Insights

Underscoring the Administration’s intention to eradicate DEI preferences and mandates, the Department of Justice (DOJ) launched a new Civil Rights Fraud Initiative (Initiative) to be co-led by DOJ’s Civil Rights Division and Fraud Section. In response, Crowell launched its own DEI and Civil Fraud Initiative to support clients in managing the heightened risks associated with this new enforcement landscape.

At midnight on October 1, 2024, the International Longshoremen’s Association launched a labor strike that effectively shut down all ports from Maine to Texas after being unable to reach agreement on terms for a new labor contract with the United States Maritime Alliance.  This strike may impact virtually all industries that rely on maritime shipping, either directly or indirectly. 

The Armed Services Board of Contract Appeals (Board) recently issued notable reminders to contractors regarding its jurisdictional authority and the importance of timely filing claims.  The Board explained in DSME Construction Co., Ltd., ASBCA 63878 (July 30, 2024), that it may retain jurisdiction over a dispute even when a different forum is listed in the contract.  In Platinum Services., Inc., ASBCA No. 63878 (Aug. 1, 2024), the Board instructed contractors to be mindful of the CDA’s statute of limitations period, even when seeking to amicably resolve a dispute.

In Portland Mint v. United States, Case No. 22-2154, the Court of Appeals for the Federal Circuit reinstated the Portland Mint’s claim that the government breached an implied-in-fact contract to pay the Portland Mint for coins tendered under the government’s Mutilated Coin Redemption Program.  The Court’s decision is a reminder of the jurisdictional importance in pleading a contract as implied-in-fact rather than implied-in-law. 

In the Crowell & Moring case Parsons Government Services, Inc. v. Department of Energy, CBCA 7822, the Civilian Board of Contract Appeals (Board) denied the government’s motion to dismiss concerning Parsons’ claim for additional incentive fee in connection with its performance operating a salt waste processing facility at DOE’s Savannah River Site.  The underlying contract relates to a first-of-its-kind facility to treat and reduce liquid radioactivity in nuclear waste.  In its decision, the Board rejected the government’s motion to dismiss, holding that Parsons had pled sufficient facts to support its claims regarding superior knowledge, impracticability of performance, and breach of the duty of good faith and fair dealing.

The U.S. Court of Appeals for the Federal Circuit held in Avue Technologies Corp. v. Department of Health and Human Services that an appellant’s non-frivolous allegation of a contract with the government via an end-user license agreement (EULA) incorporated into another contractor’s Federal Supply Schedule (FSS) agreement was sufficient to establish jurisdiction under the Contract Disputes Act (CDA).

On remand from the U.S. Court of Appeals for the Federal Circuit, in ECC International Constructors, LLC, ASBCA Nos. 59586, 59643, the Armed Services Board of Contract Appeals concluded that, by waiting until after a hearing on the merits and six years after the appeal was filed, the government forfeited its right to challenge the contractor’s satisfaction of the FAR’s sum-certain requirement for Contract Disputes Act claims.

In Aviation Training Consulting, LLC, ASBCA No. 63634 (Jan. 11, 2024), the Armed Services Board of Contract Appeals (ASBCA) confirmed that a contractor’s properly asserted claim for relief under Section 3610 of the Coronavirus Aid, Relief, and Economic Security (CARES) Act is a claim under the Contract Disputes Act (CDA) and denied the Air Force’s motion to dismiss for lack of jurisdiction.

On December 20, 2023, the Armed Services Board of Contract Appeals (Board) denied the government’s motion to dismiss a prime contractor’s pandemic-related claims filed on behalf of its subcontractors.  The Board rejected the government’s arguments that the claims failed to state any claims for relief that could be granted, were barred by the affirmative defense of sovereign acts, and failed to provide separate sums certain for purported sub-claims.   

On September 6, 2023, the Department of Energy (DOE) issued a Class Deviation removing the FAR 52.204-7 requirement that a contractor maintain its System for Award Management (SAM) registration for the entire time from proposal submission until contract award, without any lapse.  As background, FAR 52.204-7 has since 2018 provided that “[a]n Offeror is required to be registered in SAM when submitting an offer or quotation and shall continue to be registered until time of award . . . .”  As we discussed here, the Court of Federal Claims has strictly enforced this language, holding that it unambiguously requires a contractor to maintain its SAM registration throughout the entire proposal and evaluation process, and that an agency lacks the authority to waive that requirement.

In Lockheed Martin Aeronautics Company, ASBCA No. 62209 (a C&M case), the Armed Services Board of Contract Appeals (“Board”) denied the Air Force’s motion for summary judgment, which had argued that the “measured mile” approach to calculating disruption was legally untenable.  In its decision, the Board noted that it has “accepted the measured mile approach as an appropriate method of determining impact to productivity” referencing extended discussion in King Aerospace, Inc., ASBCA No. 60933, 19- 1 BCA ¶ 37,316.  The Board also granted Lockheed Martin’s cross-motion for summary judgment on the issue of release, holding that the express language of modifications signed by the parties indicated that Lockheed Martin did not release any portion of its claim.  The recent decisions follow on the heels of two other Board decisions.  In April 2022, the Board granted Lockheed Martin’s cross-motion for summary judgment on the Air Force’s statute of limitations defense because Lockheed Martin’s claim did not accrue before the events that fixed the government’s liability occurred (discussed here).  In June 2021, in a case of first impression, the Board granted Lockheed Martin’s motion for summary judgment on the Air Force’s affirmative defense of laches, holding that laches is no longer applicable in CDA cases at the Board (discussed here).

The Federal Circuit recently affirmed the Civilian Board of Contract Appeals’ (CBCA) decision denying a pandemic-related claim in Pernix Serka Joint Venture v. Secretary of State, CBCA No. 5683, 20-1 BCA ¶ 37,589.  Pernix involved a firm-fixed-price construction contract in Sierra Leone that was impacted by an Ebola outbreak several months into the project.  The Department of State (DOS) declined to provide direction or to issue a suspension of work order, and instead advised Pernix to make its own business decisions regarding performance and employee safety.  Pernix chose to demobilize its workforce and, later, to remobilize with the addition of its own on-site medical facility and services.  Pernix then submitted a claim for the increased medical, safety, and demobilization and remobilization costs.  DOS granted an adjustment to the schedule for the Ebola-related delays under the contract’s excusable delay clause, but denied Pernix’s monetary claim.

In Creative Management Services, LLC, dba MC-2 v. U.S. (Feb. 26, 2021), the Federal Circuit affirmed a Court of Federal Claims decision dismissing a contractor’s appeal of the government’s Contract Disputes Act (CDA) claim as untimely, holding that the contractor appealed more than 12 months after receiving a contracting officer’s (CO) final decision. On appeal, the contractor alleged that the final decision was not a valid claim because it did not state a “sum certain” as required by the CDA, and this deficiency meant that the 12-month appeal period had not started to run.

In Alutiiq Commercial Enterprise, LLC (Jan. 9, 2020), the Armed Services Board of Contract Appeals held that a contractor is entitled to an equitable adjustment under the Service Contract Act Price Adjustment Clause, FAR 52.222-43, for increased labor costs associated with a new Collective Bargaining Agreement executed after an option period is exercised when the contracting officer failed to provide the 30-day notice required by FAR 22.1010(b), which requires the contracting officer to notify the contractor and the collective bargaining agent in writing of the forthcoming option exercise and the applicable acquisition dates. The Board reached this conclusion despite the fact that the parties exercised the option via a bilateral modification. The Board was unwilling to find that the bilateral modification waived FAR 22.1010(b)’s notice requirement when a clear and unequivocal intention to do so was not present. The dissent stated that the option referred to in “FAR 22.1010, FAR 52.222-43, and FAR 52.217-9 means an option exercised unilaterally” and thus the notice requirement in FAR 22.1010(b) did not apply to the parties’ bilateral modification. 

In Ingham Regional Medical Center v. U.S. (Jan. 6, 2020), the Court of Federal Claims compelled production of certain government investigatory documents that the Court found were not privileged work product prepared “in anticipation of litigation.” The Medical Center sued to recover payments for outpatient healthcare services performed in connection with DoD’s TRICARE program after initial settlement discussions had failed. During discovery, the government inadvertently produced several documents that assessed the accuracy of its previous payments to the Medical Center, including documents that had been repeatedly logged as privileged. Although the government claimed that the documents were prepared in anticipation of litigation, the court held that the documents did not constitute protected work product because they were produced in furtherance of a business purpose (i.e., payment investigation) well before a genuine threat of litigation arose. The court equated the government’s function in assessing the hospital’s claims for alleged underpayments to that of an insurer who investigates a claim before making a final determination. Therefore, since the threat of litigation was too remote, the court found that the work product had been prepared for a possible negotiated business settlement between the parties, rather than for litigation. Contractors and others engaged in litigation with the government should keep “ordinary course of business” arguments in mind as a basis to challenge government privilege assertions.

The Armed Services Board of Contract Appeals published its FY19 Report of Transactions and Proceedings, which provides statistics regarding the adjudication of appeals between contractors and the Army, Navy, Air Force, Corps of Engineers, DLA, DCMA, CIA, NASA, other Defense agencies, and the Washington Metropolitan Area Transit Authority. According to this year's report, contractors prevailed, in whole or in part, in 48% of the appeals decided on the merits. Also notable, the Board had a sterling success rate in resolving matters via alternative dispute resolution (ADR), successfully resolving 100% of ADRs concluded in FY19—including mediation, arbitration, and ADR of undocketed appeals—up from 85% in FY18.

On December 10, the U.S. Supreme Court heard argument in Maine Cmty. Health Options et al v. United States (a C&M case), on appeal from the U.S. Court of Appeals for the Federal Circuit. Maine, along with two companion cases, sought review of the Federal Circuit’s opinion in the Affordable Care Act “risk corridors” cases, in which the Court held that while the ACA’s risk corridors program contained a $12.7 billion mandatory payment obligation on the part of the Government, that payment obligation was suspended by appropriations riders that restricted HHS funds available to satisfy the obligation. The Federal Circuit reached this conclusion notwithstanding the fact that the riders did not amend or repeal the statutory payment obligation and even though the health plans had already performed their own reciprocal obligations under the statute. The petitioners sought review of the Federal Circuit’s opinion on several grounds, including (i) that the restriction of funds to an agency via appropriations rider does not extinguish a statutory payment obligation of the United States, and (ii) that a rider that does not by its terms repeal or amend a money-mandating statute cannot impliedly and retroactively extinguish the Government’s payment obligation. “The central question to be decided is whether the government’s failure or refusal to allocate money to pay a debt cancels that debt,” says Kevin Lewis, CEO of Maine Community Health Options. “The government’s argument is that future budgetary language can put a stranglehold on prior federal commitments well after the fact. [I]f left unchecked, this bait and switch tactic will place an increased risk on future dealings with the federal government.” The Maine briefs are linked here, here, and here. 

In URS Federal Services, Inc. (Sept. 3, 2019), the ASBCA found on summary judgment that the government’s 2017 claim to recover $698,685 in allegedly unallowable direct subcontractor costs was time-barred by the CDA’s six-year statute of limitations because the claim accrued in 2006, when the government paid URS’s invoices that included those costs. In arguing that it could only have “known” about the basis of its claim in 2012 when URS resubmitted its final indirect cost rate proposal for FY 2006, the government alleged that URS: (1) failed to receive contractual approval to subcontract, and (2) lacked adequate documentation (now) demonstrating that the costs at issue were incurred and allocable to the contract. Regarding the first basis, the Board found that the invoices listing the allegedly unapproved subcontractors demonstrated the government had knowledge that URS was using them when the government paid the invoices. The Board declined to grant summary judgment on the documentation issue. 

In Advanced Global Resources, LLC, ASBCA No. 62070 (September 10, 2019), the Armed Services Board of Contract Appeals addressed whether a contractor may recover unmitigated direct labor costs incurred during a stop-work period. The costs at issue related to an employee hired to work on Advanced Global Resources, LLC’s (AGR) Army technology support services contract. The Army issued a stop-work order one week after award due to a protest. While the stop-work order did not direct AGR to be “on stand-by,” AGR paid the employee despite the fact that the employee did not perform any work on the contract. AGR submitted a request for equitable adjustment for the employee’s direct labor costs and unabsorbed overhead.  The contracting officer denied AGR’s Eichleay damages, and conditionally granted payment of the direct labor costs, if AGR did not appeal. AGR did appeal, and the Board denied the direct labor claim stating that AGR paid the new employee “to do nothing” and failed to minimize its costs. The Board denied AGR’s unabsorbed overhead claim because it did not satisfy the second prong of the Eichleay formula. This decision serves as a reminder to mitigate costs (when possible) during a stop-work period in order to minimize the risk of nonpayment.

In Engility, LLC, ASBCA No. 61281 (August 19, 2019), the ASBCA denied the government’s motion to amend its answer to include the affirmative defense of prior material breach. The matter involved the government’s disallowance of settlement costs paid by Engility following a lawsuit in which Iraqi plaintiffs alleged that Engility’s employees engaged in abuse at Abu Ghraib. Before the government’s motion, the parties had engaged in costly and time consuming discovery after the government argued that under Geren v. Tecom, Inc., 566 F.3d 1037 (Fed. Cir. 2009), Engility had to demonstrate that none of its employees engaged in the alleged abusive conduct, and therefore the Iraqi plaintiffs had very little likelihood of success on the merits. Engility opposed the government’s motion to amend its answer because, among other reasons, the amendment would exponentially expand the scope of already extensive discovery. The ASBCA requested supplemental briefing on the government’s motion, which clarified the government’s position: the affirmative defense of Engility’s alleged prior material breach would be invoked only in the event the Board found that Engility’s settlement costs were allowable and, thus, the government’s disallowance would breach the contract’s Allowable Cost and Payment clause. The government also stated that it did not intend to argue that Engility’s alleged prior material breach was related to the Iraqi plaintiff’s allegations.  In denying the motion, the Board stated that “It is a legal impossibility for the government to raise the affirmative defense of prior material breach as a defense against what the government itself admits is essentially the possibility that its own claim may fail.”