profit on added cost
Total profit
Total claims
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$2,000,000
(1,200,000)
800,000
200,000
80,000
280,000
$1,080,000
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Modified Total Cost Method
Total Cost
Less bid price
Costs claimed (gross)
Less bidding errors
Less productivity problems
Costs claimed (net)
Plus profit @ 10%
Total claim
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$2,000,000
(1,200,000)
800,000
(100,000)
(100,000)
600,000
60,000
$ 660,000
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Jury Verdict Method
Western Alaska Contractor, J.V.
ASBCA No. 46033, 95-1 BCA 27392
Contractor claim for equipment using
$1,007,644.68
Blue Book rates for 12 months
Government position based on book
$ 73,530.00
value minus depreciation for 6 months
Board decision
$ 550,000.00
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Mechanics of the Modification Process
• Timing
• Prospective
• Retroactive
• Unilateral or bilateral
• Definitized or not
• Request for equitable adjustment
• Truth in Negotiations Act
• Release
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Disputes Process
• FAR Subpart 33.2
• FAR 52.233-1—Disputes Clause
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Jurisdictional Path of a Claim
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Disputes Clause
Subparagraph (a)
• Contracts
• Not grants
• Not preaward
• Can be waived
Subparagraph (b)
• Matters reserved to other agency
• SBA, DOL, OSHA, EPA
• Fraud
• Torts
• Remedies
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What Starts the Process?
Claim
A written demand or assertion by one of the
contracting parties seeking, as a mater of right, the
payment of money in a sum certain, the adjustment or
interpretation of contract terms, or other relief arising
or relating to the contract.
—FAR 52.233-1(c)
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Nagle’s Rules on Claims
• Keep it as simple as possible
• Make it as detailed as necessary
• Use contemporary documents whenever possible
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Reflectone Changes the Rules
• The court distinguished between routine and
nonroutine requests for payment
• Routine requests are vouchers, invoices, and requests
for progress payments
• Nonroutine requests include constructive changes and
termination settlement proposals
• A nonroutine request need not be in dispute when
submitted, but if it exceeds $100,000, it must be
certified to be a claim
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Reflectone Causes Dilemma for
Contractors
• If contractors want interest on their submission and a
quick response, they should treat the submission as a
claim under the Contract Disputes Act
• If contractors want to be able to recoup the costs of
paying their consultant, they should not treat the
submission as a claim but as a request for an equitable
adjustment
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FASA Statute of Limitations
• Was created by the FASA 2351(a) amendment to the
Contract Disputes Act (CDA)
• Places a 6-year time limit on the submission of CDA
claims (that is, CDA claims must be filed within 6 years
of their accrual)
• Creates an issue regarding when the contractor knew,
or should have know, of its claim
• Applies only to contracts awarded after October 1,
1995 (FAR 33.206; 60 Federal Register 48224)
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Certification
If more than $100,000, then contractor claim must be
certified
• Good faith
• Supporting data are accurate and complete to the best
of contractor’s knowledge and belief
• Amount requested accurately reflects the contract
adjustment for which the contractor believes the
government is liable
• Signer is duly authorized to certify claim
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Defective Certification
The CO must challenge improper certification within 60
days (FAR 33.211(e)).
• If the CO fails to do so, the government waives its right
to assert defects in the certification
• However, the CO can require proper certification
before making payment
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When Must the CO Decide?
• For contractor claims of $100,000 or less
• Within 60 days of contractor’s written request
• For contractor claims exceeding $100,000
• Within 60 days or notify contractor of reasonable
date by which decision will be made
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Contractor Options if the CO Does Not
Issue a Timely Decision
• Go directly to board or court for order
• Consider inaction a “deemed denial” of claim and
commence litigation
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CO’s Decision
• Is written and gives reasons
• Is final unless timely appeal is made
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Alternative Dispute Resolution (ADR)
Procedures
• ADR Act of 1996, 5 U.S.C. 571 et seq.
• Partnering
• Mediation
• Binding arbitration (award final 30 days after
service but may be extended 30 days)
• Nonbinding arbitration
• Settlement judge (Board judge will act as mediator)
• Mini-trial
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Interest
• Simple interest at rate provided by the Department of
the Treasury
• From receipt of claim by CO until payment
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Duty to Continue
• Generally must continue performance while matter is
disputed, unless breach of contract has occurred
• Disputes clause – alternative 1 requires continued
performance even if a breach of contract has occurred
(rarely used)
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Appeal
• To Board of Contract Appeals (BCA)
• Make within 90 days of receipt of decision
• Mail or otherwise provide written notice to BCA with
copy to CO
• Indicate appeal, reference the decision, and give
the contract number
• To U.S. Court of Federal Claims (CFC)
• Make within 12 months of receipt of decision
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Expertise
BCA
• 5 years of experience in public contracts required
• Only hears contract matters
• Communal decision making
CFC
• No requirement for public contract experience
• Hears matters other than contracts
• Individual judge decides
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Formality
BCA
• Informal
• Evidence
• Rule 4 File
• No jury
• Procedure
• Federal Rules of Civil Procedure (FRCP) do not
apply
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Formality (continued)
CFC
• Formal judicial process
• Evidence
• More rigid adherence to Federal Rules of Evidence
(FRE)
• Procedure, under adherence to its version of FRCP
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Representation
BCA
• Contractor
• Pro se or attorney
• Government
• Agency Counsel—local or headquarters
CFC
• Contractor
• Partnership or corporation—must have attorney
• Government
• Department of Justice (DOJ) with agency “of
counsel”
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Settlement
BCA
• CO makes the decision to settle
• Perhaps with concurrence of chief trial attorney
CFC
• DOJ attorney makes decision to settle
• Regardless of whether CO wants to or not
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Fraud Jurisdiction
Fraud counterclaim
• Yes at CFC
• No at BCA
Forfeiture Act (28 U.S.C. 2514)
• Yes at CFC
• No at BCA
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Expedited and Accelerated BCA Cases
Claims of $50,000 and less--expedited
• Sole discretion of contractor
• Decision with 120 days
• One judge decides
• No appeal
Also applies to claims of $150,000 or less by a small business
Claims of $100,000 and less—accelerated
• Sole discretion of contractor
• Decision within 180 days
• Three judge panel
• Full appeal rights
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Appeals from BCA or U.S. Court of
Federal Claims
• To Court of Appeals for the Federal Circuit
• BCA—within 120 days
• CFC—within 60 days
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Equal Access to Justice Act
• Small Contractor
• Individual: Not more than $2 million in net worth at
the time action initiated
• Partnership or corporation: Not more than $7 million
in net worth and not more than 500 employees—
both at the time the case began
• Government position not substantially justified
• Reasonable costs
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