Government Contract Administrators' Disingenuous Behavior And Its Impact On Small Contractors

This ASBCA decision also leaves absolutely no doubt that neither the government nor its prime contractor has the authority to enforce a 30 (or 20) day turnaround from the date of the lifting of a government-ordered work suspension on its submittal of its REA or claim.

It is clear to me that our small contractor and his sub-contractor peers are about to become educated in government contract claim tactics, at considerable expense, I might add.[1] In contract administration, the government never does anything of major impact without planning by the CO’s “committee.” This includes using unfair tactics to nullify or disguise contractors’ claim rights of recovery. The long period of suspension with little to no information from the government or the mega-prime, coupled with the near-immediate suspension after award was, I wager, by government design. In all probability the government knew before the bid it had serious site access permit issues which could not possibly be resolved before time to issue the NTP.[2] Yet it proceeded to bid and award the project anyway.[3] You may be sure the government was acutely aware that on a suspended project with no work accomplished the contractors’ largest expense would be unabsorbed overhead. Just as surely the CO’s legal helpers knew what little chance a contractor has to prevail on recovery of those costs given the facts about Nicon I have described above.

“Toto, I’ve A Feeling We’re Not In Kansas Anymore”[4]

Now the government will play hardball; it will stall, deny and unreasonably reject the subs’ REA’s over the coming months, driving the contractors to the CDA-certified claims stage, and on to litigation before the ASBCA or the Claims Court, smug in the knowledge that they will spend hundreds of thousands in legal fees for attorneys and claims consultants of lesser and greater skills, where some (probably most) will exhaust themselves financially, becoming ripe for final settlement of pennies on the dollar (or nothing) – all literally years later.

How did government contract justice get to be this way? Is three courts, six years and final resolution for pennies on the dollar in “negotiations”[5] with the government agency which created the stalling and delaying tactics in the first place, fair?[6] Who will serve notice on government and its mega-prime contractors they must not use sly bullying tactics like fictitiously short submittal periods to facilitate government advantage in negotiations? What’s with this thing with the lower peer tribunals where each ignores the decisions of the other? What’s with the mighty Federal Circuit which perpetuates this ridiculous situation? Why do we even need the boards if the Claims Court is permitted to ignore their decisions as if they don’t even exist? Or vice versa? Which lower tribunal should our contractor choose if fairness can’t be found at the CO level? He will need to decide that immediately. But how could he make that decision? If he calculates the claim by estimating the financial and time elements required in the Eichleay and brought that to the ASBCA in appeal from a negative CO decision, would the board stand by its Genisco decision or would it immediately buckle in deference to the Federal Circuit’s current position that Eichleay cannot be used where no contract billings have been generated? If the board upheld the contractor’s use of estimates, the government would surely appeal to the Federal Circuit. Would the Circuit then do as in Nicon and simply run it back to the board to determine another way to make the calculation? Can anyone guess the time which would elapse in this tortured process?

These and similar questions stand starkly begging for answers. I hope and plan to address some of them or ones similar in the very near future.

Your comments are graciously invited.

Glen L. Eaton

constructionclaimsexpert.com

Never Forget – In Government Contracting It Is The Government Who Is In Control Of The Small Contractor’s Business Continuity, NOT The Contractor

Perhaps the most unjust element of all in this and similar government contractor claim situations is the total government control of the time lapse between contractor identification and proof of the cost of, and entitlement to, damages for a government-caused contract problem - and the contractor’s actual receipt of the funds, if any.

To illustrate, both Nicon¹⁷ and our contractor were small contractors. Both were awarded Government contracts. Both contracts were suspended by the government before any work could start. Both suspensions were for the better part of a year, ours for eight months, Nicon’s for 288 days. Both were placed in a standby position by the government. Both being small contractors, the instant government contract of each was a major financial element in its overall surety bonded work program. Both had (have) a prima facie case for entitlement to unabsorbed overhead.[1] Failure of reasonably prompt, fair, recovery of resulting damages by either may well be critical to its contracting business continuity.[2]

Further To The Nicon Saga

Seeking fairness and justice, more than five (5) years after award and then near-immediate government suspension of its contract, Nicon found itself at its second Federal court.[3] That court ordered the case back to the lower Federal court instructing that court, which had summarily dismissed the case (the reason Nicon had to appeal to the instant court), with the instructions for it to seek to determine whether, given the unique case facts, there was not some other way besides Eichleay to allocate unabsorbed overhead to the suspended contract.

Meanwhile over this course of time, two different construction claims consulting firms had been applying their considerable expertise to the case on Nicon’s behalf. Both claim in their current advertising they made positive contribution to the case, one apparently consulting with Nicon’s attorney to negotiate $184,757 in direct field costs and “related overhead” at the lower court in 2001, while the other directed its service to cooperation with Nicon’s attorney in pursuit of the $387,513 in unabsorbed home office overhead before the second, appeals, court.[4]

As of June 2003, after over five (5) years of negotiations supported by the not inexpensive services of three (or four) claims and legal advisors, Nicon was now faced with seeking fairness and justice before the same lower court which had on summary judgment[5] dismissed the case two years earlier.

Nicon was now facing another year at least before briefing could be completed and the court would produce a ruling. Since I can find no record of Nicon’s appearance before the lower court again, I reasonably conclude that Nicon cut its losses and made some final deal with the government for enough to perhaps cover its legal and consulting costs, and together they petitioned the court for dismissal, ending the issue.

Some Layman’s Insight Into The Contradictions Within The Federal Claims Tribunals

This of course left hanging for lack of authoritative decision exactly how a contractor is to calculate unabsorbed overhead damages when Eichleay does not apply, i.e., when the government suspends a contract when the contract billings remain at zero. But does it? Hold on.

Since early in the previous decade, the various boards of contract appeals have been re-charted by Congress as being peer tribunals with the current U.S. Court of Federal Claims (“Claims Court”), the lower court to which Nicon initially brought its claim. Contractors, even before the time Congress made the change, had a choice; they could, and can now, bring appeals from a CO’s decision to either the Claims Court or to the appropriate board of contract appeals. Since the time Congress made this change, the appeals of contractors whose claims are denied at either the boards or at the Claims Court must make their final appeal to the Federal Circuit Court of Appeals. Before that time, contractors with rejected claims at the boards made their appeals to the Claims Court (under its various earlier names).

It has been said by various legal writers that this situation has been non-conducive to almost any cross proliferation of case law after the Congressional change of court-board peer standing. The boards generally ignore the precedents set by the Claims Court and vice versa.

This lengthy explanation sets the stage for analysis of the following hypothetical scenario. Suppose Nicon had chosen to appeal its CO’s decision to the Armed Services Board of Contract Appeals (ASBCA”), not the Claims Court. Had it done so, there is a strong likelihood the ASBCA would have found for Nicon, not summarily dismissed the case as did the Claims Court.[6]

In The Appeal of – Genisco Technology Corporation, ASBCA No 49664, April 7, 1999,[7] ASBCA emphatically found that estimates of elements of an Eichleay formula, when actual figures were not available, were permissible. The contractor had met a situation like Nicon’s; there had evidently been an award protest, and the contractor had calculated unabsorbed overhead by other means, avoiding Eichleay on the excuse, exactly like in Nicon, and our contractor’s situation, there were no billings as the contract had been suspended by the government before any could be generated:

Appellant seeks reconsideration of our decision denying its appeal. In Genisco Technology Corporation, ASBCA No. 49664, 99-1 BCA ¶ 30,145 (Genisco), we denied appellant’s claim for unabsorbed overhead because it had not been computed using the + formula, and we concluded that use of the Eichleay formula was mandatory, citing West v. All State Boiler, Inc., 146 F.3d 1368 (Fed. Cir. 1998) and Libby Corporation, ASBCA No. 40765, 96-1 BCA ¶ 28,255. Genisco also rejected the modified Eichleay computation appellant presented at the hearing because we found the computation to be based on financial data that was seriously incomplete. Appellant alternatively requests that we reopen the record to receive additional financial data and a revised Eichleay computation. Respondent opposes both reconsideration and the reopening of the record. The parties have submitted a considerable quantity of additional material with the motions and opposition.

THE MOTION FOR RECONSIDERATION

Appellant essentially raises the same arguments we rejected in Genisco. Appellant first argues that respondent is estopped from asserting that use of the Eichleay formula is mandatory here because the governing clause, FAR 52.233-3, Protest After Award (AUG 1989) makes use of the Eichleay

formula impossible. That clause provides for filing a claim within 30 days after the work stoppage ends, although “the Contracting Officer may receive and act upon a proposal submitted at any time before final payment under [the] contract.” We rejected that argument, pointing out that an Eichleay claim can be filed using estimates and that appellant’s claim as submitted without using Eichleay did, in fact, use estimates. Genisco at 149,128. As respondent argues, we have held that claims based on estimates are proper under the Contract Disputes Act (CDA), 41 U.S.C. §§ 601‑613, as amended. See, e.g., Allied Signal Aerospace Co., ASBCA No. 46890, 94‑3 BCA ¶ 27,089. Indeed, even DCAA recognizes that complete financial data may not be available when an unabsorbed overhead claim is filed and sanctions the use of estimates in formulating an Eichleay claim. See DCAA Contract Audit Manual, ¶ 12-804 b., July 1997. Moreover, as respondent also points out in its opposition, the clause specifically authorizes consideration of claims filed more than 30 days after the work stoppage has ended. Respondent cites examples of cases where claims filed under FAR 52.233-3 more than 30 days after the work stoppage had ended were considered without challenge or comment on the date of filing (Interstate General Government Contractors, Inc., ASBCA No. 43369, 92-2 BCA ¶ 24,956, aff’d 12 F.3d 1053 (Fed. Cir. 1993); FMC Corporation, Steel Products Division, ASBCA No. 39546, 92-3 BCA ¶ 25,025).

Appellant next argues that our decision effectively eliminates FAR 52.233-3 from the contract. As stated above, decisions of this Board and our appellate court have adjudicated claims under FAR 52.233-3 using the Eichleay formula. Other decisions of this Board and our appellate court have held that unabsorbed overhead may only be calculated by use of the Eichleay formula. Our view is that a common sense reconciliation of those decisions to FAR 52.233-3 would result either in submission of unabsorbed overhead claims thereunder by use of estimates, or with the agreement of the contracting officer that he or she will consider such claims after 30 days but before final payment, as the clause provides. We are unpersuaded by appellant’s argument that, under Genisco, a contracting officer could never award unabsorbed overhead pursuant to FAR 52.233-3 because a contractor would never have enough information to file an Eichleay claim. As pointed out above, even the DCAA Audit Manual recognizes that estimates will be used in Eichleay calculations.

Notably, twice, the ASBCA pointed to “decisions of … our appellate court [the Federal Circuit]” as predicate for mandatory use of Eichleay for figuring unabsorbed overhead. ASBCA pointedly stated that it has held in a previous case that “claims based on estimates” are acceptable. Finally, “…even the DCAA[8] ….recognizes…” Eichleay calculated with estimates, said the ASBCA.[9]