BCA Decisions: Year in Review
December 18, 2013
David S. Black, Holland & Knight LLP
Susan Warshaw Ebner, Asmar, Schor & McKenna, PLLC
Thomas H. Gourlay, Jr., U.S. Army Corps of Engineers
1
Key Issues Addressed in 2013
• Claims under Federal Supply Schedule Contracts
• Statute of Limitations and DCAA
• Intersection of Fraud, FCPA, and other statutory violations and
the Contract Disputes Act
– Stay of CDA Proceedings
– Affirmative Defenses in CDA Proceedings
•
•
•
•
Data Rights Disputes
Spoliation of Evidence
Indemnification Dispute
Firm Fixed Price Based on Faulty (Not Negligent) Historical
Data
2
CLAIMS UNDER FSS CONTRACTS:
WHICH CONTRACTING OFFICER?
3
Sharp Electronics Corp. v. McHugh
• What Is The Claim?
– Answer determines which CO has jurisdiction over FSS Order
contract CDA claim under FAR 8.406-6?
• ASBCA:
– Language in order contract and FSS contract were same,
applicability of schedule terms at issue so GSA CO was proper
CO from which to seek a decision.
• CAFC Affirms ASBCA:
– Majority cites “bright line” rule, claim that turns on disputed
schedule provisions must be decided by GSA schedule CO, not
agency ordering CO, even if schedule CO must also decide
order’s performance issues. Strong dissent by Plager.
4
Hewlett-Packard Company
• Another schedule order dispute
• Does ASBCA have jurisdiction over this dispute?
– Which CO has authority to issue a CDA decision?
• Facts, with a twist
– HP GSA Schedule Contract, Navy BPA, Army DOs
– Non-Renew and HP submits breach claim to army ordering
agency CO. Appeals deemed Denial after 1 year w/o getting a
CO decision.
• ASBCA Finds jurisdiction, Army ordering CO proper CO.
5
STATUTE OF LIMITATIONS
AND DCAA
6
Key BCA Decisions in Past Year
• Raytheon Co., ASBCA No. 57576 (2012)
• Raytheon Missile Systems, ASBCA No. 58011 (2013)
• Raytheon Co., Space & Airborne Systems, ASBCA No.
57801 (2013)
7
Quick Context of CDA SOL
• Six-year SOL added to CDA in 1994
– A jurisdictional requirement
• Government claim must be issued “within 6 years
after the accrual of the claim.”
• “Accrual” means 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.“ FAR 33.201
8
Key Points from Recent Decisions
• “Knew or Should Have Known”
– Fact that lower level employees wait to notify the CO
doesn’t prevent accrual
– Fact that Gov’t made a mistake or changed its mind
regarding legal meaning of facts doesn’t prevent accrual
– Fact that Gov’t knows its incurred costs but is awaiting
audit report of final amount does not prevent accrual
– If contractor has affirmative obligation to provide
information, Gov’t may have more leeway to wait
9
Raytheon Co.,
ASBCA No. 57576 (Dec. 17, 2012)
• Gov’t Claim No. 1: Unallowable Incentive Compensation for
Persons Performing Unallowable Activity
– 29 SEP 2003: DCAA issues audit memorandum of CY 2002
finding that Raytheon’s bonus and incentive compensation costs
were fully allowable.
– JUNE 2004: Overhead cost submission for CY 2003
– SEP 2004: Corporate Home Office Allocations proposal for
forward pricing rates
– 24 SEP 2007: DCAA issues audit report finding that costs were
unallowable
– 10 JAN 2011: Government issues claim letter for unallowable
costs and penalties: $20,012,578
10
Raytheon Co.,
ASBCA No. 57576 (Dec. 17, 2012)
• Gov’t Claim No. 1: Unallowable Incentive Compensation for
Persons Performing Unallowable Activity
• Gov’t claims to recover CY 2002-2004 costs were untimely
– Based on the 29 SEP 2003 DCAA memo, the Gov’t “should have
known” of CY 2002 unallowable costs
– Based on JUNE and SEP 2004 cost submissions, Gov’t “should
have known” of alleged CAS noncompliance and of unallowable
increased costs.
• The fact that DCAA made a mistake in 2003 or changed its mind
in 2007 didn’t matter.
• BUT Gov’t claims for CY 2005-2009 costs timely. No
constructive awareness until payments were made after 10
JAN 2005
11
Raytheon Co.,
ASBCA No. 57576 (Dec. 17, 2012)
• Gov’t Claim No. 2: Unallowable Costs from Shareholder
Return Metric
– JAN 2004: Raytheon briefs Gov’t about new compensation plan.
– JULY 2004: DCAA audits the new plan
– 2006: Raytheon incurs costs under the metric based on a threeyear cycle (reported to Gov’t in 2007).
– 24 SEP 2007: DCAA issues audit report finding that costs were
not allowable
– 2 JUNE 2011: Government issues claim letter for recovery of
unallowable costs and penalties for CY 2004-2006: $2,993,127
12
Raytheon Co.,
ASBCA No. 57576 (Dec. 17, 2012)
• Gov’t Claim No. 2: Unallowable Costs from Shareholder
Return Metric
• Gov’t claim in 2011 was timely
– In 2004, Gov’t should have known of that metric made related
costs unallowable
– BUT accrual requires knowledge of both violation and injury
– Raytheon did not incur unallowable costs until CY 2006
– Gov’t did not know of this “injury” until overhead cost
submission in June 2007
13
Raytheon Missile Systems,
ASBCA No. 58011 (Jan. 28, 2013)
• 1998: CAS Disclosure Statement provides lower overhead rate
burden for “major” subcontracts
• 1999: Raytheon price proposal provides for higher overhead
rate burden for a “major” subcontractor
• 1999: DCMA price analyst reviews and finds no issue
• 26 AUG 2005: Same DCMA price analyst performs a second
review and finds that Raytheon used the wrong overhead
burden rate for its “major” SubK costs.
• 29 NOV 2011: CO issues final decision seeking costs and
interest: $17,042,884
14
Raytheon Missile Systems,
ASBCA No. 58011 (Jan. 28, 2013)
• Gov’t Claim was Untimely
– Gov’t knew of violation and injury from improper SubK
burden in 1999
– Price analysts error didn’t prevent accrual of the Gov’t
claim
• “Claim accrual does not turn upon what a party
subjectively understood; it objectively turns upon
what facts are reasonably knowable. The price
analyst’s own 26 August 2005 reconsideration . . .
Concedes that the proposal disclosed [the improper
SubK burden].”
15
Raytheon Missile Systems,
ASBCA No. 58011 (Jan. 28, 2013)
• Gov’t Claim was Untimely
– CO’s Lack of Personal Knowledge didn’t prevent accrual of
Gov’t claim
• Claim accrual is not based “only upon the knowledge
of the individual clothed by a contracting party with
authority to assert the claim.”
• “Claim accrual is not suspended simply because the
government may have been delayed in appreciating
the implications of what Raytheon had disclosed, or in
funneling to the individual authorized to act upon the
claim all of the information relevant to it.”
16
Raytheon Missile Systems,
ASBCA No. 58011 (Jan. 28, 2013)
• The Gov’t was on notice of “injury” as early as 26 AUG 2005.
• Fact that DCAA audit report calculating exact price impact was
not complete until 2006 didn’t prevent accrual of Gov’t claim
– “Accrual of a contracting party’s claim is not suspended
until it performs an audit or other financial analysis to
determine the amount of its damages. … Damages need
not have actually been calculated for a claim to accrue.”
– “Delay by a contracting party assessing the information
available to it does not suspend the accrual of its claim.”
17
Raytheon Co., Space & Airborne Systems,
ASBCA No. 57801 (Jan. 28, 2013)
• CAS-covered contract: contractor must amend CAS Disclosure
Statement and provide potential cost impact of changes to
accounting practices
• Four revisions to Raytheon’s CAS Disclosure Statement
– Three revisions: Raytheon provided cost impact more than six
years before Gov’t issued its claim (totaling $3,881,369.94)
– One revision: Raytheon did not provide cost impact to
government until within six years of Gov’t Claim ($1,176,600.86)
18
Raytheon Co., Space & Airborne Systems,
ASBCA No. 57801 (Jan. 28, 2013)
• Revision for which Raytheon did not provide cost impact to
government until within six years of Gov’t Claim
– Holding: Gov’t Claim Timely
– “Here, the government did not know it had a claim because
Raytheon did not report that there would be an adverse impact,
and stated instead that its analysis would be provided later.”
– “Although the government knew of the fact of the change, it
did not know the consequences, nor do we think it reasonable
for the government to have to pursue this on its own especially
in light of the affirmative duty FAR 52.230-6(a) places on the
contractor to submit a General Dollar Magnitude of the
change.”
19
Raytheon Co., Space & Airborne Systems,
ASBCA No. 57801 (Jan. 28, 2013)
• Revision for which Raytheon did provide cost impact to
government until within six years of Gov’t Claim
– Holding: Gov’t Claims Untimely
– Even though Raytheon did not submit all information required
by FAR 52.230-6, “Raytheon did notify the government of a
dollar cost impact from the accounting change, which is enough
to trigger the statute of limitations.”
– “Claim accrual does not depend upon the degree of detail
provided, whether the contractor revises the calculations later,
or whether the contractor characterizes the impact as
‘immaterial.’ It is enough that the government knows, or has
reason to know, that some costs have been incurred, even if
the amount is not finalized or a fuller analysis will follow.”
20
Recent COFC Decisions
• Raytheon Co. v. United States, 104 Fed. Cl. 327 (2012) (Gov’t
claim to recover unallowable costs related to retirement plans
was untimely).
• Sikorsky Aircraft Corp v. United States, 110 Fed. Cl. 210 (2013)
(Gov’t claim to recover costs from noncompliant accounting
practice was timely).
21
INTERSECTION OF STATUTORY
ENFORCEMENT AND THE CONTRACT
DISPUTES ACT
STAYS OF CDA PROCEEDINGS
]
22
Stay Considerations: General
• Facts, issues and witnesses in both civil and criminal
proceedings are substantially similar
• Impact on Govt’s ongoing investigation if the civil
case proceeds
• Harm to non-moving party
• Is duration of requested stay reasonable?
23
Stay Considerations: Cases
• Public Warehousing Company,
– ASBCA No. 56022, 13-1 BCA ¶35,201
• Kellogg Brown & Root Svcs., Inc.,
– ASBCA Nos. 57530 et al., 13-1 BCA ¶35,243
• Laguna Construction Co., Inc.,
– ASBCA No. 58292, 13-1 BCA 35,315
24
Public Warehousing Company
• Prime vendor contract for subsistence. December
2006: REA for $12.5 million
• November 2009: Indictment
• June 2012: DOJ moved to enjoin civil discovery
• Govt motion to stay at ASBCA
• Board denial – not a parallel case
25
Kellogg Brown & Root Svcs.
• KBR challenged cost disallowance on subcontractor
settlement costs
• November 2012: FCA action
• Govt moved Board to suspend appeal until FCA
action was resolved
• Board dismissed under Board Rule 30
26
Laguna Construction Company
• FBI inquiry into bid-rigging
• Certified claim for $1.3 million; CO defers Final
Decision - FBI inquiry
• Laguna principals indicted for fraud
• Govt Motion to Stay
– Supporting documentation
27
Stay Cases: Take Aways
• Remember Board literature
– Mere fact of investigation
• Important criteria
– Commonality
– Impact on investigation
– Time needed (cannot be indefinite)
– Definitive statement by DOJ/Law Enforcement
– Can issues be “carved out”
28
Stay Cases: Take Aways
• Fall back considerations
– Need for coordination
– Enlarge discovery window w/o affecting trial date
– “Surgical” discovery
– Rule 30 dismissal?
• Gov’t “bind”
29
INTERSECTION OF STATUTORY
ENFORCEMENT AND THE CONTRACT
DISPUTES ACT
AFFIRMATIVE DEFENSES
]
30
International Oil Trading Co.
• Iraq Fuel Delivery Case
• IOTC I –
– Grants motion for partial SJ on contract interpretation issues.
• IOTC II –
– Denies motion to strike gov’t-raised affirmative defense of IOTC
fraud and bribery in violation of FCPA.
– CDA exempts claims for penalties or forfeiture under another
Federal statute (e.g., FCPA determinations) from Board
jurisdiction. But Board will hear affirmative defenses arising
under other statutes, e.g., fraud voids contract ab initio or COI
violation taints contract award.
31
DATA RIGHTS DISPUTE
32
Alenia NA, Inc.
• Letter, then definitized contract for 17 refurbished
non-commercial aircraft and technical support,
including CDRL for publications and manuals.
contains disputes clause, CDRL, BUT no data rights
clause.
• Alenia delivers TD with © and restricted legend.
• Gov’t objects to asserted markings, gives Alenia 60
days to respond.
• Alenia challenges Gov’t position.
33
Alenia NA, Inc. (Cont.)
• CO Final Decision:
– Applying Christian doctrine, finds Gov’t has unlimited
rights, requires notice if contractor will challenge final
decision or else Gov’t may cancel or ignore markings.
Alenia gives notice and appeals to ASBCA, asserts no
dispute, no claim.
• ASBCA:
– CDA claim subject to CO final, written decision where
matter has “some relationship” to terms or performance
of Gov’t contract, no magic form or words required.
– “In dispute” requirement only for claims for routine
requests for payment. Motion denied, Case will move
34
forward.
SPOLIATION OF EVIDENCE
35
Ensign-Bickford Aerospace & Defense Co.
ASBCA No. 57929 (2013)
• Navy contract for MK 154 Delay Detonators
• Navy disapproves test reports for detonator lots 11-14
– Navy found unacceptable rupture/vents in the shock tube
• Contractor disagrees
• Contractor discarded the tested detonators before the
Government’s rejection
• Contractor submits claim for $911,29.13 for improper
rejection of detonators
• In discovery, Gov’t seeks test remaining shock tube stock
• Gov’t files motion for adverse inference based on disposal of
tested detonators
36
Ensign-Bickford Aerospace & Defense Co.
ASBCA No. 57929 (2013)
• The party seeking spoliation sanctions must prove:
– Preservation Obligation. The spoliator had an “obligation
to preserve” the evidence when it was destroyed or
altered;
– Bad Intent. The destruction was accompanies by a
“culpable state of mind”; and
– Prejudice. The destroyed evidence was “relevant to” and
“would have supported” the claims/defenses of the
moving party
37
Ensign-Bickford Aerospace & Defense Co.
ASBCA No. 57929 (2013)
• The Board denied the Gov’t’s motion.
• The contractor had a preservation obligation because
litigation was reasonably foreseeable
• But no bad intent.
– Fed. Cir. hasn’t decided whether bad faith or “something less” is
required.
– ASBCA’s Standard: “We are unable to conclude … that appellant
acted in bad faith or to disadvantage the government.”
• Also, the Gov’t wasn’t prejudiced because the Gov’t has
recourse to other physical evidence
38
INDEMNIFICTION DISPUTE
39
S.C. Public Service Authority
• Contract case with many wrinkles:
– Gov’t to design, build, own hydroplant. Contractor to operate
for 50 years and then receive title.
– Parties express desire Gov’t be compensated for project’s
benefits to SCPSA, SCPSA be compensated for adverse effects of
the Project.
– During the period Gov’t holds/retains title, Gov’t “shall assume
the risk of all claims arising from the construction and operation
of said project … except those arising from the fault or
negligence” of SCPSA.
– Disputes Clause: Appeal CO decisions to Secretary of the Army
or authorized rep. Interest clause too.
40
S.C. Public Service Authority (Cont.)
• Third Party State/District Court Litigation (Starting in ‘93)
– Litigation by landowners against SCPSA as a result of
flooding after construction completed. Case removed
to D. Ct.
– Jury trial finds liability.
– In 1997, SCPSA notifies Gov’t of decision, tenders
defense of lawsuit and payment of compensation,
Gov’t does not accept tender.
– Damages portion of District Court case commences.
SCPSA going it alone.
41
S.C. Public Service Authority (Cont.)
• In 2001 while District Court case still pending, SCPSA
submits CDA claim for indemnification to Gov’t, seeks
$576,437.98 for legal fees and expenses to date and
reserves right to claim additional amounts in future.
• In 2004, ASBCA decides in favor of SCPSA on entitlement
to indemnification.
• In 2005, Gov’t moves to intervene/ transfer District Court
action to COFC [8 years after receiving notice of District
Court case from SCPSA]. Motion denied by District Court
as untimely and Gov’t does not appeal decision.
42
S.C. Public Service Authority (Cont.)
• Various settlements of parties per D Ct-ordered
mediation of damages.
• District Court litigation finds injuries caused to
plaintiffs due to “ordinary results of the regulator
and routine operation of St. Stephen hydroplant ….
and flooding was permanent and not abatable. “
• District Court litigation concludes in 2011. Liability
amounts to $231,922, 189.47, plus legal fees, cost of
commercial paper notes and bonds needed to pay
the landowner judgments, and interest.
43
S.C. Public Service Authority (Cont.)
• At ASBCA, SCPSA seeks full indemnification under Gov’t
contract.
– Held: Given that Gov’t was to design, construct, own Project,
was fully aware when it entered into the Contract that Project
would cause flooding, Project as designed and built and
operated did cause flooding, Contract required SCPSA “to make
the maximum use” of the capacity of the Project, and District
Court did not find SCPSA negligent, but found damages were
due to the “ordinary results of the regular and routine operation
of the Project”, SCPSA is entitled to Gov’t indemnification for
Judgments, Settlement Amounts, Attorneys Fees and Costs, Not
commercial paper and bonds.
44
S.C. Public Service Authority (Cont.)
• Does CDA apply/ supersede contract interest clause?
– SCPSA claim certified under CDA when submitted to Gov’t.
– Gov’t allege Contract was really a Cooperative Agreement and
therefore outside of CDA.
– ASBCA disagrees, contract for benefit of Gov’t, Gov’t title to
Project, SCPSA performed needed services for calculated
payments, though some provisions outside CDA SMJ, CDA
covers dispute arising over contract provisions for procuring
services.
– Indemnification claim gets CDA interest, not contract interest.
– CDA interest calculated based on the red letter date claim was
submitted, without regard to when all costs incurred.
45
FIRM FIXED PRICE
BASED ON FAULTY (NOT NEGLIGENT)
HISTORICAL DATA
46
IAP World Services, Inc. v. Treasury
CBCA No. 2709 (2013)
• FFP contract for operation/maintenance of building
equipment at six IRS facilities, including service calls
• RFP included exhibit regarding service call history over a
three-month period
• Offerors submitted questions
– The Agency responded: “Sufficient information on building
requirements and equipment is contained in the Technical
Exhibits. … It provides a reasonable basis to determine
materials and equipment required to support service call
work.”
• Contractor’s FFP was based on the Agency’s historical data
47
IAP World Services, Inc. v. Treasury
CBCA No. 2709 (2013)
Duration of Service Call
Agency’s Historical Data
Contractor’s Actual
Experience
Less than 1 hour
88.1% of service calls
72.3% of service calls
1-4 hours
11.4%
24.4%
4-8 hours
0.4%
2.4%
8-12 hours
0.0%
0.7%
12-32 hours
0.0%
0.2%
More than 32 hours
0.0%
0.0%
• Contractor submitted claim for $308,879.57 for increased
costs of performance
48
IAP World Services, Inc. v. Treasury
CBCA No. 2709 (2013)
• Holding: Different service call time distribution was
a compensable change.
– “As to this matter, the agency specifically told
prospective offerors that the information
contained in the RFP’s technical exhibits … should
be a basis for determining costs. … The IRS,
having told IAP to base its costs on certain data,
must bear the risk that that data did not
accurately represent conditions that the
contractor found on the job.”
49
IAP World Services, Inc. v. Treasury
CBCA No. 2709 (2013)
• Gov’t negligence or superior knowledge was
irrelevant.
– “Very simply, we conclude that because the data
on which the agency told the contractor to rely in
pricing was faulty, the contractor relied on that
data, and the contractor had to perform work
beyond the agency’s representations, the resulting
additional work constituted a constructive change,
and the agency must pay for the consequences of
that change.”
50
OTHER NOTABLE CASES
51
Reliable Contracting Group, LLC . v. VA
CBCA No. 3048 (2013)
• What’s New Got To Do With It?
– Claim on behalf of Prime and Sub for VA-directed change to
remove and replace certain emergency backup generators.
– Contract required “All equipment, material, and articles
incorporated into the work … shall be new and of the most
suitable grade for the purpose intended.”
– Contract also required “factory … testing”.
– Gov’t to Prime, Prime to Sub: Will you certify that they are
“New”?
• Claim Denied.
• BUT: Coming Down The PIPELINE …
52
N-G Computing Systems, Inc. v. U.S.
• NGIT I:
– Claim for breach of contract. CO final decision denying claim
appealed to COFC.
– Pre-trial Gov’t motion to dismiss for lack of subject matter
jurisdiction.
– COFC dismisses. NGIT appeals to CAFC.
• NGIT II:
– Pending NGIT I, 2nd claim letter to CO. CO says lacks authority
to issue decision pending NGIT I per 28 USC 516.
– NGIT appeals “denial”.
– COFC decides lacks jurisdiction over NGIT II since NGIT I divested
CO of authority to issue decision in NGIT II.
53
N-G Computing Systems, Inc. (Cont.)
• CAFC:
– CDA requires final decision on valid claim.
•
•
•
•
Non-routine claim for money requires:
Written demand
Seek as matter of right
Sum certain
– No particular wording to claim, just needs to be clear and
unequivocal statement putting CO on notice of basis and
amount of claim.
54
Severn Construction Services, LLC
• Severn I –
– Prime Claim on behalf of subcontractor. Appeal on deemed
denial to DCCAB.
• Severn II –
– Pending appeal, CO issues final decision on gov’t claim against
prime for indemnification of amounts not paid to subcontractor.
Appeal filed more than 90 days after CO final decision on this
Gov’t Claim.
• DCCAB:
– Dismisses Severn II appeal for lack of jurisdiction. Gov’t claim
premature since no decision, no sum certain.
55
QUESTIONS?
David S. Black, Holland & Knight LLP
Susan Warshaw Ebner, Asmar, Schor & McKenna, PLLC
Thomas H. Gourlay, Jr., U.S. Army Corps of Engineers
56