Payne Hackenbracht & Sullivan
Claims - Procedural Requirements
Contractors, in order ensure the prompt consideration and resolution of the merits underlying their claims, are well-advised to keep ut-to-date on recent pronouncements dealing with claims to government agencies.
Statutory and Regulatory Requirements
Most contractor claims arising under a government contract are governed by the Contract Disputes Act ("CDA") and related provisions of the Federal Acquisition Regulation ("FAR"). The FAR defines a claim as "a written demand or written assertion by one of the contracting parties seeking, as a matter of right, the payment of money in a sum certain, the adjustment or interpretation of contract terms, or other relief arising under or relating to the contract." The CDA further requires that the contractor submit all claims to the contracting officer and certify those claims in excess of $100,000 in accordance with specific statutory language.
Proper claim certification is critical to successful prosecution of claims. In this regard, the CDA requires a contractor to certify that "I certify that the claim is made in good faith; that the supporting data are accurate and complete to the best of my knowledge and belief; that the amount requested accurately reflects the contract adjustment for which the contractor believes the Government is liable; and that I am duly authorized to certify the claim on behalf of the contractor." For such a certification to be acceptable, it must be signed by either "(A) a senior company official in charge at the Contractor's plant or location involved; or (B) an officer or general partner of the Contractor having overall responsibility for the conduct of the Contractor's affairs."
Although these requirements appear at first blush to be clear, the government has repeatedly seized upon them as the basis for successfully challenging the sufficiency of contractor certifications. Indeed, if a claim is not certified by a qualified individual, or if the certification language does not substantially comply with the statutory requirement, interest does not accrue, the agency is not obligated to issue a final decision and the contractor may not seek review of agency action regarding the claim.
Congress has modified the claim certification requirements to eliminate unnecessary litigation and ensure that claims are decided on their merits rather than on technicalities. As a result, claim certifications now may be executed by "any person duly authorized to bind the contractor with respect to the claim," and must state that "the certifier is duly authorized to certify the claim on behalf of the contractor."
Under this new scheme, the contracting officer has no obligation to render a decision on the claim if, within 60 days after receiving the claim, he notifies the contractor in writing of the reasons why the attempted certification is defective. While a defective certification must be corrected prior to entry of a final judgment by a court or a decision by an agency board of contract appeals, such a defect will not deprive the court or board of jurisdiction.
These changes to the Contract Disputes Act apply to all claims except those presented to an agency board of contract appeals or the U.S. Claims Court prior to October 30, 1992; the requirement for additional certification language applies only to certifications executed more than 60 days after the effective date of amendments to the FAR implementing the statute.
Similarly, a defective certification will not prevent the accrual of interest on a claim where the defect is discovered on or after October 30, 1992. In this event, interest will run from either October 30, 1992, or the date on which the contracting officer initially received the claim, whichever is later.
Quantify Claim Amount
Given the regulatory requirement that a request for the payment of money be for a "sum certain," contractors must definitively state the amount sought through the claim. As a result of the recent decision in Essex Electro Engineers, Inc. v. United States, 960 F.2d 1576 (Fed.Cir. 1992), it now appears that the amount claimed must be limited to only those costs actually incurred. Given the jurisdictional consequences associated with failure to meet the prerequisites for submission of a claim, this ruling makes it very risky to include in a claim any estimate of future costs to be incurred in performing disputed work.
Despite its far-reaching implications, the Essex Electro Engineers decision runs counter to a number of cases addressing related issues. Thus, it has been ruled that in appropriate circumstances, a contractor may be permitted to use the "total cost" approach to calculate damages, Kirk Bros. Mechanical Contractors, Inc., ASBCA No. 43347 (August 19, 1992), or to base the claimed amount on estimates in the event that individual cost components cannot be ascertained with certainty when it prepares the claim, Sun Cal, Inc. v. United States, 21 Cl.Ct. 31 (1990).
Under this line of cases, the use of estimates is particularly appropriate when the work underlying the claim is ongoing, or when the government is in possession of the information necessary to precisely compute the damages estimated by the contractor. Thus, in Embrey v. United States, 17 Cl.Ct. 617 (1989), the Claims Court determined that a claim which did not request a specific total was acceptable given that the contractor explained in the claim how it would have calculated damages had it had access to the same information available to the contracting officer. CF. Quality Diesel Engines, Inc., GSBCA No. 11332-COM, 92-1 BCA 24, 410 (1991).
Similarly, in Servidone Construction Corp. v. United States, 932 F.2d 860 (Fed.Cir. 1991), the court held that the contractor was entitled to recover interest for the full amount of its claim from the date it was certified even though the contractor had not incurred all of the costs ultimately claimed when it executed the certification.
It appears that, consistent with the court's ruling in Contract Cleaning Maintenance, Inc. v. United States, 811 F.2d 586 (Fed.Cir. 1987), the critical consideration in such cases is whether the contractor sufficiently set forth the basis and amount of its claim originally such that the contracting officer could give meaningful consideration to the merits of its request. Contractors are reminded, however, that they are under a continuing obligation to amend any claim which does not accurately reflect actual, incurred costs.
The rulings in Dawco Construction, Inc. v. United States, 930 F.2d 872 (Fed.Cir. 1991), and Essex Electro Engineers, Inc. v. United States, 960 F.2d 1576 (Fed.Cir. 1992), illustrate that the legal framework regarding development of claims is in a state of flux. Given that such rulings narrowly define the requisites for submission of a claim, and in the absence of legislative clarification of conflicting judicial pronouncements, common sense dictates that contractors limit their claims to costs actually incurred.
In the event additional costs are incurred following submission of a claim for actual costs, there are cases which suggest that a contractor may modify its claim to reflect such a change in circumstances. For example, the courts and agency boards have permitted adjustment where subsequent contract performance causes the contractor to incur additional costs, where the mere passage of time affects the amount sought, and where the increase is based on information not readily available at the time of claim submission.
In seeking to apply such rulings to increase its claim, however, a contractor must ensure that the factual foundation for liability under the claim remains unchanged; to the extent the increased claim amount stems from newly-developed factual grounds for recovery not previously presented to the agency, the contractor must submit a separate claim to the contracting officer. It also would be prudent to submit a new certification for the full claim amount with each modification.
Contractors are cautioned, however, that submission of a claim which is not fully quantified is fraught with uncertainty. For example, relying on the court's ruling in Dawco, the Armed Services Board of Contract Appeals recently held that both entitlement to recovery and the amount sought must be in dispute before a valid claim can exist. Reflectone, Inc., ASBCA No. 43081 (October 19, 1992). This ruling suggests that a document which quantifies a request for an equitable adjustment for the first time may not qualify as a claim because the amount sought cannot be said to be in dispute when the submission was made.
Contractors also must be aware that it is not acceptable to state a claim for alternative amounts. Southwest Marine, Inc., ASBCA No. 39472, 91-3 BCA 24,126 (1991). While a claim may be framed under more than one legal theory of recovery, it must nevertheless request recovery of a sum certain.
In addition to quantifying the claim, a contractor must submit enough supporting information to enable the contracting officer to undertake a meaningful review of the claim. Contract Cleaning Maintenance, Inc. v. United States, 811 F.2d 586 (Fed.Cir. 1987). While the regulations do not contemplate an extensive evidentiary presentation, some effort to develop the factual and legal foundations for the claim must be made. Embrey v. United States, 17 Cl.Ct. 617 (1989).
(See Claim Detail - Board Jurisdiction)
For example, the Armed Services Board of Contract Appeals dismissed a claim in excess of $2 million which failed to provide a breakdown of the various changes and delays alleged, and the dollar amounts assigned to each. Anchor Fabricators, Inc., ASBCA No. 40893, 91-3 BCA 24,231 (1991). The agency boards have reached similar results where the contractor failed to identify the methodology applied in arriving at the claim amount.
Provided this fundamental information is supplied by the contractor, however, the agency may not withhold decision on a claim in an effort to obtain additional data from the contractor. Nor must a contractor respond to an agency request for additional information bearing on the merits of the claim as a condition to preserving its right to seek judicial review. Hero, Inc., ASBCA No. 39525, 91-3 BCA 24,101 (1991); M-K Ferguson Company, ASBCA No. 42436, 91-3 BCA 24,308 (1991).
Rather, if the information submitted or otherwise known to the contracting officer is insufficient to prove the claim, the proper course of action is for the agency to deny the claim for lack of proof. Fred A. Arnold, Inc., ASBCA Nos. 27151 et al., 83-2 BCA 16,795 (1983).
Presentation of Claim
The Contract Disputes Act states that all claims "shall be submitted to the contracting officer for a decision," and further provides that interest on amounts found due the contractor shall be paid from the date the contracting officer receives a properly certified claim until payment on the claim is made.
Although the CDA requires presentation of the claim to the contracting officer, initial presentation of the claim to the primary agency contact on the project with the intent that it be passed on to the contracting officer may be permissible. However, the claim must be delivered to the contracting officer before it is recognized under the statute. Neal & Co., Inc. v. United States, 945 F.2d 385 (Fed.Cir. 1991). The agency is not required to respond and interest does not begin to accrue on a claim which meets all other statutory requisites until it is physically presented to the contracting officer.
It also is important to recognize that a claim will not exist unless there is a bona-fide dispute between the contractor and the government regarding the subject matter of the claim. For a dispute to exist, the contractor must have previously presented the monetary request to the agency in some manner (i.e., through a request for an equitable adjustment), and the agency must have taken some action clearly inconsistent with the contractor's right to recover.
A contractor's attempt to characterize a request for additional compensation as a claim in the absence of a dispute will be rejected and interest will not accrue on such submissions. DEL Manufacturing Co., Inc., ASBCA Nos. 43801 and 43802 (September 10, 1992). Nor will a certification appended to such a submission satisfy the contractor's requirement to certify its claim; rather, it appears that a new certification must be submitted once the "dispute" arises.
Following the Federal Circuit's decision in Dawco Construction, Inc., several court and board rulings had noted that, to be valid, a claim had to include a specific request for a final decision. Similarly, under Dawco it was held that there was no "dispute" if negotiations between the parties were ongoing. Fortunately, an important decision was handed down by the U.S. Court of Appeals for the Federal Circuit on July 26, 1995, Reflectone, Incorporated v. Dalton, holding that the initial submission of a request for an equitable adjustment under a federal contract qualifies as a "claim" under the Contract Disputes Act, so long as it is a written demand seeking as a matter of right the payment of money in a sum certain. There is no requirement for a pre-existing dispute over entitlement or the amount claimed. The Court specifically overruled its prior decision to the contrary in Dawco Construction, Inc. v. United States, 930 F.2d 872 (Fed. Cir. 1991). Dawco, and the cases which followed it, had required contractors to submit demands first as a request for equitable adjustment, and then as a "claim" after the Government disputed the request or failed to act on the first demand. This created a great deal of confusion about the proper procedure for the submission of claims and clearly contradicted the spirit and intent of the Contract Disputes Act.
(See Claim Detail - Board Jurisdiction)
Despite the overly formalistic approach which has evolved in recent years, the Federal Circuit's recent ruling in Transamerica Insurance Corp., Inc. v. United States, No. 92-5044 (Fed.Cir. 9/4/92) appears to signal a shift in the court's approach to evaluating the requisites for a CDA claim and a return to the type of common-sense analysis favored by the court in Contract Cleaning Maintenance, Inc. v. United States, 811 F.2d 586 (Fed.Cir. 1987).
In Transamerica, the contractor submitted a claim in which it sought to meet with the contracting officer, but failed to expressly request a final decision. Noting that the Contract Disputes Act is designed to encourage negotiation and settlement of claims, the court's ruling indicates that informal efforts to resolve a claim are not inconsistent with a desire for a final decision and do not invalidate an otherwise proper claim submission.
The court further determined that an explicit request for a final decision was not required. In reaching this decision, the court declined to require the use of "magic words" in preparing claims and determined that the contractor's intent in submitting the claim governs. Under this approach, all that need be shown is an implicit "expression of interest" in receiving a final decision.
Ruling that the contractor's submission qualified as a claim, the court declared that it defied logic for the government to argue that "a reasonable contractor would submit to the contracting officer a letter containing a payment request after a dispute had arisen solely for the contracting officer's information and without at the very least an implied request that the contracting officer make a decision as to entitlement. "Notwithstanding the court's favorable ruling in Transamerica, and until the conflicting judicial decisions involving development and submission of claims are reconciled, it remains prudent for contractors to take all possible precautions to ensure that they meet the related statutory and regulatory requirements. Adherence to the most stringent judicial pronouncements, though they may ultimately be rejected, is therefore recommended.
Accordingly, in addition to those actions referenced earlier, contractors should expressly demand a final decision from the contracting officer as part of the claim submission, and carefully weigh the effects of seeking to negotiate any properly certified claim which can otherwise be interpreted as stemming from a bona-fide dispute with the government. Indeed, it may be beneficial once a dispute arises to postpone further negotiations until a final decision has been issued or an appeal has been initiated.