• Avoiding "Embarrassment" in Contract Disputes Act Litigation: Routine vs. Non-Routine Requests for Payment
  • May 16, 2012 | Author: Christopher E. Hale
  • Law Firm: Sheppard, Mullin, Richter & Hampton LLP - Los Angeles Office
  • Contractors pursuing claims against the government under the Contract Disputes Act (“CDA”) can often fall victim to the jurisdictional pitfalls of the Act from the very start of the claims process, i.e., with the claim itself. After a contracting officer denies a claim under the CDA, a contractor can appeal the decision to either a Board of Contracts Appeals or the U.S. Court of Federal Claims. However, there is no shortage of cases in which such appeals are dismissed for lack of jurisdiction because the original requests for payment did not constitute “claims” under the CDA.

    One recent illustration of this problem involved the distinction between routine and non-routine requests for payment, as addressed by a recent split-panel decision of the United States Court of Appeals for the Federal Circuit, Parsons Global Services, Inc. v. Secretary of the Army, No. 2011-1201 (Fed. Cir. Apr. 20, 2012).

    The case centered on the termination for convenience of several task orders under an indefinite-delivery-indefinite quantity contract awarded by the Army to Parsons for design-build work in Iraq. Parsons had entered into a subcontract with Odell International, Inc. (“Odell”) to construct health care facilities and deliver medical equipment in Iraq pursuant to the prime contract.

    Shortly before the task orders were terminated for convenience by the Government, the Defense Contract Audit Agency (“DCAA”) determined that Odell had been mistakenly billing Parsons using a lower overhead rate than was specified in the subcontract. Odell then invoiced Parsons for the difference, but Parsons refused to pay the invoice and submitted a termination settlement proposal to the Termination Contracting Officer (“TCO”) without including the disputed Odell costs. Two years later, as part of settlement of the prime contract, DCAA audited Parsons' billed costs, including Odell's costs, and determined that Odell's costs at the higher overhead rate were supported and appropriate. Odell submitted a new invoice for the difference, and Parsons submitted three payment requests for the additional Odell costs to be paid directly by government. The TCO declined to act on the requests to settle directly with Odell. Parsons then submitted a sponsored “Certified Claim for Payment” under the CDA on behalf of Odell to the Procurement Contracting Officer (“PCO”), and appealed the PCO's denial of the claim to the Armed Services Board of Contract Appeals (“ASBCA”).

    The Government moved to dismiss for lack of jurisdiction, arguing that Parsons' routine request for payment to the PCO did not amount to a claim under the CDA. Parsons countered that, because its requests for payment occurred two years after the termination of the task orders and thus could not be subject to routine invoicing and termination procedures, the request was non-routine and sufficient by itself to constitute a claim. The ASBCA sided with the Government and dismissed the claim.

    On appeal, the Federal Circuit affirmed the ASBCA's decision, holding that Parsons' request for payment was not a claim as defined in FAR 2.101. Under the FAR, demands for payment can be classified as either “routine” or “non-routine.” If the request is “non-routine,” then it constitutes a claim under the CDA so long as “it be (1) a written demand, (2) seeking, as a matter of right, (3) the payment of money in a sum certain.” However, if the request is “routine,” a pre-existing dispute is necessary for it to constitute a claim under the CDA.

    As the Federal Circuit detailed, non-routine requests for payment typically spring from additional or unforeseen costs not covered by the contract:

    Such requests include requests for equitable adjustments for costs incurred from “government modification of the contract, differing site conditions, defective or late-delivered government property or issuance of a stop work order” and other government-ordered changes; for damages resulting from the government's termination for convenience and termination settlement proposals that have reached an impasse; for compensation for additional work not contemplated by the contract but demanded by the government; for the return of contractor property in the government's possession; and for damages stemming from the government's breach of contract or cardinal change to the contract.

    In contrast, according to the Federal Circuit, the request for payment of Odell's costs made to the PCO was routine because the costs were explicitly covered by the contract and, but for the billing error, would have been subject to routine invoicing during contract performance. Furthermore, the routine request was not subject to a pre-existing dispute because the PCO, the appropriate official to evaluate the request, never received a proper request for payment prior to the improper “Certified Claim for Payment.”

    In a somewhat scathing dissent, Judge Newman posited that major billing errors, such as Odell's, are neither foreseen nor intended and cannot be characterized as routine. However, stepping away from the esoteric classification of routine and non-routine requests for payment, Judge Newman threw the facts of the case - in which “a simple correction of a billing error has morphed into a nearly four-year litigation, with no end in sight” - into sharp relief:

    The agency's refusal to pay Parson's claim, having acknowledged the obligation and having audited it through its own Audit Agency, is contrary to the guiding principle that “The Federal Acquisition System will [c]onduct business with integrity, fairness, and openness.” . . . . This lengthy litigation of a conceded governmental obligation is an embarrassment.

    To avoid being caught in such an “embarrassment,” contractors should take care when submitting claims pursuant to the CDA to ensure that a request for payment that could be classified as routine is subject to a pre-existing dispute. Otherwise, the contractor might find years later that its claims process was flawed from the start and must begin anew - assuming the statute of limitations has not already run its course.