resolving disputes on public contracts
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Resolving Disputes on Public Contracts. James F. Nagle Oles Morrison Rinker & Baker, LLP [email protected]. Phases of Dispute Resolution. Pre-contract During performance Making a claim The formal disputes process. Pre-contract—Advice to the Government. Pick a good contractor - PowerPoint PPT PresentationTRANSCRIPT
Resolving Disputes on Public Contracts
James F. NagleOles Morrison Rinker & Baker, LLP
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
Resolving Disputes on Public Contracts 3
Pre-Contract—Advice to the Contractor
• Negotiate changes• Consider alternate bids • Avoid mistakes• Bid properly or run away
Resolving Disputes on Public Contracts 4
Pre-Contract—Advice to Both Sides
• Resolve the disputes process up-front– Partnering– The disputes process itself
Resolving Disputes on Public Contracts 5
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
Resolving Disputes on Public Contracts 6
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
Resolving Disputes on Public Contracts 7
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 Disputes on Public Contracts 8
Resolving the Claim—Advice to the Government
• Litigation is a drain on your resources • Fear of precedents
Resolving Disputes on Public Contracts 9
Resolving the Claim—Advice to Contractors
• The longer it goes on, the more it will cost you• How to resolve it
– ADR– Litigation
Resolving Disputes on Public Contracts 10
Typical Dispute Scenarios
• US —> Prime• Prime —> US• Prime —> Subcontractor• Subcontract —> Prime
Resolving Disputes on Public Contracts 11
Typical Disputes
• Government/Buyer– Warranties– Deductive/Substitution Changes– Over Payment – Delay damages
Resolving Disputes on Public Contracts 12
Typical Disputes
• Seller– Changes—constructive changes– Delays– Differing site conditions – Property issues– Terminations
Resolving Disputes on Public Contracts 13
The Changes Clause
Resolving Disputes on Public Contracts
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
Resolving Disputes on Public Contracts
• No guidance in the regulations• Based on Statement of Work• No automatic test• Consideration of several factors
15
Changes Outside Scope of Contract
Resolving Disputes on Public Contracts
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
Resolving Disputes on Public Contracts
• 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
Resolving Disputes on Public Contracts
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?
Resolving Disputes on Public Contracts
Virtually anyone other than the contractor• COs• Other CO representatives• Specially authorized representatives• Inspectors• Project managers and officers• Auditors• Negotiators• Other contractors
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Disclaimer Statement
Resolving Disputes on Public Contracts
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
Resolving Disputes on Public Contracts
• 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)
Resolving Disputes on Public Contracts
• 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
Resolving Disputes on Public Contracts
• Contract interpretation• Interference and noncooperation• Defective specifications• Government information deficiencies
• Superior knowledge• Misrepresentation
• Acceleration
23
Differing Site Conditions
Resolving Disputes on Public Contracts
• 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)
Resolving Disputes on Public Contracts
• 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
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Notice
Resolving Disputes on Public Contracts
• Who must you tell?• What must you tell?• When must you tell?• So, what if you don’t tell?
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Equitable Adjustment
Resolving Disputes on Public Contracts
• 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
Resolving Disputes on Public Contracts
• 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
Resolving Disputes on Public Contracts 29
Request for Equitable Adjustment
Resolving Disputes on Public Contracts
• 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
Resolving Disputes on Public Contracts
• Adding work• Deleting work• Substituting work• Delaying work• Accelerating work• Disrupting work
31
Admiral Corp.
Resolving Disputes on Public Contracts
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
Resolving Disputes on Public Contracts
• 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
Resolving Disputes on Public Contracts
• 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
Resolving Disputes on Public Contracts
• 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
Resolving Disputes on Public Contracts
• 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)
Resolving Disputes on Public Contracts
• What was experienced?• Types of records• Where recorded• Work days and times
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Weather Delays (continued)
Resolving Disputes on Public Contracts
• 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
Weather Delays (continued)
Resolving Disputes on Public Contracts
• Did the contractor mitigate?• Reasonable precautions
• For type of weather experienced• For common effects
• Reasonable mitigation• Rescheduling• Substitutions
39
Typical Delay Damages
Resolving Disputes on Public Contracts
• Idle labor• Idle equipment and facilities• Labor, material, and other cost escalation• Unabsorbed overhead• Disruption• Acceleration
40
Equipment Costs
Resolving Disputes on Public Contracts
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
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Equipment Costs (continued)
Resolving Disputes on Public Contracts
How to prove damages• Rented equipment
• Rent• Owned Equipment
• Actual costs• Contract rates• Industry rates
42
Unabsorbed Overhead
Resolving Disputes on Public Contracts
• What is it?• What must the contractor prove for entitlement?• How does the contractor prove quantum?
43
Unabsorbed Overhead (continued)
Resolving Disputes on Public Contracts
• 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
Resolving Disputes on Public Contracts
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
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Unabsorbed Overhead – Eichleay Method
Resolving Disputes on Public Contracts
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
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Disruption, Loss of Efficiency, Loss of Productivity
Resolving Disputes on Public Contracts
“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)
Resolving Disputes on Public Contracts
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)
Resolving Disputes on Public Contracts
• 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
Resolving Disputes on Public Contracts
• 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)
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Acceleration Costs
Resolving Disputes on Public Contracts
• Hidden• Disruption—Loss of efficiency
• Clear• Overtime wages• More workers• More equipment• Expedited deliveries
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Actual Cost Method—Profitable Contract
Resolving Disputes on Public Contracts
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
Resolving Disputes on Public Contracts
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)
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Total Cost Method
Resolving Disputes on Public Contracts
Total Cost $2,000,000
Less bid price (1,200,000)
Costs claimed 800,000
Plus profit @ 10% 80,000
Total claim $ 880,000
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Total Cost Method #2
Resolving Disputes on Public Contracts
Total Cost $2,000,000
Less bid price (1,200,000)
Costs claimed 800,000
Plus profit @ 10%of $2,000,000 200,000
Total claim $1,000,000
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Total Cost Method #3
Resolving Disputes on Public Contracts
Total Cost $2,000,000
Less contract price (1,200,000)
Costs claimed 800,000
Plus profit in original price 200,000
Plus profit on added cost 80,000
Total profit 280,000
Total claims $1,080,000
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Modified Total Cost Method
Resolving Disputes on Public Contracts
Total Cost $2,000,000
Less bid price (1,200,000)
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
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Jury Verdict Method
Resolving Disputes on Public Contracts
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
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Mechanics of the Modification Process
Resolving Disputes on Public Contracts
• Timing• Prospective• Retroactive
• Unilateral or bilateral• Definitized or not• Request for equitable adjustment• Truth in Negotiations Act• Release
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Disputes Process
Resolving Disputes on Public Contracts
• FAR Subpart 33.2• FAR 52.233-1—Disputes Clause
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Jurisdictional Path of a Claim
Resolving Disputes on Public Contracts 61
Disputes Clause
Resolving Disputes on Public Contracts
Subparagraph (a)• Contracts
• Not grants• Not preaward• Can be waived
Subparagraph (b)• Matters reserved to other agency
• SBA, DOL, OSHA, EPA• Fraud• Torts• Remedies
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What Starts the Process?
Resolving Disputes on Public Contracts
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)
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Nagle’s Rules on Claims
Resolving Disputes on Public Contracts
• Keep it as simple as possible• Make it as detailed as necessary• Use contemporary documents whenever possible
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Reflectone Changes the Rules
Resolving Disputes on Public Contracts
• 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
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Reflectone Causes Dilemma for Contractors
Resolving Disputes on Public Contracts
• 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
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FASA Statute of Limitations
Resolving Disputes on Public Contracts
• 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)
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Certification
Resolving Disputes on Public Contracts
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
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Defective Certification
Resolving Disputes on Public Contracts
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
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When Must the CO Decide?
Resolving Disputes on Public Contracts
• 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
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Contractor Options if the CO Does Not Issue a Timely Decision
Resolving Disputes on Public Contracts
• Go directly to board or court for order• Consider inaction a “deemed denial” of claim and
commence litigation
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CO’s Decision
Resolving Disputes on Public Contracts
• Is written and gives reasons• Is final unless timely appeal is made
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Alternative Dispute Resolution (ADR) Procedures
Resolving Disputes on Public Contracts
• 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
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Interest
Resolving Disputes on Public Contracts
• Simple interest at rate provided by the Department of the Treasury
• From receipt of claim by CO until payment
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Duty to Continue
Resolving Disputes on Public Contracts
• 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)
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Appeal
Resolving Disputes on Public Contracts
• 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
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Expertise
Resolving Disputes on Public Contracts
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
Resolving Disputes on Public Contracts
BCA• Informal• Evidence
• Rule 4 File• No jury
• Procedure• Federal Rules of Civil Procedure (FRCP) do not
apply
78
Formality (continued)
Resolving Disputes on Public Contracts
CFC• Formal judicial process• Evidence
• More rigid adherence to Federal Rules of Evidence (FRE)
• Procedure, under adherence to its version of FRCP
79
Representation
Resolving Disputes on Public Contracts
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
Resolving Disputes on Public Contracts
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
Resolving Disputes on Public Contracts
Fraud counterclaim• Yes at CFC• No at BCA
Forfeiture Act (28 U.S.C. 2514)• Yes at CFC• No at BCA
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Expedited and Accelerated BCA Cases
Resolving Disputes on Public Contracts
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
Resolving Disputes on Public Contracts
• To Court of Appeals for the Federal Circuit• BCA—within 120 days• CFC—within 60 days
84
Equal Access to Justice Act
Resolving Disputes on Public Contracts
• 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
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