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John Manfredonia

Government Constructively Terminated Contract for Convenience

Posted on April 30th, 2017 by

On April 10, 2017, in Dream Management, Inc. v. Department of Homeland Security, CBCA 5517, the Civilian Board of Contract Appeals (“Board”) ruled that the Department of Homeland Security, Immigration and Customs Enforcement (“ICE”) cannot end a contract without relying on the termination for convenience clause. The contract called for language services. ICE did not order any services under the contract for an extended period of time, however. Meanwhile, the contractor had hired the necessary staff to fulfill the contract requirements and was incurring costs. ICE and the contractor ultimately signed a bilateral modification agreeing to end the contract early.

The contractor then sought breach of contract damages, or in the alternative, termination for convenience damages. ICE argued that the contractor had voluntarily agreed to end the contract by signing the modification and that this agreement should not be disturbed by the Board. The Board disagreed and held that “major deletions of contract work, however, may not be accomplished through modifications.” As such, the modification was treated as a termination for convenience:

The bilateral modification to end performance of all work under DMI’s contract was, in effect, a termination for convenience. The task order explicitly incorporated the GSA terms and conditions, which included a termination for convenience clause. Because the modification did more than change part of contract performance, and the contract included a termination for convenience clause, the modification will be treated as a termination for convenience by the agency.

Because the bilateral modification did not include any release language, the Board also rejected the Government’s claim that the contractor waived its rights to termination for convenience damages.

Given that the contract was terminated for convenience, the Board held that the contract could seek costs preparing for the work, even though no services were actually provided to the Government.

Oftentimes, the Government is faced with the need to end a contract due to budgetary or other reasons. There is a tendency to descope the contract by modification rather then terminated it for convenience (partially or fully) to reduce damages owed to the contractor. This case sends a strong message to the Government that it cannot descope a major portion of a contract and get away with paying termination for convenience damages.

 

CBCA Awards Contractor $904,575.00 in Restocking Fees

Posted on February 3rd, 2017 by

In the appeal of Paradise Pillow, Inc. CBCA 5179 (February 1, 2017), the Civilian Board of Contract Appeals awarded a contractor $904,575.00 in restocking fees for blankets ordered by the GSA after a hurricane in New Jersey, but later returned because they were not needed.  At first, the Contracting Officer agreed to pay the restocking fees and even signed a bilateral modification totaling $904,575.00.  However, the GSA would later dishonor this modification and terminated the contract for default instead because the blankets were allegedly not delivered on time.  The contractor appealed the termination for default and won.  The Board held that the GSA could not prove that the contractor did not meet the delivery deadline.  The termination for default was therefore converted to a termination for convenience.

Next, came monetary damages for the termination for convenience.  The GSA argued that restocking fees were expressly prohibited by the contract because it included the terms, “RESTOCKING: Not Applicable.”  The Board held that this language did not prevent the parties from agreeing, as they did, that restocking fees were “fair consideration” for the termination costs.  The Board noted that the contractor incurred the cost of “accumulating 150,000 blankets, delivering them to specified locations on short notice and under difficult conditions in the wake of a hurricane, maintaining the blankets in trailers at locations for several weeks, retrieving the blankets, and restocking the blankets in the warehouse.”  Under these circumstances, the Board held that the restocking fees were reasonable and the Contracting Officer had authority to pay them.  The GSA must therefore honor the modification in which it previously agreed to pay $904,575.00 in restocking fees.

The Board’s decision preserves the integrity of our procurement system.  When signing a bilateral modification, absent fraud or misrepresentation, both parties are bound by its terms.

Final Payment Did Not Bar Filing of a Claim

Posted on January 2nd, 2017 by

 

On December 21, 2016, in the appeal of AHTNA Environmental, Inc. v. Department of Transportation, CBCA No. 5456 (December 22, 2016), the Civilian Board of Contract Appeals held that final payment did not prevent a contractor from filing a claim. The Board found that the Contracting Officer “had or should have had” a full understanding of the scope and amount of the contractor’s anticipated Claims before making final payment.  As such, the Government cannot rely on the release in preventing the contractor from pursuing a claim after final payment. In this regard, the Board held that:

A tribunal may decline to find that a claim is barred by release “where the parties continue[d] to consider the claim after execution of a release.” Community Heating & Plumbing Co. v. Kelso, 987 F.2d 1575, 1581 (Fed. Cir. 1993) (citing Winn-Senter Construction Co. v. United States, 75 F. Supp. 255, 260 (Ct. Cl. 1948)). “Such conduct manifests an intent that the parties never construed the release as an abandonment of plaintiff’s earlier claim.” Id. (quoting A& K Plumbing & Mechanical, Inc. v. United States, 1 Cl. Ct. 716, 723 (1983)). Where the Government continues to review, consider, and negotiate the contractor’s claim for a significant period of time after the supposed release, the release will generally be found not to bar the claim. Id.; see J.G. Watts Construction Co. v. United States, 161 Ct. Cl. 801, 807 (1963) (“where the conduct of the parties in continuing to consider a claim after the execution of the release makes plain that they never construed the release as constituting an abandonment of the claim, . . . the release will not be held to bar the prosecution of the claim”).

In summary, the Board’s correctly rejected the Government’s attempt to strip the contractor’s right to file a claim for two basic reasons. First, at the time of final payment, the Government was clearly on notice that a REA would be filed.  Second, once the REA was filed, the Government evaluated it and did not invoke a release defense.

Supreme Court Rules that a Lawyer’s Improper Public Disclosure Does Not Mandate Dismissal of False Claims Act Case

Posted on December 13th, 2016 by

Plaintiffs, Cori Rigsby and Kerri Rigsby, filed a False Claims Act complaint, alleging that State Farm attempted to defraud the Government through the National Flood Insurance Program by categorizing Hurricane Katrina wind damage as flood damage. The Plaintiffs filed the complaint under seal as required by the Qui Tam rules. This meant that the Complaint could not be publicly disclosed until the Government decided whether to take on the case itself.

State Farm asked the Supreme Court to hear its appeal to dismiss the False Claims Act case because Plaintiffs’ lawyer publicly disclosed facts about the case to news reporters. The Supreme Court held that this public disclosure, even though in violation of the court seal, did not automatically result in dismissal of a Qui Tam action. The Supreme Court cited the Fifth Circuit’s approach that “no provision of the False Claims Act explicitly authorizes,” much less requires, “dismissal as a sanction for disclosures in violation of the seal requirement.” Lujan, 67 F.3d at 245; Smith, 796 F.3d at 430. The Supreme Court’s decision thus leaves it to the lower courts to determine if dismissal of a Qui Tam case is appropriate. One factor would be whether the improper public disclosure has prevented the Government from performing its own investigation of the case.

STATE FARM FIRE AND CASUALTY COMPANY, Petitioner, v. UNITED STATES OF AMERICA, EX REL. CORI RIGSBY; KERRI RIGSBY, United States Supreme Court, No. 15-513 (November 20, 2017)

 

ASBCA Finds Contractor Entitled to Damages Due to Unsuitable Soil Conditions

Posted on December 1st, 2016 by

Tetra Tech Facilities Construction LLC (“Tetra Tech”) entered into a contract with the Army for the design and construction of an addition at the Maryland Army Aviation Support Facility.  The solicitation included a geotechnical report on the subsurface conditions.  This was the only source of information of subsurface conditions made available to bidders.  The geotechnical report told bidders to expect “medium to stiff constructible soils with close to ideal moisture content for compaction.”

During construction, however, Tetra Tech encountered unsuitable wet soil conditions.  As a result, Tetra Tech had to remove or replace unsuitable soils at a significant additional cost.  Tetra Tech argued that the Army must pay this additional cost. The Government refused to pay, claiming that Tetra Tech should have expected wet soil conditions from “natural sources, such as a high, natural water table or adverse weather.”

The Armed Services Board of Contract Appeals held that the Government’s geotechnical report “told bidders to expect medium to stiff constructible soils with close to ideal moisture content for compaction and warned neither of saturated soupy soils nor leaking infrastructure at the site.”  The Board therefore held that the Government is responsible for the additional costs to address the unsuitable wet soil conditions.

Of interesting note, is the fact that the geotechnical report included a disclaimer telling bidders not to rely on it:

NOTE: The subsurface data provided by the government to support the RFP is general in nature and is not intended to be an adequate representation of the entire site. The Design-Builder must insure adequate subsurface information to determine the construction feasibility of the project.

The Board held that this disclaimer did not shield the Government from liability stating that, “the fact that representations as to subsurface conditions are labeled as “for information only” or that the contract contains a requirement that the contractor perform further subsurface investigation after award does not deprive a contractor of the right to rely on the government’s pre-contract representations.”

 

Tetra Tech Facilities Construction, LLC, ASBCA Nos. 58568, 58845 (November 15, 2016)

GAO Recommends Cancellaton of a $38.5M Award Due to Organizational Conflict of Interest

Posted on September 13th, 2016 by

The GAO release its decision on September 12, 2016, sustaining a protest filed by AT&T over a $38.5M networking contract that the Air Force awarded to MacAulay-Brown. AT&T was the incumbent for this networking contract.  The GAO found that the Air Force failed to consider a potential Organizational Conflict of Interest by a subcontractor on the MacAulay-Brown Team. This subcontractor – whose name was redacted from the GAO decision – had been working on an Air Force contract for acquisition support. AT&T argued that the subcontractor had access to AT&T’s staffing levels as the incumbent, which was nonpublic information.

The Contracting Officer compared proposals and found that Mc MacAulay-Brown’s proposal “did not mirror incumbent [AT&T] contract staffing levels.” Because of this, the Contracting Officer concluded that MacAulay-Brown did not receive nonpublic staffing information from its subcontractor.  AT&T argued, and the GAO agreed, that “a different staffing level than the incumbent contractor does not reasonably demonstrate that the non-incumbent contractor was not given access to the incumbent contractor’s information.”

The GAO noted that FAR §§ 9.504(a) “requires that contracting officers identify and evaluate potential organizational conflicts of interest, and directs contracting officers to avoid, neutralize, or mitigate potential significant conflicts of interest so as to prevent an unfair competitive advantage or the existence of conflicting roles that might impair a contractor’s objectivity.” The GAO found that “the contracting officer does not appear to have considered the possibility that a non-incumbent contractor could have made use of the incumbent contractor’s proprietary information without necessarily “mirroring” the specific staffing levels.”

This case illustrates the need to vet members of your team for potential conflicts of interest and institute a mitigation plan to avoid disqualification. In this regard, the GAO noted that:

As our Office has held, mitigation efforts that screen or wall-off certain individuals within a company from others, in order to prevent an improper disclosure of information, may be an effective means to address an unequal access to information OCI. Enterprise Info. Sys., Inc., B-405152 et al., Sept. 2, 2011, 2011CPD ¶ 174 at 11; Aetna Gov’t Health Plans, Inc.; Foundation Health Fed Servs., Inc., supra at 13.

However, in this protest, the GAO found that the record did not document the Contracting Officer’s review of the subcontractor’s mitigation plan and conclusion that it was adequate.

An Oral Government Contract Can Exist

Posted on August 17th, 2016 by

In the Appeal of Academy Partners, Inc. v Department of Labor (August 11, 2016), the Civilian Board of Contract appeals refused to toss out a case based on an alleged oral agreement.  The contractor had a contract with the DOL to perform maintenance services on computer servers. The Government did not exercise an option to renew the contract after the base period ended. The contractor, however, continued to perform maintenance services after the base period, claiming that the DOL promised that it would renew the contract.  The DOL never did so.

The Contractor argued that an oral agreement existed and the DOL must pay for the services provided after the base period ended.  The DOL filed a motion to dismiss the appeal for “lack of subject matter jurisdiction or, alternatively, for failure to state a claim upon which relief may be granted.”

The Board denied the DOL’s motion, concluding that an oral agreement or “implied-in-fact contract” might exist based on the parties’ conduct. The Board noted that “the documentary evidence necessary to prove the existence of an oral express contract need not include a formal contract” and that “a contractor can allege the existence of a contract with the Government for the continued performance of an expired contract when the Government fails to timely exercise an option. “

This case is very instructive for those who seek compensation based on the Government’s verbal promise to pay.

 

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