Resolving Disputes on Public Contracts

Resolving Disputes on Public Contracts

James F. NagleOles Morrison Rinker & Baker, LLP

[email protected]

Phases of Dispute Resolution

• Pre-contract• During performance• Making a claim• The formal disputes process

Resolving Disputes on Public Contracts 2

Pre-contract—Advice to the Government

• Pick a good contractor– Don’t just use past performance ratings

• Don’t scare good contractors away with one-sided contracts

• Don’t ignore the red flags


Pre-Contract—Advice to the Contractor

• Negotiate changes• Consider alternate bids • Avoid mistakes• Bid properly or run away


Pre-Contract—Advice to Both Sides

• Resolve the disputes process up-front– Partnering– The disputes process itself


During Performance– Advice to the Government

• Acknowledge problem• Offer consideration• Don’t mindlessly try to be tough• Understand the differences between legal rights

and practical value


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


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


Resolving the Claim—Advice to the Government

• Litigation is a drain on your resources • Fear of precedents


Resolving the Claim—Advice to Contractors

• The longer it goes on, the more it will cost you• How to resolve it

– ADR– Litigation


Typical Dispute Scenarios

• US —> Prime• Prime —> US• Prime —> Subcontractor• Subcontract —> Prime


Typical Disputes

• Government/Buyer– Warranties– Deductive/Substitution Changes– Over Payment – Delay damages


Typical Disputes

• Seller– Changes—constructive changes– Delays– Differing site conditions – Property issues– Terminations


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

14

Scope of the Contract


• No guidance in the regulations• Based on Statement of Work• No automatic test• Consideration of several factors

15

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

16

Determining if Change is Out of Scope


• 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

17

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

18

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

19

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.

20

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

21

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

22

Types of Constructive or Implied Changes


• Contract interpretation• Interference and noncooperation• Defective specifications• Government information deficiencies

• Superior knowledge• Misrepresentation

• Acceleration

23

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

24

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

25

Notice


• Who must you tell?• What must you tell?• When must you tell?• So, what if you don’t tell?

26

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”

27

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

28

Measure of an Equitable Adjustment


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

30

Types of Changes Warranting Equitable Adjustments


• Adding work• Deleting work• Substituting work• Delaying work• Accelerating work• Disrupting work

31

Admiral Corp.


ASBCA No. 8634, 1964 BCA 4161

Cost

Original component $7.52

Substituted component 11.63

Included in bid for this item 12.48

What result occurs?

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

33

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

34

Delays


• 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?

35

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?

36

Weather Delays (continued)


• What was experienced?• Types of records• Where recorded• Work days and times

37



• 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

38



• Did the contractor mitigate?• Reasonable precautions

• For type of weather experienced• For common effects

• Reasonable mitigation• Rescheduling• Substitutions

39

Typical Delay Damages


• Idle labor• Idle equipment and facilities• Labor, material, and other cost escalation• Unabsorbed overhead• Disruption• Acceleration

40

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

41

Equipment Costs (continued)


How to prove damages• Rented equipment

• Rent• Owned Equipment

• Actual costs• Contract rates• Industry rates

42

Unabsorbed Overhead


• What is it?• What must the contractor prove for entitlement?• How does the contractor prove quantum?

43

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

44

Eichleay Formula


contract billings

contractor billings

contract overhead

days of performance

X contractor overhead = overhead allocable to contract

= daily overhead rate (DOR)

DOR X days of delay = unabsorbed overhead

*Includes period of delay

45

Unabsorbed Overhead – Eichleay Method


Pro[p]serv, Inc., ASBCA No. 20768, 78-1 BCA ¶ 13066

$143,646

675,748

$12,801

365

$35.07 x 150 = $5,261

Profit at 15% = $ 789

$6,050

X 60,221.00 = $12,801

= $35.07

46

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

47

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

48

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

49

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)

50

Acceleration Costs


• Hidden• Disruption—Loss of efficiency

• Clear• Overtime wages• More workers• More equipment• Expedited deliveries

51

Actual Cost Method—Profitable Contract


Contract Price (A) $1,200,000

Cost to perform original contract (B) $1,000,000

Cost to perform revised contract $1,500,000because of claimed event (C)

Extra cost caused by the claimed $ 500,000event (C – B)

Contract price is irrelevant

52

Actual Cost Method—Loss Contract


Contract price (A) $1,200,000

Cost to perform original contract (B) $1,400,000

Cost to perform revised contract $1,500,000because of claimed event (C)

Extra cost caused by the claimed $ 100,000event (C – B)

53

Total Cost Method


Total Cost $2,000,000

Less bid price (1,200,000)

Costs claimed 800,000

Plus profit @ 10% 80,000

Total claim $ 880,000

54

Total Cost Method #2





Plus profit @ 10%of $2,000,000 200,000

Total claim $1,000,000

55

Total Cost Method #3



Less contract price (1,200,000)


Plus profit in original price 200,000

Plus profit on added cost 80,000

Total profit 280,000

Total claims $1,080,000

56

Modified Total Cost Method




Costs claimed (gross) 800,000

Less bidding errors (100,000)

Less productivity problems (100,000)

Costs claimed (net) 600,000

Plus profit @ 10% 60,000

Total claim $ 660,000

57

Jury Verdict Method


Western Alaska Contractor, J.V.ASBCA No. 46033, 95-1 BCA 27392

Contractor claim for equipment using $1,007,644.68Blue Book rates for 12 months

Government position based on book$ 73,530.00value minus depreciation for 6 months

Board decision $ 550,000.00

58

Mechanics of the Modification Process


• Timing• Prospective• Retroactive

• Unilateral or bilateral• Definitized or not• Request for equitable adjustment• Truth in Negotiations Act• Release

59

Disputes Process


• FAR Subpart 33.2• FAR 52.233-1—Disputes Clause

60

Jurisdictional Path of a Claim


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

62

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)

63

Nagle’s Rules on Claims


• Keep it as simple as possible• Make it as detailed as necessary• Use contemporary documents whenever possible

64

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

65

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

66

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)

67

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

68

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

69

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

70

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

71

CO’s Decision


• Is written and gives reasons• Is final unless timely appeal is made

72

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

73

Interest


• Simple interest at rate provided by the Department of the Treasury

• From receipt of claim by CO until payment

74

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)

75

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

76

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

77

Formality


BCA• Informal• Evidence

• Rule 4 File• No jury

• Procedure• Federal Rules of Civil Procedure (FRCP) do not

apply

78

Formality (continued)


CFC• Formal judicial process• Evidence

• More rigid adherence to Federal Rules of Evidence (FRE)

• Procedure, under adherence to its version of FRCP

79

Representation


BCA• Contractor

• Pro se or attorney• Government

• Agency Counsel—local or headquartersCFC• Contractor

• Partnership or corporation—must have attorney• Government

• Department of Justice (DOJ) with agency “of counsel”

80

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

81

Fraud Jurisdiction


Fraud counterclaim• Yes at CFC• No at BCA

Forfeiture Act (28 U.S.C. 2514)• Yes at CFC• No at BCA

82

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

83

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

84

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

85

Resolving Disputes on Public Contracts

Documents

Transcript of Resolving Disputes on Public Contracts