We're back with our 10th biannual Contract Disputes Act (CDA) case law update, following up on our summary of noteworthy decisions from the first half of 2024 that was published in a two-part Feature Comment in THE GOVERNMENT CONTRACTOR.1 Because we subscribe to Henry David Thoreau's view that "[o]ne must maintain a little bit of summer, even in the middle of winter," we have filled this proverbial beach bag of developments in Contract Disputes Act (CDA) case law from the second half of 2024 with some sunny, tropical getaway themes to beat the winter blues away. Surf's Up!
Is It A Pina Colada (Claim) Or Just A Coconut (REA)? The Boards Apply Zafer's Objective Test
The second half of 2024 brought two different applications of the U.S. Court of Appeals for Federal Circuit's splashy Zafer Construction Co. v. United States precedent2 to find that a contractor had submitted a claim under the CDA. First, in Mindseeker, Inc.,3 the Armed Services Board of Contract Appeals (ASBCA) considered a contract for medical coding services using a government-provided platform that failed repeatedly during performance, harming the contractor's productivity. The contractor submitted a "Request for Price Modification" seeking four buckets of damages, including compensation for lost production value ("the first claim") as well as a "price increase per coded record" for future work ("the second claim"). Several months later, the contractor submitted a revised document titled "Request for Equitable Adjustment" (REA) limited to only the first and second category of damages and proceeded to negotiate with the Army for nearly two years, ultimately submitting a CDA certification in response to an Army request. At the end of each REA communication, the contractor included language thanking the government for considering its request and expressing a willingness to discuss matters further. The Army eventually issued a decision denying the REA and asserting that despite including the CDA certification language, "the language and tenor of that document, as well as other contemporaneous communications between Mindseeker and the Government at the time that the updated/revised REA was submitted, indicate" it remained an REA and not a claim.4 Mindseeker appealed, and the Army moved to dismiss, alleging Mindseeker failed to convert its REA to an appealable claim.
The board granted the motion to dismiss as regards the "second claim," but denied the motion as to the "first claim." In doing so, the board applied the Federal Circuit's Zafer precedent to determine whether the contractor made a written demand, included a CDA certification, and requested a final decision from the contracting officer. Despite the contractor's inclusion of "continued negotiation" language at the end of each submission, the board found that "nearly every filing (whether labeled a 'request for price modification' or an 'REA') included a clear and unequivocal statement explaining the basis of" the claim. This satisfied the first, "written demand" requirement.5 However, while Mindseeker requested a sum certain from the Army for its first claim, it failed to do so for its second claim both because it contained no demand for money "as a matter of right," as it pertained to future downtime, and because Mindseeker failed to quantify the number of units the future price change would implicate. Absent a sum certain, the second claim was not a valid CDA claim and was dismissed by the board without prejudice.6
The board retained jurisdiction over the "first claim" after observing both that the Army requested that Mind seeker use the CDA certification in its REA, which goes beyond the Defense Federal Acquisition Regulation Supplement (DFARS) REA certification,7 and Mindseeker requested a final decision from the Army. Citing Zafer, the board reasoned that objectively, "the content and context of the correspondence between the Army and Mindseeker show that . . . Mindseeker's submissions started as an REA, but that changed when Mindseeker certified its submission."8 The board reasoned that the Army "placed itself on notice that Mindseeker was converting its REA to a CDA claim by requesting that Mindseeker certify its REA using the CDA certification."9 The board also rejected the Army's argument that Mindseeker failed to explicitly request a final decision, citing precedent that "[w]hether explicit or implicit, a submission need not use any 'magic words' to make a request for a contracting officer's final decision."10 Instead, the requirement "focuses on whether, objectively, the document's content and the context surrounding the document's submission put the contracting officer on notice that the document is a claim requesting a final decision."11 Here, the Army could not fairly claim it was not on notice, given the contractor's repeated communications and the Army's own request that Mindseeker replace the REA certification with the CDA certification.12
The Civilian Board of Contract Appeals (CBCA) similarly applied Zafer to the contractor's benefit in ELA Group, Inc. v. Department of Labor. 13 In this case, the contractor submitted a payment demand to the contracting officer in October 2023, which the contracting officer denied by email and not by formal decision in November 2023. The contractor appealed the deemed denial of its claim in October 2024. The government moved to dismiss the appeal, asserting that the October 2023 submission was an REA, that contractor had filed a "more formal claim" on September 12, 2024, rendering the appeal premature. The CBCA observed that the appeal did not reference the September 2024 claim and applied Zafer to find that, reviewed objectively and without consideration of subjective intent, the October 2023 submission constituted a claim rather than a REA and therefore the board had jurisdiction to entertain the appeal of the deemed denial of that claim. The contractor "submitted its demand to the [Department of Labor] contracting officer for payment of a specific sum of money," "identified the basis of its payment demand," and "implicit[ly]" requested a final decision by asserting it is '' 'entitled to receive[]' the requested money and its attachment of its change order form detailing the incurred costs that it wanted to be reimbursed."14 The CBCA considered that the contractor identified its October 2023 submission as a "proposal," which mirrors terminology used in the contract's equitable adjustment clause. But the CBCA concluded that the proposal in that clause referred to future work not yet performed, whereas the contractor had submitted a demand for work already completed.15
The CBCA explained that absent Zafer's instruction to ignore the parties' subjective intent, the fact that the contractor submitted a formal CDA claim, labeled as such, in September 2024 would indicate it did not consider its October 2023 submission to be a claim, but the Federal Circuit was clear that such analysis was inappropriate. Reviewed objectively, the October 2023 submission was a claim and appealable. The CBCA dismissed aspects of the appeal only raised in the September 2024 submission and not the October 2023 submission.16
Additionally, on the beach it may be "No Shoes, No Shirt, No Problem," but with the CDA, it's "No Claim, No Final Decision, No Jurisdiction." In The Povolny Group, Inc. v. Department of Veterans Affairs, 17 a contractor submitted a request for information (RFI) to request that the government approve a different size stud than listed in a project's specifications. The government denied the request, and the contractor installed the different sized studs anyway. The government then issued a "final decision" instructing the contractor to either redo the work or make some alterations to the installed studs. The contractor filed what it termed a "protective appeal" of the "final decision," while noting that the CBCA might lack jurisdiction as there was no underlying CDA claim. The CBCA agreed, reasoning that under 41 U.S.C.A. § 7103(a), "a contractor's claim submission is a prerequisite for a contracting officer's final decision." Because no claim existed, there was no basis for the board's jurisdiction.18
The King Of The Sandcastle: The Sovereign Acts Doctrine
The Sovereign Acts Doctrine, under which the United States is immune from liability for obstruction of the performance of a contract resulting from its public and general acts as sovereign, can frustrate a contractor's attempt to recoup meritorious-seeming claims. Two cases in the second half of 2024 explored the limits of this doctrine, with one finding it barred contractor relief and the other finding the contract expressly placed the risk of the particular potentially sovereign act on the government.
First, in GEMS Environmental Management Services, 19 after receiving a contract to construct buildings on a military installation, the contractor alleged that changes to security access procedures to the government worksite imposed during contract performance caused it to incur substantial unanticipated costs. The government asserted the security procedures were subject to the Sovereign Acts Doctrine. The board explained that this doctrine differentiates between acts that are "relatively free of Government self-interest," in which case the government enjoys immunity from impacts of its actions on its contracts, and those circumstances where the action is "tainted by a governmental object of self-relief," in which case the doctrine does not apply.20 The contractor argued that the doctrine could not apply because the security procedures applied only to contractors, rather than to the public generally, and because the government's action did not make performance of the contract impossible. The board rejected both arguments, finding the additional security procedures "fit squarely within the sovereign acts rubric."21
On the first argument, the board concluded that the changed access rules, which phased out an old security system and required greater advanced notice prior to issuing passes, applied on their face to all visitors, even if, in practice, the change ultimately ended up only affecting contractors. The board cited a Federal Circuit case providing that the defense "does not rest on a mechanical determination of the number of contractors affected, but rather focuses on the nature and scope of the governmental action."22 Here, the security procedures concerned a "quintessential government function (installation security), and are not to the government's benefit as a contracting party."23
Turning to the second argument, the board distinguished between the sovereign act making full compliance impossible and the sovereign act utterly destroying the contractor's ability to perform.24 The Sovereign Acts Doctrine is not limited to circumstances "when it was impossible to perform the contract at any cost," but rather applies, as here, where the contractor's performance was obstructed by the sovereign act.25
The contractor had better luck in Chugach Federal Solutions, Inc., 26 which considered an Air Force contract to provide operations and maintenance services at three remote facilities in the Pacific Ocean. When COVID-19 broke out, the Air Force required Chugach's employees to quarantine for 14 days before entering government facilities. In response to Chugach's claim for reimbursement of its costs to comply with the quarantine requirement, the Air Force argued that its imposition of a quarantine qualified as a sovereign act, shielding it from liability for Chugach's compliance expenses. The board disagreed.
The contract at issue incorporated Air Force Federal Acquisition Regulation Supplement (AFFARS) 5352.223- 9001, HEALTH AND SAFETY ON GOVERNMENT INSTALLATIONS (JUN 1997), which required Chugach to "[c]omply with the health and safety rules of the Government installation that concern related activities not directly addressed in this contract" and provided that "any adjustments resulting from such direction will be in accordance with the Changes clause of this contract." The Changes clause, in turn, provided for an equitable adjustment for contracting officer-imposed changes to the work.27
The board found that the quarantine fell under the scope of the AFFARS health and safety provision and the government could not avail itself of the sovereign acts defense because the existence of the AFFARS clause demonstrated that the parties considered the risk of a quarantine when contracting and placed the risk of increased costs related to such a change on the government.28
When Bidding On IDIQ Contracts, As When Sunbathing, Take Precautions Or Risk Getting Burned
Although they might not be the hottest topic in government contracts, indefinite-delivery, indefinite-quantity (IDIQ) contracts can still result in a misinformed contractor getting burned. Several cases in 2024 involving IDIQrelated claims evidenced the importance of questioning or clarifying terms during the solicitation process or risking the inability to interpret the contract in such a way as to succeed in a later contract dispute.
For instance in Commonwealth Home Health Care, Inc. v. Department of Veterans Affairs, 29 the Department of Veterans Affairs (VA) awarded a firm-fixed-price requirements contract to provide home oxygen equipment for veterans with a base year and four one-year options. The contract contained an estimated number of patients to be served, which escalated by 5% each year, and a statement that the fact that actual needs did not rise to these estimates would not be considered a basis for an equitable adjustment. The actual number of patients served never met the contractual estimates and declined over the course of performance. Litigation revealed that the VA had based the contractual estimates on arithmetic errors, and past experience showed escalation never exceeded 1%. The contractor submitted a claim asserting that the VA negligently prepared the estimates and that the option years were improperly exercised when the actual patient numbers fell below the estimates. The CBCA agreed that the estimates were problematic, but denied relief on the ground the contractor could not demonstrate reasonable reliance on the negligent estimates. In so holding, the CBCA applied the Federal Circuit's standard that the estimates were "inadequately or negligently prepared, not in good faith, or grossly or unreasonably inadequate at the time the estimate was made."30 The CBCA observed that the VA's numerous mathematical errors, misuse of historical data, and failure to use the most recent available data met that standard. Yet, the CBCA held that as the incumbent, the contractor "had access to and was the source of all the data used . . . to generate the estimate" and could not just stick its head in the sand. The CBCA recognized that while "[a] contractor without the experience and access to the underlying historical data may have prevailed upon the negligent estimate theory . . . to give Commonwealth a pass on its role as the incumbent would violate the long-standing rule regarding the obligation of contractors to address defects before contract execution."31
Much as no amount of sunblock can undo a sunburn, no amount of creative lawyering can change an IDIQ contract into a requirements contract. In Sage Acquisitions LLC v. Secretary of Housing & Urban Development, 32 the U.S. Court of Appeals for the Federal Circuit rejected the contractor's attempt to recast three IDIQ contracts into requirements contracts in order to recover termination for convenience costs and other costs after the guaranteed minimums had been met. At issue were three Department of Housing and Urban Development (HUD) contracts for management and marketing services (in three geographical areas) as part of its Real Estate Owned (REO) disposition program that HUD later terminated for convenience. The contractor argued it was entitled to recover because even though the contracts were identified as IDIQ contracts, provided guaranteed minimums, and did not contain clauses for requirements contracts (e.g., Federal Acquisition Regulation (FAR) 52.216-21), they were in substance requirements contracts that required HUD to provide all REO work to the contractor for the geographical areas covered by the contracts.33 The Federal Circuit disagreed; relying on Mason v. United States, 34 the court reasoned that contractual provisions describing the contractor's work described what the contractor was required to perform and not what the government was obligated to order. Any other interpretation would render inoperable (or superfluous) a separate contractual provision reserving the government's right to work with other contractors.35 Because the agency ordered the guaranteed minimum associated with each IDIQ contract, HUD had fully discharged its contractual obligations and the contractor was not entitled to any damages.36
To Turn That Grain Of Sand In The Oyster Into A Pearl, Keep Your Receipts
Claims may seem as numerous as grains of sand on a beach, but only those where the contractor retains supporting documentation will see the pearl of success. For example, in a pair of decisions in late 2024 involving the same contractor and similar facts, Melwood Horticultural Training Center, Inc. v. General Services Administration, 37 the CBCA held that FAR 52.222-43, which provides for annual price adjustments for labor cost increases under the Fair Labor Standards Act and the Service Contract Act, requires calculation of any price increase based on "the contractor's actual incurred costs, not the costs the contractor proposed that it would incur when it agreed to the contract."38 FAR 52.222-43(d) states: "The contract price, contract unit price labor rates, or fixed hourly labor rates will be adjusted to reflect the contractor's actual increase or decrease in applicable wages and fringe benefits [emphasis added]." The board interpreted the word "actual" to mean "in reality," and explained: "A contractor's right to a price adjustment under FAR 52.222-43 and the Government's duty to approve price adjustments is triggered only when a contractor faces increased costs resulting from complying with an increase in the contract's wage determination."39 In this case, the calculation required the company submit payroll information as proof of actual costs—regardless of the fact that the government had not required such information for prior price increases—as extrinsic evidence of prior course of dealing cannot change the clear contract language.40
To view the full article, click here.
Footnotes
1. Amanda Sherwood & Kara Daniels, "Feature Comment: The Tortured Claimants Department—A Swifty Summary Of CDA Case Law Developments In The First Half Of 2024—Part II," 66 GC ¶ 199 (July 31, 2024);
Amanda Sherwood & Kara Daniels, "Feature Comment: The Tortured Claimants Department—A Swifty Summary Of CDA Case Law Developments In The First Half Of 2024—Part I," 66 GC ¶ 190 (July 24, 2024).
2. Zafer Constr. Co. v. United States, 40 F.4th 1365 (Fed. Cir. 2022), 64 GC ¶ 233.
3. Mindseeker, Inc., ASBCA No. 63197, 2024 WL 4252067 (Aug. 29, 2024).
4. Mindseeker, Inc., ASBCA No. 63197, 2024 WL 4252067 (Aug. 29, 2024).
5. Mindseeker, Inc., ASBCA No. 63197, 2024 WL 4252067 (Aug. 29, 2024).
6. Mindseeker, Inc., ASBCA No. 63197, 2024 WL 4252067 (Aug. 29, 2024).
7. See DFARS 252.243-7002(b).
8. Mindseeker, Inc., ASBCA No. 63197, 2024 WL 4252067 (Aug. 29, 2024).
9. Mindseeker, Inc., ASBCA No. 63197, 2024 WL 4252067 (Aug. 29, 2024).
10. Mindseeker, Inc., ASBCA No. 63197, 2024 WL 4252067 (Aug. 29, 2024) (citing Hejran Hejrat Co. v. U.S. Army Corps of Eng'rs, 930 F.3d 1354, 1357 (Fed. Cir. 2019), 61 GC ¶ 237).
11. Mindseeker, Inc., ASBCA No. 63197, 2024 WL 4252067 (Aug. 29, 2024) (citing Zafer Constr. Co. v. United States, 40 F.4th 1365, 1368 (Fed. Cir. 2022), 64 GC ¶ 233).
12. Mindseeker, Inc., ASBCA No. 63197, 2024 WL 4252067 (Aug. 29, 2024).
13. ELA Group, Inc. v. Dep't of Labor, CBCA 8235, 2024 WL 4919650 (Nov. 22, 2024), 67 GC ¶ 3.
14. ELA Group, Inc. v. Dep't of Labor, CBCA 8235, 2024 WL 4919650 (Nov. 22, 2024), 67 GC ¶ 3.
15. ELA Group, Inc. v. Dep't of Labor, CBCA 8235, 2024 WL 4919650 (Nov. 22, 2024), 67 GC ¶ 3.
16. ELA Group, Inc. v. Dep't of Labor, CBCA 8235, 2024 WL 4919650 (Nov. 22, 2024), 67 GC ¶ 3.
17. Povolny Group, Inc. v. Dep't of Veterans Affairs, CBCA 8160, 2024 WL 4521104 (Oct. 16, 2024).
18. Povolny Group, Inc. v. Dep't of Veterans Affairs, CBCA 8160, 2024 WL 4521104 (Oct. 16, 2024).
19. GEMS Envtl. Mgmt. Servs., ASBCA Nos. 61737 et al., 2024 WL 3508079 (July 2, 2024).
20. GEMS Envtl. Mgmt. Servs., ASBCA Nos. 61737 et al., 2024 WL 3508079 (July 2, 2024) (citing United States v. Winstar Corp., 518 U.S. 839, 896 (1996) (Souter, J., concurring)).
21. GEMS Envtl. Mgmt. Servs., ASBCA Nos. 61737 et al., 2024 WL 3508079 (July 2, 2024).
22. Conner Bros. Constr. Co. v. Geren, 550 F.3d. 1368, 1377 (Fed. Cir. 2008), 51 GC ¶ 17.
23. GEMS Envtl. Mgmt. Servs., ASBCA Nos. 61737 et al., 2024 WL 3508079 (July 2, 2024).
24. GEMS Envtl. Mgmt. Servs., ASBCA Nos. 61737 et al., 2024 WL 3508079 (July 2, 2024) (citing Yankee Atomic Elec. Co. v. United States, 112 F.3d 1569, 1574 (Fed. Cir. 1997), 39 GC ¶ 281).
25. GEMS Envtl. Mgmt. Servs., ASBCA Nos. 61737 et al., 2024 WL 3508079 (July 2, 2024).
26. Chugach Fed. Sols., Inc., ASBCA Nos. 62712, 62713, 62877, 2024 WL 4542405 (Oct. 2, 2024), 66 GC ¶ 323.
27. Chugach Fed. Sols., Inc., ASBCA Nos. 62712, 62713, 62877, 2024 WL 4542405 (Oct. 2, 2024), 66 GC ¶ 323.
28. Chugach Fed. Sols., Inc., ASBCA Nos. 62712, 62713, 62877, 2024 WL 4542405 (Oct. 2, 2024), 66 GC ¶ 323.
29. Commonwealth Home Health Care, Inc. v. Dep't of Veterans Affs., CBCA 7601, 7721, 2024 WL 4472546 (Oct. 7, 2024).
30. Commonwealth Home Health Care, Inc. v. Dep't of Veterans Affs., CBCA 7601, 7721, 2024 WL 4472546 (Oct. 7, 2024) (citing Agility Def. & Gov't Servs., Inc. v. United States, 847 F.3d 1345, 1350 (Fed. Cir. 2017), 59 GC ¶ 49).
31. Commonwealth Home Health Care, Inc. v. Dep't of Veterans Affs., CBCA 7601, 7721, 2024 WL 4472546 (Oct. 7, 2024).
32. Sage Acquisitions LLC v. Sec'y of Hous. & Urb. Dev., 119 F.4th 973 (Fed. Cir. 2024), 66 GC ¶ 306.
33. Sage Acquisitions LLC v. Sec'y of Hous. & Urb. Dev., 119 F.4th at 979.
34. Mason v. United States, 615 F.2d 1343 (Ct. Cl. 1980).
35. Sage Acquisitions LLC v. Sec'y of Hous. & Urb. Dev., 119 F.4th at 981.
36. Sage Acquisitions LLC v. Sec'y of Hous. & Urb. Dev., 119 F.4th at 983.
37. Melwood Horticultural Training Ctr., Inc. v. Gen. Servs. Admin., CBCA 7989, 2024 WL 5003433 (Dec. 3, 2024); Melwood Horticultural Training Ctr., Inc. v. Gen. Servs. Admin., CBCA 8075, 2024 WL 5003437 (Dec. 3, 2024).
38. Melwood Horticultural Training Ctr., Inc. v. Gen. Servs. Admin., CBCA 7989, 2024 WL 5003433 (Dec. 3, 2024) (emphasis in original); Melwood Horticultural Training Ctr., Inc. v. Gen. Servs. Admin., CBCA 8075, 2024 WL 5003437 (Dec. 3, 2024).
39. Melwood Horticultural Training Ctr., Inc. v. Gen. Servs. Admin., CBCA 7989, 2024 WL 5003433 (Dec. 3, 2024).
40. Melwood Horticultural Training Ctr., Inc. v. Gen. Servs. Admin., CBCA 7989, 2024 WL 5003433 (Dec. 3, 2024); Melwood Horticultural Training Ctr., Inc. v. Gen. Servs. Admin., CBCA 8075, 2024 WL 5003437 (Dec. 3, 2024).
Originally published by Thomson Reuters
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
