Altering Your Government Contract’s Price or Schedule: A Guide to REAs and CDA Claims

Contents of this Section:

When your federal contract has overruns that are not your fault, a CDA Claim might be your best option.

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1. Why Are REAs and Claims Important? How Can A Contractor Predict and Prevent Them?

2. What is Important Terminology to Understand in REAs and Claims Preparation and Defense?

3. What Are the Requirements of an REA or a Claim According to the Contract Disputes Act?

4. What Do You Need to Know to Successfully Submit a CDA Claim?

5. How Do CDA Claims Benefit Contractors?

6. What Is an Example of How to Turn a Contract Administrative Action or an REA into a CDA Claim?

7. What Are The Alternatives to an REA?

8. What is the Certification Process as Outlined by the Contract Disputes Act (CDA)?

9. How Much Time Should a Contractor Require Once a CDA Claim is Certified?

10. What Does the REA/CDA Claims Process Look Like at the State and Local Level?

11. How Are Subcontractors’ Claims Presented and Processed?

12. How Should a Government Contract Be Structured to Ensure Fair Payment to the Contractor?

13. What Issues Cause Claims in Contracts at the Government and Commercial Levels?

14. A Checklist for the Analysis of Issues Affecting REA Claims

15. How Has The Competition in Contracting Act Affected Claims Generation?

16. How Are the Notice of Claims & The Timing of Claims Distinct?

17. Conclusion 

Additional Resources in this Section:

Contractors draft and submit Requests for Equitable Adjustments (REAs) and "claim" documents to persuade the other contracting parties (often government agencies) that an adjustment to the contract is needed, due to events occurring after award and generally during performance. Such adjustments may consist of either an increase or decrease to the contract price or an adjustment to other terms and conditions such as schedule. 

The utilization of the so-called REA and “claims process”, operating in conjunction with various other contract provisions, is often the only way for contractors or government agencies to assert their contractual rights with respect to alterations to contract price, delivery schedule, quality, etc. after contract performance starts. This ability to make these “adjustments” to the contract after award is obviously important to the contractor and the government agency involved. The techniques, strategies, and consequences for both sides are perhaps the most critical subjects in all of contract administration. And they are not easily understood. Case law makes them more complex with each passing year.

Why Are REAs and Claims Important? How Can A Contractor Predict and Prevent Them?

There are many interrelated reasons why REAs and claims occur under government contracts and other contracts. Surprisingly, many contract REAs and claims are not founded initially upon legal or contractual bases. Rather, a large number of such adjustment requests stem initially from underlying political and economic objectives. Others simply arise due to poor communications and/or poor management by both parties to the contract.

Such "root causes" of REAs and claims must be identified before a proper analysis for REA and claims preparation and defense can be undertaken. If government officials do not understand the motivation behind a contractor’s REA and claim submission, it will be much more difficult, if not impossible to construct mechanisms to prevent them in the future. This holds true for contractors as well in trying to maximize their recoveries.

The Basis of The Advice in this Article 

Much of the analysis provided here is subjective -- it is simply based upon the combined experience of the author and his law firm in doing this type of work for over 49 years. This experience gives rise to a key assumption: REAs and claims most often occur in very predictable patterns and circumstances under federal contracts (and for that matter state and local contracts, as well as subcontracts related thereto and commercial contracts).

Understanding and recognizing such patterns allows contractors and government officials to respond to particular REA and claim issues in a more effective and efficient manner. This holds true for both the presentation to recover and the defense to such actions.

Understanding the REA and Claims Procedures Before They are Needed

Once a REA or claim has “occurred”, prevention techniques are more limited. All of these issues and techniques - dealing with situations before and after the development of actual "claims" - will be explored in detail in this text. Criticism of management approaches by both government agencies and contractors during the claims process is necessarily included - if you do not see the mistakes that others have made, you will invariably repeat them!

The preparation and defense of government contract REAs and claims is a complex subject, replete with subjective opinions and views. It is absolutely necessary to attempt to classify, breakdown, streamline, and recognize correct standards, and "out of the box" analysis and responses to such difficult performance circumstances.

The framework and origins of REAs and claims and the standard terminology utilized during the claims process must also be understood first. Where did all of this come from?

What is Important Terminology to Understand in REAs and Claims Preparation and Defense?

Using appropriate terminology (and understanding its limitations and origins) is important in most areas - in the Federal REA and claims area such knowledge is imperative:

• Statutes and regulations provide initial guidance in many cases.

• Courts and Boards of Contract Appeals often further interpret particular terminology.

• In a number of areas, there are no set meanings for terms. For example, the term “REA” means different things to different people at different times.

• Yet additional terms are defined according to the parties’ past practices in prior contracts, or customary meanings within certain industries.

Individuals must get a grip on these principle terms utilized. What terms have defined meanings? Which terms are simply slang or a kind of term of art? What terms are being misused, thus preventing future dangerous situations with respect to contractual undertakings?

An Example of the Importance of Terminology: Fraud, Waste, and Abuse Issues

Remember that virtually all activity in the federal government contracting arena is effectively policed by ongoing initiatives under fraud, waste, and abuse statutes. A serious misstatement in a REA or claim document submitted to a government agency seeking a payment can be specifically targeted for investigation and/or civil or criminal prosecution.

Be careful and precise with the terminology used. Contractors must ensure complete and competent communication with the other side, particularly their government customer(s), about exactly what is being proposed or claimed, and what the underlying elements behind such claims mean in particular contexts.

Note that the terms “REA” and "claim" have already been defined in a broad, open-ended fashion. Contracting parties tend to refer to the adjustment of government contract terms, including price, as part of the "claims" process. In fact, this is not technically correct. While perhaps a somewhat useful shorthand approach, such a broad definition oversimplifies the situation, as seen below.

What Are the Requirements of an REA or a Claim According to the Contract Disputes Act? 

It is very important for contractors and government officials to have a working knowledge of these three reference terms. It is even more important to understand the conceptual framework that each entails in the claims and litigation area.

Remember, at the Federal contract level, no litigation can be commenced in most cases by either the prime contractor or the federal government, until a “claim” has been presented to the party against whom the litigation is to occur. Most often a “final decision” must also be issued by a Contracting Officer, or 60 days elapse after submittal.

This is especially important given that contracting parties often use these terms incorrectly, or in a casual manner that does not fully reflect their actual intentions.

For the purposes of this text, these and other similar terms are utilized as follows:

“Surprisingly, many contract REAs and claims are not founded initially upon legal or contractual bases. Rather, a large number of such adjustment requests stem initially from underlying political and economic objectives. Others simply arise due to poor communications and/or poor management by both parties to the contract.”

Routine Contract Administration Action and “Conversion”

There are thousands of “routine contract administration actions" that take place every day, in every government agency doing procurement work, throughout the United States and the world.

For example, a contract price may be increased by a formal change order. Or, a contract price may be decreased as the result of a deviation request.

A Contracting Officer may find that a contractor has failed to perform all of the items specified under its janitorial contract, and will therefore reduce the contract price under the contract’s Inspection Clause. The contractor does not formally object.

These are all routine contract administration actions, and the legislative and regulatory history of the Contract Disputes Act uses exactly this term. These are simply activities that take place every day which alter and adjust a contract price, delivery schedule, or other contract terms. There is no REA or claim involved in such situations. There is no litigation.

This activity takes place and is routinely dealt with inside the agency using ordinary forms and simple discussions between the parties to the contract if necessary.

The Contractor is in Control

Yet, every one of these routine contract administration actions can become a REA or claim or litigation depending on whether the parties are able to resolve their differences. Another important point is the fact that one party, generally the contractor because of the way the CDA is drafted, must unilaterally decide when something is or becomes a REA or a claim or litigation. Contractors make such decisions and designations – as REA or claim - and they must determine how to make them stick. Generally, the government cannot control or prevent something from becoming a REA or a claim. It is only the contractor’s decision.

Conversion: Why Prudence is Necessary

The "conversion” of a routine contract administrative action into a REA or claim must be treated as a procedurally precise issue. While a procedural foul-up generally is no longer fatal, it can cost the contractor a good deal of time in getting paid. We will explore this interrelationship between routine contract actions, REAs, claims, and litigation, and "conversion" techniques below.

Requests for Equitable Adjustment (REAs) Under the Changes Clause 

What is the Changes Clause?

The Changes Clause (and a number of other clauses in federal government contracts) states that if the contractor’s work is altered, he receives "an equitable adjustment" in contract price and/or delivery schedule. This is the derivative of the term “request for equitable adjustment": a contractor is simply making a written request to the Contracting Officer for something he believes he is entitled to - an equitable adjustment under a contract clause.

The FAR

There is no requirement in the FAR for how to handle a REA, no time schedule for doing so, and no penalties if the Contracting Officer either chooses to ignore the REA or does not fairly decide the request. There is likewise no form prescribed in the FAR. And, perhaps most surprisingly, there is nothing the contractor can do to force the Contracting Officer to deal with its request as a REA.

The Submittal of the REA

The REA may be looked upon as something less formal than a Contract Disputes Act (“CDA”) claim (discussed below), but somewhat more formal than a routine contract administration action (which should resolve itself in most instances). In the case of the REA, the contractor must submit its request in writing - a simple letter is often all that is required. Such a document should point out to the government Contracting Officer that an adjustment to the contract price, delivery schedule, or another term(s), is required by various facts or circumstances.

The contractor may be mistaken about its REA and/or the government may reject the contractor’s request. If these circumstances occur, the government will deny the REA and the contractor will then have its next and last option to recover short of litigation - filing a CDA claim with the Contracting Officer, which triggers the provisions of the CDA. Such action benefits the contractor at least procedurally.

The Usefulness of the REA

Why do contractors submit REAs if the contractor has no control over them? There are many reasons why contractors submit REAs, some of which are logical and make perfectly good sense. There are other REA submissions that are simply thoughtless.

The basic reason to submit a REA is to gain an opportunity to have an informal negotiation with the Contracting Officer and/or his representatives to resolve the matter at issue early on in an effort to avoid the submission of a formal claim and future litigation that may result.

The use of REAs can be beneficial in several ways:

1. Getting Paid Quickly. REAs are often granted or allowed in whole or in part by Contracting Officers. Thus, the contractor's REA has served the useful purpose of bringing the matter to the government Contracting Officer’s attention so that it may be dealt with in the ordinary course of business.

2. Informal. No claim and no dispute need be involved. In fact, once the REA is filed, the matter is often concluded with some routine contract administration action—a letter from the Contracting Officer directing that certain performance be taken, or that alleged extra work not be undertaken. Negotiated bilateral changes to the contract may therefore result.

3. Diplomatic Approach. There are also political reasons why submitting a REA may make sense. A REA is a request for the Contracting Officer to take action. If the REA document is drafted judiciously and avoids a lot of finger pointing, it may serve simply as a statement of factual information. The Contracting Officer then has the option to negotiate the matter before it degenerates into a greater, more-involved, dispute.

4.  Agency Procedures Differ. In addition, some agencies have different ways of dealing internally with REAs compared to CDA claims. Many agency contracting officers, and their lawyers would prefer to resolve matters as REAs as compared to CDA claims. REAs often require less internal reviews, less paperwork, and less computerized reporting.

5. Learning the Agency Position. Although it is wise in many situations to begin by submitting a REA to the Contracting Officer in order to see if the matter may be resolved informally, there are times when thoughtful analysis will show that doing so will simply be a waste of time.

Example: Time to Convert. As an example consider the following scenario: the contractor has been performing a construction contract for the Corps of Engineers for approximately one-year. He has submitted 20 REAs dealing with various matters that have arisen on the job site which he believes sincerely warrant additional compensation. In that one-year period, the Contracting Officer has not considered, audited, or commenced negotiations on any of the REAs. The contractor now has a major 21st REA that he is prepared to submit on a high dollar value issue. Should he submit this as a REA?

Probably not -- why would the Contracting Officer treat this REA any differently than the previous 20? This is a situation in which the normal REA negotiation process is not working. The contractor should utilize the Contract Disputes Act to immediately convert the data he has prepared for his REA into a CDA claim. He should also convert the pending other 20 REAs into CDA claims.

That puts the contractor in charge of at least the procedural decision-making and develops a timetable for action. We will explain these approaches below following some discussion as to the content of CDA claims.

CDA Claims

A CDA "claim" refers to a document that is filed in compliance with the requirements of the Contract Disputes Act. We discuss below the procedural requirements for a CDA "claim". It is in most cases a mandatory prerequisite to contract litigation on any issue.

The term "claim" is frequently misused – almost all requests for increased compensation under a government contract are referred to as "claims". That is technically incorrect: as seen from the above discussion, a routine contract administration action and a REA also request increased compensation, but such actions are not technically “claims”.

In fact, a CDA “claim” is separately identifiable now that 40 years have passed since the Contract Disputes Act was enacted. Courts and Boards have answered most, but not all, of the questions relating to exactly what a CDA “claim” means, and what rights it gives a contractor.

Obviously, government contract claims were made and submitted for a long time prior to 1978. The CDA was enacted by Congress to introduce some certainty and procedural streamlining into the claims presentation and defense process. It was a good attempt on Congress’s part and has largely worked as intended.

Situations Which Lead to the Filing of CDA Claims

While there are many additional elements in the CDA that are of importance to the government and contractors, the CDA was principally created to deal with problems associated with the failure of contracting officers to timely consider claims for extra work or compensation for other similar types of additional work:

• Prompt Payment Problems. The CDA was passed in response to contractors’ complaints to their elected representatives over a number of years. Small-business contractors were particularly vocal. The essence of the complaints was that the government failed to pay invoices on time (the Prompt Payment Act solved some of these problems), and also that the government was not taking proper responsibility for increased costs occurring during contract performance that it caused.

• Extra Work. Contractors complained that the government was failing to act upon claims submitted for extra work that was allegedly arising from the Changes or other similar clauses. The majority of such complaints included arguments that the government was either “ignoring” such claims for extra compensation, or that it was refusing to reimburse contractors for such claims after they were submitted.

The Scope of the CDA 

The reach of the CDA is very broad indeed. It applies to virtually all purchases of supplies, services, and construction by the federal government. There are a few exceptions, i.e. when non-appropriated funds are involved, or when the purchase of real estate is undertaken. Maritime claims are also somewhat unique. But, otherwise, the Contract Disputes Act applies at the prime contract level to virtually everything the federal government purchases. (See also the discussion herein re: application of issues to subcontractor’s claims against primes.)

What Do You Need to Know to Successfully Submit a CDA Claim?

“Again, as with REAs, there is no exact form which must be utilized in order to perfect a CDA claim.”

It is evident in reading the CDA itself, and applicable regulations, that a CDA claim requires little more than a REA. In fact, in many instances, it is possible to use the same information provided in the REA to quickly generate the CDA claim.

What Are the Minimum Requirements of a CDA Claim? 

1. Written Narrative

One must include a written narrative statement of the issues, the facts, and the resulting bases for entitlement to increased costs or other relief being sought from the Contracting Officer. (This can be a fairly simple statement if the issue is not complex).

2. Quantification

One must include a quantification of the amounts the contractor seeks from the government is necessary. There should be some statement of the monetary amount and hopefully some backup for how such an amount was calculated. The contractor should also be clear as to requests for non-monetary relief – i.e. the interpretation of a particular specification (which could cost it money in the future if misapplied).

Note that the foregoing two items are exactly what one would expect to informally include in a REA to the Contracting Officer to explain the issue at hand and how the contractor arrived at its costs.

To make the foregoing two-part presentation into a CDA claim, the contractor need only add the following:

3. CDA Certificate

Amounts

For claims over $100,000, a CDA certificate as prescribed in the FAR is required. No CDA certificate is needed for claims under $100,000, although they are often requested and submitted.

Who signs the CDA certificate?

There was a time of significant debate and litigation over whether the correct person signed the necessary claim certificate -- i.e. over $100,000. Many contractors felt obliged to have the President of the Company sign such certificates in order to preserve their right to recover interest and to avoid losing momentum in their claim processing procedure.

Congress changed the CDA in 1992 (P.L. 102-572, codified at 41 USC 605(c)). This removed the requirement in effect that the President sign such certificates. The current law allows company officials to sign who are “duly authorized to bind the contractor with respect to the claim”. FAR 33.207(e)

Most importantly, the changes made in 1992 also support the position that if there is any problem with the certificate, it can be corrected after the fact and does not result in a change to the certification date.

This is particularly important as to interest recovery, as well as in avoiding the loss of momentum during the claims process by needing to resolve debates over procedural issues that are really inconsequential. This allows the parties to focus on resolving issues to both sides’ satisfaction based on the facts and applicable legal principals.

4. Demand for Final Decision

While not a strict CDA requirement, contractors should demand a Contracting Officer’s final decision - those words should, therefore, be included.

Additional Details Re: Form

Again, as with REAs, there is no exact form which must be utilized in order to perfect a CDA claim. While we are comfortable that the foregoing information and outline is sufficient, you need not follow it exactly in order to perfect a CDA claim.

But, logic and common sense would tell you that as a minimum you should inform the Contracting Officer of the basis for entitlement, and how you quantified your requested recovery. In addition, you should include a certification and demand for a final decision.

Relaxed View

The Board and Court decisions are fairly relaxed in terms of requiring the contractor to include certain specific information in its CDA claim. Most documents that fairly notify the contracting officer of the facts surrounding the claim, and the amount requested, will be found to satisfy CDA claim requirements.

FAR Definitions

A “claim” against the government is a term of art that has been defined in statutes and regulations, as well as in court decisions. It is important to know what these rules are to avoid unnecessary delay or even the loss of a valid claim.

• FAR § 2.101 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. However, a written demand or written assertion by the contractor seeking the payment of money exceeding $100,000 is not a claim under the Contract Disputes Act of 1978 until certified as required by the Act. A voucher, invoice or other routine request for payment that is not in dispute when submitted is not a claim. The submission may be converted to a claim, by written notice to the contracting officer as provided in 33.206(a), if it is disputed either as to liability or amount or is not acted upon in a reasonable time.

(We will talk more about vouchers and conversion below)

• The claim document must be in writing and submitted to the Contracting Officer (“CO”).

• The claim must contain a total sum certain, the amount that is being claimed. H.L. Smith, Inc. v. Dalton, 49 F. 3d 1563 (Fed. Cir. 1996)(cost breakdown not required); and J&J Maintenance, Inc., ASBCA No. 50,894, 2000 WL 199758 (February 15, 2000).

• A sum certain cannot be qualified. Do not use words such as “probably” to describe the amount claimed, and ensure that the amounts are internally consistent. Pevar Co. v. United States, 32 Fed. Cl. 822 (1995) (“subject to review by auditors” inadequate); Domagala v. United States, 30 Fed. Cl. 149 (1993) (“monetary damages” inadequate); Southwest Marine, Inc., ASBCA No. 39472, 91-3 BCA ¶24,126 (“alternate” amounts inadequate).

• The claim must contain a request for a final decision of the CO, and for claims over $100,000 a certification, described above, is also required.

As stated above, the Boards and Courts now tend to view these requirements more liberally, and can sometimes be met without exact compliance. Scan-Tech Security, L.P. v. United States, 46 Fed. Cl. 326 (2000). However, since the requirements are relatively simple to meet, contractors should include, in the introduction and conclusion of the claim document, the total specific amount claimed and a “request for a final decision of the Contracting Officer”.

Outline of CDA Claim Requirements

The following outline, used by many companies, can easily satisfy CDA claim requirements; it is also a good outline for a REA:

• Executive summary.

• The minimum contract requirements at issue.

• The government’s action or inaction that forced the contractor to do more than what the contract required.

• A “scoping” statement containing the additional work actually performed as a result of the new government requirements.

• The accounting proof to support estimates or actual costs for the increased scope of work performed.

• In appropriate claims, a legal brief stating the legal basis of entitlement.

To enhance the potential for a successful claim (or REA) settlement, the following additional support should be considered:

• An appendix that contains all of the contract documents that are involved. It is courteous to include all of the correspondence that the contractor is relying upon so that the government agency official reviewing the claim does not have to search for documents. The documents relied upon are all tabbed and in the claim document itself.

• If drawings are involved, the contractor would probably want to include foldouts of the pertinent drawings so agency engineering personnel analyzing the claim do not have search for them.

• If there are specifications or parts of the schedule at issue, those should also be included in full text.

• If massive amounts of data are involved, some charts, summaries, or other materials analyzing and making sense out of the data is appropriate.

• Photographs of the items at issue. The submission of a claim without some description of the item leaves the reader without a frame of reference.

• Expert opinions. A contractor, if it has in-house experts or has taken the time to hire outside experts to evaluate its position, should give consideration to including those reports as an appendix to the claim.

• Engineering write-ups by engineering personnel discussing technical issues. If lengthy technical dissertations are required, they should probably be included in an appendix.

Disputes Before and After a Contracting Officer’s Final Decision 

Is there a requirement that the parties be in "dispute" before a matter is capable of being processed as a CDA claim? In other words, do there have to be disputes and arguments between the parties before the contractor can activate the claim by putting it in writing and demanding a final decision?

While we do not believe there was ever any statutory requirement for doing this, Courts and Boards did for some time appear to require a dispute, as well as the satisfaction of the mechanics, in preparing a CDA claim.

That requirement has largely been eliminated because of Reflectone v. Dalton, 60 F.3d 1572 (Fed.Cir. 1995). Cases being decided today show only an inquiry as to whether the parties have different views about the issue being decided. Indeed, contractors filing CDA claims should simply have to show that they have asked to be reimbursed for something that has not been paid. That should be the end of it.

When is a Claim in “Dispute?

The above question led to esoteric litigation and created major practical problems for contractors. Under prior case law, if the contractor’s entitlement to recover a specific amount requested in a claim was not “in dispute” at the time the claim was submitted, it was not a “claim”. Dawco Construction Co. v. United States, 930 F.2d 872 (Fed. Cir. 1991).

The idea was that the government would pay the undisputed amount in a reasonable time. That did not always occur.

If the government agency unreasonably delayed in deciding entitlement or amount, government contractors were forced into making the agency enter into an “impasse” in negotiations to create a “dispute” in order to have a “claim”.

That meant contractors had to file two claims—initially when there was no “dispute”, and then a second time after an “impasse”. That was the only way to be certain that contractor’s appeal rights could be exercised without the risk of going to a board or court and having the government attorney argue successfully that there was no “jurisdiction” because no “claim” had come into existence.

Courts went along with this argument and required contractors to redo the entire administrative process. That sometimes caused contractors to lose two to three years of interest, or to settle on unfavorable terms to avoid the delay in receiving monies to which they were entitled.

See: Sun Eagle v. United States, 23 Cl. Ct. 465 (1991)(where no dispute existed, the claim was dismissed for lack of jurisdiction).

This absurdity came to an end for the most part in 1995 in the cases of Reflectone, Inc. v. Dalton, 60 F.3d. 1572 (Fed. Cir. 1995) (en banc) and Raven Industries, Inc. v. Kelso, 62 F. 3d 1433 (Fed. Cir. 1995). In Reflectone, the Federal Circuit divided requests for payment into two categories: routine and non-routine.

A “non-routine” request for payment is considered a “claim” for CDA purposes unless the contractor includes language within its claim document stating that the request should not be processed as a claim.

A routine invoice submitted for payment is not a claim. (FAR § 33.201). However, a contractor can easily convert this type of payment request into a claim by submitting a written notice to the CO stating that the invoice is considered “in dispute” or that the agency has unreasonably delayed in making payment.

An unreasonable delay will automatically result in the conversion of a routine request into a claim. S-Tron, ASBCA No. 45890, 94-3 BCA ¶ 26,957 (6-month delay); DoD Contracts, Inc., ASBCA No. 47509, 95-2 BCA ¶ 27,641 (5½-month delay); but see: Maudlin Dorfmeier Construction, Inc., GSBCA No. 11068, 94-1 BCA ¶ 26,217 (41-day delay not unreasonable).

But, there is no need to litigate whether the delay is unreasonable. The best approach is to write a formal letter to the CO telling the CO that the request for payment is a “claim”.

Termination for Convenience (“T for C”) Settlement Proposals

One type of claim—a termination for convenience claim -  is still subject to the “dispute” requirement. Prior to the Reflectone decision, a termination for convenience (“T for C”) settlement proposal was not considered a “claim” until an “impasse” had been reached. See Mayfair Construction Co., Inc. v. United States, 841 F.2d 1576 (Fed. Cir. 1988).

The theory was that a T for C was a proposal that was to be negotiated in accordance with a specific contract clause.

After Reflectone, T for C settlement proposals would appear to be considered non-routine submissions. However, in James E. Ellett Construction Co. v. United States, 93 F.3d 1537 (Fed. Cir. 1996), the Federal Circuit effectively reintroduced the “impasse” test. See Rex Systems, Inc. v. Cohen, 224 F.3d 1367 (Fed. Cir. 2000).

Supposedly to remove “ambiguity” over when an “impasse” was reached, the Court now requires that negotiations be “abandoned by both parties”. This new “test”, of course, solves nothing.

How can a contractor prove that the government has abandoned negotiations? What if an agency acts to gain negotiating leverage by stating that the agency is still considering the contractor’s submissions, or that it needs additional information to evaluate the proposal, all of which delay resolution while no interest in the termination settlement proposal is being incurred?

What if the contractor continues to attempt to negotiate? Can the contractor abandon negotiations in this circumstance? Further, if a settlement on a T for C proposal is ultimately reached after such extended delays, contractors must make sure that the settlement agreement includes the recovery of interest under the CDA from the date the claim was submitted. But the government may debate this point.

In Rex Systems, the Court held that the signing of a settlement agreement in a T for C dispute proved that there had been no “impasse” and CDA interest was denied.

While the Federal Circuit held that a T for C proposal could ripen into a claim from undue delay, England v. Swanson Group, supra, this exception only reinforces the manufactured “dispute” scenarios that Reflectone and Raven were intended to eliminate.

How Do CDA Claims Benefit Contractors?

CDA claims provide contractors with the ability to control actions and processing times with respect to their submitted claims. As mentioned above, a REA gives the contractor no rights - it is simply a request to the government to make payment, a type of billing statement.

A CDA certified claim gives the contractor very specific procedural rights that can be enforced by a board or court. Contracting officers have 60-days to decide the CDA claim, which may result in a settlement during that time frame.

Interest recovery on CDA claims commences on the date that the certified document or claim over $100,000 was submitted to the contracting officer.

Most contractors believe that the fair approach is to accrue interest only for actual cost expenditures at the time the claim is submitted in situations in which a portion of the costs claimed has yet to be incurred, or will continue to be incurred in the future.

In fact, there is a line of case law decisions stating that contractors may collect interest on the full amount of their claims even though some of the costs have yet to be incurred. See discussion in Servidone, 931 F.2d 860 (Fed.Cir. 1991).

In the past, there have been disputes over the payment of interest on CDA claims. Such disputes are largely a thing of the past; most contracting officers and government trial attorneys understand the obligation to pay interest from the date the claim is submitted.

With the current low-interest rates, sizable amounts of interest are often not produced unless the claim has been in litigation for a number of years. When interest rates were high, it was not unusual to see situations in which Boards or Courts awarded interest recoveries almost equal to the principal claim amount.

The federal contracting officer has 60 days to issue a final decision on a CDA claim. If the claim is complex, the CO may request a "reasonable" additional amount of time. Members of our firm have personally seen situations in which the government actually asked for 18 months to decide a claim. That is not a reasonable period of time. If the contractor has spent six months to prepare and submit a claim, giving the government 60 additional days to decide is "reasonable".

Some agencies have also now gotten to the point where they simply ignore issuing a final decision if the parties are truly in dispute over a particular matter. This may also be caused by staffing limitations - insufficient legal and/or contracting personnel to prepare a final decision.

It is perhaps better to have no final decision than a thoughtless one. Agencies may, therefore, be inclined to simply let the case go to the courts or the Boards of Contract Appeals without a final decision. They can then answer the contractor’s CDA claim when they file their response to the contractor’s complaint at either the Board of Contract Appeals or the Court of Federal Claims.

An Example of the Government Simply Delaying an Appeal

A claim is submitted, 60 days goes by, and on the 61st day, the contractor appeals to the Armed Services Board of Contract Appeals. The Board will docket the appeal and tell the contractor it has 30 days in which to file its complaint. If the government does not object, the case will simply go forward without a final decision.

This has become something of a trend. There was a time when the government objected to appeals and attempted to have them remanded to the contracting officer so that additional time would be consumed to issue a final decision. If everyone knows the final decision is going to be negative, then what is the point? Why not simply move on with the litigation?

What Is an Example of How to Turn a Contract Administrative Action or an REA into a CDA Claim?

As stated above, the conversion of either pending routine contract administration actions or of REAs into CDA claims is relatively simple and straightforward.

In most instances, if the underlying initial document submitted to the government has been prepared correctly, a cover letter along the following lines will be satisfactory to convert such requests to CDA claims:

[Contracting Officer]

[Government Agency]

Washington, DC  [Zip Code]

Re: Contract number #__________Contracts Disputes Act Claim and Certification

Dear Sir:

On _______, XYZ Corp. submitted to you a (request for payment, REA, request for waiver, etc.). As of this date, you have not acted upon the ___________ in which the contractor requests payment from the government under this contract.

The contractor has stated the contractual basis under which he believes he is entitled to increased costs in the amount of $ __________. The contractor has also provided you with his estimated costs and backup for this requested amount in document ___________, attached to the original request submittal.

Accordingly, the contractor has submitted the necessary materials for a claim under the Contract Disputes Act, and it hereby states that it asserts a claim based upon this letter and the documents previously provided, which are now attached as exhibits to this CDA claim document.

The parties are in dispute over the contractor's entitlement to recover these sums. Please issue the necessary Contracting Officer’s final decision within the next 60 days as provided for in the Contract Disputes Act.

Also in accordance with the CDA, interest hereby commences running from the date of this letter on this claim.

(If a CDA claim is $100,000 or over, a certification by a Company Officer must be attached. See FAR section 52.2331)

Very truly yours,

The contractor

What Are The Alternatives to an REA?

Many agencies have different vehicles under which price adjustments and delivery schedule adjustments are made to the contract. Contractors often use these to present bills for performing additional work. This approach is in place of using a REA.

Often the contracting officer will say "just submit an engineering change proposal" if you have a defect in the specification that you believe requires attention. If the contracting officer is being reasonable and processing engineering change proposals, incorporating them into the contract when appropriate, then that is just another type of routine contract administration action which avoids either REAs or CDA claims.

Bear in mind also that an engineering change proposal that is not acted upon can readily be made into a CDA claim (it would seem there would be no reason to make it into a REA: the engineering change proposal is something of an REA with a different name).

Similar Contract Vehicles to REAs

The list of potential adjustment vehicles for altering the contract is long. Some agencies prefer for contractors to present their entitlement bases and costs by using requests for waivers, requests for deviations, or other similar forms or terms. Other agencies, in which significant amounts of government property are involved, use forms to remedy discrepancies in property situations. Sometimes these submittals are called “Condition Reports”.

The point here is that whatever form is working between the two parties to cause adjustments to be made to the contract in a fair and reasonably prompt fashion should be embraced. There is no need to try to override them with the procedural approaches discussed earlier in this material.

If something is working to resolve matters before they become disputes -- fine -- use such techniques so long as they are ethical and legal. The approaches described in this section are certainly both.

There are areas in which the Prompt Payment Act and the Contract Disputes Act appear to overlap, as well as areas in which the two statutes produce confusing results. Examples are outlined below:

• Prompt Payment Act. The Prompt Payment Act is intended to cover delays in payment. For example, the government loses an invoice, the government has people on vacation, the invoice does not get processed, etc. Once 30 days have passed the contractor is entitled to interest. These late payments result from administrative difficulties.

• Progress Payments. There are case law and regulatory materials indicating that the Prompt Payment Act does not cover progress payment requests. The theory is that these are mechanisms for making payments. There is not a sum certain amount that is due at that moment in time. Therefore, there cannot be a prompt payment that is due. Progress payments are discretionary in terms of the exact amount based upon a number of issues -- costs incurred -- stage of completion etc. (FAR 32.503-6)

• Disputes over Payments—withholdings. The Contract Disputes Act steps in when disputes between the parties cause the government to withhold payments. Contractors must be careful in such circumstances. If an invoice has not been paid, find out if there is some dispute about the underlying work. If so the Prompt Payment Act will not give you interest.

  • In such circumstances, the contractor must certify the failure to pay as a CDA claim based upon their view that the underlying dispute should be resolved in its favor. This at times requires fairly aggressive action and pressing upon the Contracting Officer as to why a payment has not been made.

• Internal Company Policy on Payment Delays. Many contractors have a policy of certifying an invoice as a CDA claim when it has not been paid in a specific period of time - say 90 days. They are prepared to give up the 60 days of interest that they will lose if the Prompt Payment Act does not apply and there is an underlying dispute.
  
  As an example, under a Corps of Engineers contract you are not being paid your progress payments, and/or the Corps is making periodic percentage reductions from your payments because they believe some portion of the work has not been correctly performed. If you believe that the work has been correctly done, you can file a separate claim relating to the deficient work issue and put that matter in dispute.
  
  Under such circumstances, it might also be wise to certify each progress payment invoice that is not paid in part because of the underlying dispute. That would provide an additional backup position to claim interest on the failure to make the progress payments even though this would certainly not be covered by the Prompt Payment Act. We have seen this approach work.

And of course, don’t forget the straightforward approach: have a candid talk with your Customer. Be honest and forthright with the contracting officer, explaining why it is difficult to characterize your claim. Simply tell the government what the impact is and submit each nonpayment as a CDA claim. The claims will then be combined at some later time.

What is the Certification Process as Outlined by the Contract Disputes Act (CDA)?

The certification requirements for claims are set forth in the Contract Disputes Act, 41 U.S.C. § 605 (c) (1):

For claims of more than $100,000, the contractor shall certify that the claim is made in good faith, that the supporting data are accurate and complete to the best of his knowledge and belief, and that the amount requested accurately reflects the contract adjustment for which the contractor believes the government is liable. See FAR § 33.207(c ).

It makes sense to simply copy this statutory language into your claim.

As discussed above, prior to legislation in 1992, there was constant, esoteric litigation over which particular person within a company should sign claims for the company.

See: United States v. Grumman, 927 F.2d 575 (Fed. Cir. 1991) cert. denied 112 S. Ct. 330 (1991) (chief financial officer held not to have overall responsibility for the affairs of the company); Ingalls Shipbuilding v. O’Keefe, 986 F. 2d 486 (Fed. Cir. 1993) (a certification was held invalid because the person signing was not physically present at the contract site). Congress finally resolved these problems.

In 1992, the Federal Claims Technical and Procedural Improvement Act changed the law to include more common sense standards. Now, the person signing must merely be authorized to legally bind the corporation. FAR § 33.207(e). That should cover most individuals who would be expected to sign claim certifications.

Further, if the person who signs the certification is later found to be unauthorized, the claim is no longer considered a nullity. FAR § 33.207(f). If the company submitted the certification with the good faith belief that the person was authorized to do so, this “defect” can be corrected without having to go through the entire administrative process again. Metric Constructors, Inc., ASBCA No. 50843, 98-2 BCA ¶ 30,088.

Interest will therefore still run from the date the claim is initially received by the Contracting Officer. FAR § 33.208(c).

Essentially, if submissions are made in a good faith attempt to certify the claim, any “defect” can be corrected. See: McDonnell Douglas Corp., ASBCA No. 46582, 96-2 BCA ¶ 28,377 (certification by an unauthorized employee may be corrected as "deficient."); Herman B. Taylor Const. Co. v. GSA, GSBCA No. 12915, 95-1 BCA ¶ 27,406 (omission of the term "certify" or equivalent term); DMS Inc., ASBCA No. 45723, 95-1 BCA ¶ 27,367 (failure to track precise FAR language).

However, there is no “claim” to be corrected when the contractor fails to include a certification at all. England v. Swanson Group, Inc., 353 F.3d 1375 (Fed. Cir. 2004 (contractor failed to submit a claim or convenience termination proposal following Board decision to convert default termination); Sam Gray Enterprises, Inc. v. United States, 32 Fed. Cl. 526 (1995)(no true attempt to certify where no resemblance to statutory language other than "coincidental" use of words "good faith."); and Eurostyle, Inc., ASBCA No. 45934, 94-1 BCA ¶ 26,458.

Is an SF 1436 “certification” submitted with a termination for convenience claim effective as a CDA certification? The ASBCA initially took the position that an SF 1436 was not a CDA certification and could not be corrected. Chan Computer Corp., ASBCA No. 46763, 96-1 BCA ¶ 28,005. ‘

However, the Federal Circuit implicitly overruled Chan in James M. Ellett Const. Co., Inc. v. United States, 93 F.3d 1537 (Fed. Cir. 1996), finding that the SF 1436 contained similar language to that of the CDA, and was a sufficient certification.

The certification requirement that supporting data is “accurate and complete” for a CDA claim is not as rigorous as the Truth in Negotiations Act requirement to provide “current, accurate and complete” cost and pricing data. But remember, at the end of the claim process, a contract modification will likely be issued: a cost and pricing certificate will then be required.

As a practical matter, since the CDA claim is intended to induce a favorable CO decision, the key supporting data should, at a minimum, be attached to the claim or at least referenced.

As a practical matter also, if there is information which arguably contradicts the claim or the amount requested, this information should also be disclosed and explained. If a contractor cannot demonstrate why this apparently negative information does not affect the amount claimed, the claim should not be filed.

A “supplemental” claim under the same contract, which is based on different facts and circumstances, is a different claim and requires a new certification. For example, a defective specification claim cannot be “supplemented” with a claim for a failure to furnish unrelated contract drawings under the same contract without a new certification (assuming this claim exceeds $100,000).

This rule recognizes that the timetable for the recovery of interest on claims should only begin to run on those claims actually presented to the Contracting Officer.

If a revised amount for the same claim is generated based on new information that was not reasonably available at the time the original claim was submitted, a new certification is not required. J.F. Shea Co. v. United States, 4 Cl. Ct. 46 (1983). But, many contractors file one in any event.

However, if the information was reasonably available, the claim amount cannot be increased without a new certification. See Toombs and Co. Inc., ASBCA No. 35085 et al., 89-3 BCA ¶ 21,997; and Southwest Marine Inc., ASBCA No. 39472, 91-3 BCA ¶ 24,126.

If the claim was less than $100,000, and if the new data relating to the same claim causes the amount to exceed $100,000, a new certification is not required. Tecom, Inc. v. United States, 732 F.2d 586 (Fed. Cir. 1987).

When the submission of a supplement to the claim makes it exceed $100,000, the contractor should identify the new information that led to the upward revision.

Since the failure to submit a new certification could potentially cause a loss of interest, it is recommended that a new certification be submitted with any claim supplement. The revision should state the facts that support the contractor’s position that the same claim is involved and that the information necessitating a supplement was only reasonably discoverable after the original claim submission.

If the contractor believes a new certification is not legally required, there should be a specific statement that the new certification is considered precautionary and that the contractor reserves its right to recover interest from the date of the original certification.

How Much Time Should a Contractor Require Once a CDA Claim is Certified?

“There is no sense having good contract performance, and bad relationships with your agency customer because of how you handled the claim situation. It is possible to do both - good performance, good relationship and recovering fairly for extra work as you go forward.”

As indicated above, the 60-day clock, in theory, allows the contractor to force the contracting officer to make his or her decision within 60 days of when the claim was certified and submitted. While that is a theoretical possibility, it is generally contrary to common sense.

In many cases, a contracting officer can fairly value a smaller claim within 60 days. But, it is not reasonable to believe that the contracting officer and the contractor will be able to meet several times for fact-finding negotiations, and to then do necessary follow up, bottom-line types of negotiations within 60 days.

Therefore, contractors must use common sense in moving forward. Is progress being made in initial negotiations? Is the contracting officer acting reasonably and asking for needed additional information? Is a DCAA audit required (it often is) - and is it being scheduled in a reasonable period of time given other workload requirements and the time such audits have historically taken at the contractor's facility?

While the 60-day clock may have already run, a good settlement often takes a significant additional period of time in the negotiation process. Therefore, contractors need to judge the progress that is being made and work with the contracting officer to arrive at a settlement.

What Does the REA/CDA Claims Process Look Like at the State and Local Level?

This text is written primarily from a federal contract REA and claims perspective. The U.S. Federal Government is the largest contracting party in the world; it buys over $600 billion of supplies, services, and construction annually. If the amount of healthcare supplies and services purchased for the country’s individuals is accounted for -- and contracting is involved in much of it -- the sums are even more staggering.

But, it would be a mistake to think that the REA and claims process is significantly unique in terms of how contractors present their claims to the Federal Government while performing projects with taxpayers’ money.

This contract REA and claims process also go on at the State and Local procurement levels, and as discussed below, it similarly occurs in pure commercial settings as well. The only significant differences are as follows:

• Federal certification issues, and the rules surrounding such certifications;

• But there are unique procedural rules in place at differing State or Local Agencies; and

• There are Variances as to legal claims concepts among differing procurement groups.

As an overall matter, REA and claims preparation, submission, and defense concepts that apply at the Federal level are also largely applicable to State and Local procurements, as well as to commercial contracts. It is often the procedures and rules at the local level that create REA and claims difficulties for unwary contractors unfamiliar with local procurement practices.

Notice of Claim Requirements; State/Local vs. Federal

For example, as discussed in more detail infra., Courts and Boards of Contract Appeals in Federal Government contract circumstances largely ignore contract clauses imposing timely identification and similar types of procedural requirements as to extra work claims (including the need for written orders from Contracting Officers prior to performing change order work).

However, this is often not true in state and local procurements, in which the failure to follow such detailed procedures may result in an absolute bar to an otherwise meritorious claim. Before contracting with a state or local government, contractors must become familiar with claim preparation requirements that are applicable to each entity they are contracting with, including notification deadlines.

The “Forms” for REA/Claim Submission to State and Local Governments

Determining what constitutes extra work, and the claim theories applicable to such extra work, as well as the techniques for the pricing of these claims, are, in almost all cases, very similar at the Federal, State, and Local levels, as well as in the commercial contract arena.

In short, the materials here are helpful in all contract claims situations no matter who the procuring party is. Similarly, these materials are also helpful for state or local government officials looking for successful means by which to defend against claims as such defenses are very similar at the Federal, State, and Local levels (as well as in commercial contract situations).

But the timing of claim submission, the claim’s content, and the proper identification of individuals permitted to make contracting decisions are the principal claims preparation and defense factors to be considered in all of the varying contract scenarios.

Additional examples of legal similarities at all levels of government or commercial use are presented below:

• Eichleay Formula Issues: the Eichleay formula is a means utilized to prove daily costs incurred by contractors due to work delays caused by government actions and/or inactions. The various Boards of Contract Appeals, as well as other Federal Courts, created and fleshed out this calculation approach. Yet, there is also a large amount of New York state law discussing the details of how to prove compensation under the Eichleay formula for compensable delay claim situations in commercial contract settings.

• Spearin Issues: As discussed in more detail infra., this concept comes out of a 1918 Supreme Court case -- Spearin v. United States, 248 U.S. 132, 39 S.Ct. 59 -- that involved a dispute between the Federal Government and a contractor who was installing sewerage equipment at a government base.

The dispute arose due to a conflict between the performance specifications and the actual detailed plans and specifications, both of which were provided by the government. The Supreme Court confirmed the concept that contractors are entitled to rely upon detailed plans provided by the government despite ultimate conflicts between such detailed plans and overall performance specifications, thereby making the government liable for additional costs incurred when its detailed plans are later found to be flawed.

This is a touchstone of the important "defective specification" doctrine at the Federal level. Yet, you will also see the Spearin doctrine discussed in many defective specification cases originating at the State and local levels, as well as in commercial contract disputes.

How Are Subcontractors’ Claims Presented and Processed?

Subcontractors’ and vendors’ claims are intimately related to the government claim being presented and processed. This is true at all government agencies because subcontractors perform a major part of some work efforts.

If the government formally or constructively changes the prime contractors work, it will in all likelihood affect a part of one or more subcontractor's work and change that as well. The subcontractor will have a request for an adjustment due to such changes to its work.

Therefore, it is a common occurrence to see the prime contractor presenting a claim to the government agency that includes several subcontractor claims.

This is particularly true in construction contracts but also occurs in prime/subcontract supply and service contract relationships. The government Agency needs to know whether the REA or claims of the sub against the prime are valid and whether the agency, in turn, has responsibility for causing various actions during the course of contract performance.

In other words, two immediate questions arising for the government agency when it sees subcontractor REAs or claims in a prime claim are:

1. Is the sub’s claim valid against the prime? Does the prime have defenses?

2. Is the prime’s claim valid against the government agency for the subcontractor’s cost because the government agency caused those costs to be incurred by the prime?

If the answer to either of these questions is no, then the government agency may not be liable on the sub’s claim to the prime.

Government agencies do not focus adequately on these issues. Often the claim of the sub against the prime is invalid because of legal defenses.

The subcontractor has issues to consider in terms of dealing with its prime contractor on claims issues. Will the subcontractor agree to have the prime contractor sponsor its claim against the government agency? What risks are inherent in doing that? What rights is it giving up? (See Joint Appeal Agreement in the Appendix.)

“There is high pressure on a contractor in a fixed priced setting because its estimating and performance must be correct in order to realize planned profits. Mistakes by contractors under such contracts are the contractor’s sole problem. But, if the government creates or compounds a problem, a compensable claim may well arise.”

In addition, are the subcontractor’s proof and legal requirements for its claim the same as those for the prime in presenting claims to the Federal Agency? The answer to this question is: they may be the same in a generalized way; but often things are drastically different, i.e.:

• Notice requirements that must be given for subcontractors’ claims versus prime contractors’ claims.

• The lack of a “constructive change” doctrine at the subcontract level.

• The differences in proof and law under the Uniform Commercial Code and in many substantive areas (i.e. inspection, acceptance, and latent defects, to name only a few).

• Thoughtful action and caution are in order.

The CDA does not directly apply to disputes between subcontractors and their prime contractors, but (as will be explained below) the CDA is of vital importance in determining how subcontractors’ rights are determined under most government contracts.

If the prime is required to follow the CDA, subcontractors will surely be expected in many circumstances to conform to their prime contractors’ contractual requirements. These issues are discussed at various points throughout the text.

The comprehensive treatment of the intricacies involved in prime/subcontractor award and performance issues is contained in a separate text: Subcontracting: Strategies for Primes and Subcontractors.

How Should a Government Contract Be Structured to Ensure Fair Payment to the Contractor?

Fixed price contracts almost guarantee the production of claims. The contractor must be right about both its original bid as well as its performance plan. Otherwise, cost overruns will occur on the contract.

A cost overrun by itself means nothing. But, a REA/claim may be appropriate if the contractor can prove that the overrun was caused because the government altered the planned method and/or manner of performance, or that the government caused work delays or some other type of compensable event.

There is high pressure on a contractor in a fixed priced setting because its estimating and performance must be correct in order to realize planned profits. Mistakes by contractors under such contracts are the contractor’s sole problem. But, if the government creates or compounds a problem, a compensable claim may well arise.

The following outline demonstrates how fixed priced contracts work in key areas affecting claims:

• Maximum Contract Risk: Fixed-priced contracts maximize the contractor’s cost incurrence and profit loss risks – thereby resulting in the highest likelihood of claims and pressure to recover them.

• The Competition in Contracting Act (CICA): The CICA requires contractors to compete for virtually all fixed-priced contracts. As a contractor lowers his price because of competition, the pressure on the accuracy of its bid and performance plan rise - therefore increasing the likelihood of claims.

• Mis-estimate/Poor Performance: In these circumstances, the contractor must spend its own money to overcome contractual problems or to maintain schedules or both - when the contractor has to spend its own money; economic necessity forces it to look harder at whether someone else is responsible for performance problems.

• Safety Value: There are several ways that a fixed price contractor can receive a price increase if the facts support such a position:

o The impossibility of performance: The contractor proves that it is economically insensible for any contractor in its position to spend the amount of money needed to attain performance objectives. Such a contractor may be excused from further performance even without formal government action.

o Cardinal Change Doctrine: This occurs when the government makes changes that are so large and drastic to the contract that they are found to be a breach and beyond the original contract’s scope. This may be an excuse for the contractor from further performance, and may perhaps result in the recovery of additional funds if the correct factual circumstances are present.

o Regular Changes (Directed and Constructive): With respect to changes claims, factual circumstances may actually occur thereby allowing the contractor to establish that the government formally or informally (constructively) made changes to the contract work. That gives the contractor the right to submit a REA or claim for increased costs, which can relieve the pressure of the fixed-priced aspect of the contract.

Cost Type Contracts

In Cost Type contracts, the contractor is paid all of its costs of performance plus some reasonable profit. The contract ordinarily allows the contractor to stop work if the government does not pay the actual costs that have been incurred in performance.

Under such contracts, the contractor obviously needs to have a more sophisticated accounting system that tracks and displays all costs incurred on the contract. But, if it can do so the contractor is entitled to either be paid these costs or to have the contract ended without further liability.

As you can imagine, given this situation (with proper management) that exists under cost type contracts, there should be no claims of any kind. The contractor simply spends the money the government provides and stops when there are no more funds. This process subsumes all claims for extra work.

The following is a checklist for this type of contract:

• Least Cost Risk on Contractor - Little Claim Likelihood

• Mis-estimate/Poor Performance - Government’s Initial Legal Obligations to Pay. No contractor responsibility.

• Safety Value - Economic/Political/Funding Issues. A “bad” contract simply has no more funds available. It is over, but political fallout may be great.

Time and Material

Focus on the fact that in the standard situation the pricing for each unit of work is "fixed", but the number of units that will be paid for is effectively "cost type". You will always get the same unit price -- but there is significant flexibility in terms of the number of those units that are ordered. If the government wants more units it must generally pay for them.

Fixed Price - Incentive Fee - With a 130% Ceiling

Note that this "fixed priced" contract is in effect cost type until the ceiling of the 130% is reached. All costs (subject to small disallowances in the government's regulations) are reimbursed up to 130% of the original bid price. A contractor would have to make a serious misestimate to not be reimbursed its costs up to 130% of its original estimate. The contract becomes fixed priced once again when contractors exceed their estimate by 30% or more. There is most often a sharing formula in the contract for savings under 100% of contract at price and up to 130% ceiling.

Special Funding Clauses with “Caps”, Not to Exceed, Fixed Budget, etc.

These clauses may be structured in a way that results in a flexibly priced or cost-type contract being changed into one that is firm fixed priced at a specified point. All of the foregoing topics are covered in much greater detail below and in "Managing Cost Type Contracts.

What Issues Cause Claims in Contracts at the Government and Commercial Levels?

A fundamental principle of contract law is that the party performing the contract work, (generally the contractor), is required only to comply with the minimum requirements of the contract. He does not need to add extra features or special items. He need only comply with the minimum requirements of the contract as stated in the contract specifications, drawings, schedules, other documents, etc.

This is a very broad statement, which has many nuances and exceptions, but it is the starting point in understanding why claims occur under federal government and other contracts.

Minimum v. Maximum Interpretation Struggles

The parties to most contracts are in a constant state of debate over what the contract actually requires.

No matter how good a job the parties do in drafting the contract, it is not at all unusual in most contracts for there to be potentially different interpretations of the contract’s provisions. The following questions are often debated during negotiations and performance, and warrant discussion now:

• What does the contract require? Who decides this?

• What did the parties intend the contract provisions to mean? Does it matter?

• Is there a better interpretation than that being advanced by the other party? Does it matter?

• The parties discussed an issue during contract negotiations and resolved it, even though it is not reflected in the written document. What is the requirement’s status? (Do you understand the parol evidence rule and its practical consequences?)

These and many other questions start the debate over what the minimum requirements are in a contract. Obviously, from an economic point of view (but perhaps not a political point of view), the contractor wants to do the least amount of work that will be acceptable, and the government agency (or the other party) wants the most possible work done.

The Tension in Interpretations

The party who has placed the contract (the government, prime, etc.) is in a position of some substantial leverage:

• If the contractor states a minimum interpretation position, and the buyer or the government agency does not agree with it, it has the option of eventually default terminating and/or refusing to accept the item or pay for it.

• Obviously, if the default is found to be wrong, that is a breach of contract, and the issuing party would be subject to damages. The party canceling the contract must be right. But, you can see the developing leverage that the Agency or prime or buyer has. The mere fact that it has the right to take this action - even though it could later be proven wrong - is very substantial negotiating leverage indeed.

The Seller’s Resistance

From the contractor’s or seller’s perspective, its position requires a strong stomach, and the will to insist and resist:

• It must reasonably establish its minimum contract interpretation position.

• It must have a basis for its position, either in the contract bid or proposal, or in trade practices, or elsewhere.

• It must articulate its position in a straightforward fashion so that the other side can understand the position. (Remember the other party can and may well issue a default termination if they do not understand!)

• In the final analysis, it may have to run the risk of a rejection and a default termination if the dollar amount of the differences in the party’s interpretation is significant. No one should bankrupt their company over an interpretation dispute – yet people do.

The REA/Claim Connection

But, you must understand that the foregoing issues are on the basis of REA and claims formation and defense issues.

It is this tension or constant "pushing and shoving" over contract specification interpretation that goes on throughout contract performance on many contracts that results in either good contract administration, if the parties solve their differences through routine contract administration actions, or that results in a tremendous mass of litigation if the parties polarize their positions and allow everything to become a claim.

The following case law provides examples of disputes over minimum interpretation:

• Trataros Construction, Inc. v. GSA, GSBCA No. 15083, 01-1 BCA ¶ 31,308 (Where sprinklers were to be installed in the “areas indicated” and “special application areas”, but the drawings did not clearly indicate that sprinklers were to be installed in attics or towers, government direction to install the sprinklers there was a constructive change.)

• A.R. Mack Construction Co., Inc., ASBCA No. 50035, 01-2 BCA ¶ 31,593 (Where there was no specification calling for pipe depth, a direction to install the pipe 5 ½ feet deep was a constructive change. Here, the omission was not an “obvious” one requiring inquiry because drawings were to be supplied by the contractor, an indication that the contractor would specify the depth.)

Examples of Contract Interpretation Regarding Minimum Requirements

Professor Nash states as follows with respect to these interpretation issues:

Since it is a general rule of government contracting that a contractor is entitled to follow the least expensive means of achieving contract performance, the insistence by the government that the contractor follows a higher standard (and probably more expensive means) of performance is tantamount to a change order. [R. Nash, Jr. Government Contract Changes, Second Edition 1989, Section 14-2 through 14-4 and 16-43 at p. 11-31].

Normally, a contractor has the right to perform the work in the least expensive manner it can devise, regardless of how it computed its bid or any events that may have occurred prior to the award of the contract. [at p. 16-3]

[The author here agrees with the first quote above; he does not agree that the second quote is a result that would necessarily be produced in litigation at the Boards of Contract Appeals or the Court of Federal Claims]

Examples; “Common Situations”

A corollary of the foregoing rules is that if a bidding document from a government agency specifies two alternative items, which can be used to perform a contract, the government cannot require the contractor to use the most expensive means. N.G. Adair, ASBCA No. 25, 961, 83-2 BCA ¶ 16, 887.

A further corollary of this occurs if the specifications present five alternatives which the contractor can use to perform: if the government abridges the contractor’s options and says he may use only two and these are more expensive, the same rule prevails. The government pays the extra cost incurred over the least expensive means available.

The Geodss Case Issues

Note that the foregoing situations can occur on a contract that has detailed design specifications or performance specifications. Indeed it is quite common to have broad performance specifications on which the government states its preferred interpretation after award and thereby causes a constructive change to occur. Performance specifications are not a defense to claims when the party pressures or requires an abridgment of available approaches.

The significance of bidding documents and the failure of the contractor to follow the commitments made in various types of proposal documents are discussed in TRW, Inc. (GEODSS), ASBCA Nos. 27,602, 27,299, 87-3 BCA ¶ 19,964. The government may well have deductive change claims for the contractor's failure to do things it specifically stated it would do in its bidding documents.

Case Law Examples of Claims/REA Root Cause 

As an introduction, we should discuss the facts of the Apocalypse, Inc. case, GSBCA No. 5963, 81-2, BCA ¶ 15, 265 and 15, 856. The contractor was in a highly competitive area - Guard services contracts. There were very few ways for him to cut costs and thereby gain a competitive edge over other bidders.

The contract required the contractor to have each on-duty guard have a uniform; it did not say anything about the "sharing” of uniforms.

Consider the Board’s decision in this guard service contract case:

The contract does not expressly state whether the contractor has to furnish each of its employees with his or her own Sam Browne belt and tuffy jacket. In fact, the contract is silent with regard to the quantity of Sam Browne belts and tuffy jackets that appellant had to furnish. Appellant says that the only contract language stating a requirement for a quantity of Sam Browne belts and tuffy jackets is the requirement that each on-duty guard has a complete uniform. Appellant contends that by furnishing on-duty guards with uniforms having properly fitting Sam Browne belts and Tuffy jackets it satisfied the contract’s requirement. We agree. Appellant reasonably interpreted the contract’s ambiguous uniform requirement. Accordingly, we find that appellant should not have been required to buy additional Sam Browne belts and tuffy jackets. Appellant is entitled to an equitable adjustment in the contract price for having complied with the government’s order to buy enough jackets and belts so that each of the appellant’s employees would have his or her own. [Id. at 75,589] [Emphasis added].

Another more complex case warrants analysis in illustrating a touchstone for the root causes of why claims occur.

In Bethlehem Steel Corporation, ASBCA No. 3341, 72-1 BCA ¶ 9186, the company bid against a number of other contractors for a follow-on ship construction contract. The previous contractor had prepared detailed plans and drawings for use in the construction of the ship. The contractor was able to buy these plans and drawings directly from the prior contractor per the solicitation document.

Problems developed in one particular area of the plans after the second contractor – Bethlehem Steel – had constructed the second group of ships in question. There was excessive vibration in the deckhouse area.

The contract contained a generalized disclaimer stating that the construction contractor was responsible for assuring that the scantlings/(structural members) depicted in the structural plans were “adequate for their intended purpose”.

The Board pushed this disclaimer aside, and, after a debate over the issue of whether the specifications were of a performance or a design nature, held:

It is not useful and may not be possible to decide if the specifications as a whole are of a design or a performance type. In as much as the government chose to incorporate such details as it did, we agree with the appellant, other contract terms aside, the appellant had a right to rely on those details in estimating the cost of constructing the superstructures. (Id. @ 42, 587.)

This is a significant distinction that the Board is making. Debate goes on in many negotiations over whether a set of specifications are design (drawings, other details) or performance - stating a broad set of requirements without details as to how to accomplish them. The debate is often without end or conclusion because specifications are many times mixed, containing elements of both.

What the Board is saying is that when one party gives details to the other side, the other side can then expect to rely upon those details. From an economic view, this results in a lower price because the assumption is that the details will work. There is, therefore, no need for engineering to design from scratch or redesign at least that part of the work.

What is the difference between performance specifications and design specifications? What is their significance?

Design Specifications & Requirements

Design specifications generally have engineering work built into them. Costs have been expended and decisions made about exactly what the limitations, size, composition, and acceptance criteria of the item should be, and this information has been written down in a detailed set of specifications/drawings for the contractor to follow without fail.

These types of specifications or requirements most often exist in fixed priced contracts. Examples of the cause of claims under such specifications include the following:

“A popular belief by government officials and prime contractors is that performance specifications eliminate REAs/claims on fixed priced contracts. This is completely incorrect. Actually, performance specifications can generate a great number of claims.”

• The government has “given” the contractor the design of an item prepared by another party.

• The government, therefore, pays for design once – not again on this contract and each following one.

• The government is responsible for design – it must be accurate, complete, and produce a satisfactory result when ordinary manufacturing techniques used.

•   The government can give a contractor a design, and then attempt to disclaim responsibility for all or part of it. Does this make legal/economic sense? The answer is no.

Per the Spearin case, when the government sets this type of design down the contractor has a right to rely upon it. Indeed, it is the only way the contractor can be competitive in the bidding process because other contractors will rely upon it and bid low based on the assumption that the design is settled, and that there is no further engineering work to be done (or costs).

The government gets an advantage in the sense that it does not pay engineering costs a second, third, or fourth time, thereby forcing contractors to include such costs in their bids.

Real performance specifications also have distinctions and advantages. They are discussed below.

Performance Specifications and Requirements

These types of specifications or requirements occur in both cost type and fixed priced contracts. On fixed priced contracts, they can also generate a large number of REAs and claims.

The Myth

A popular belief by government officials and prime contractors is that performance specifications eliminate REAs/claims on fixed priced contracts. This is completely incorrect. Actually, performance specifications can generate a great number of claims.

Checklist

The following is a checklist for determining the presence of performance specifications:

• The government has not given the contractor a design; the contractor must create, select, and/or choose his own design/materials.

• The contractor’s design must satisfy the performance requirements spelled out by the government.

• But, the government may not limit or abridge the contractor’s choices regarding design, material, etc., after award. If it does so, that is a constructive change/claim. Can you imagine the number of disputes that can exist on this point?

Example

The contractor proposes a low-cost design and says it will meet the government's performance specifications. The government does not believe that. But, the contractor has not produced the item yet.

How can the government prove that the contractor cannot satisfy the specifications? If the government makes a direction to beef up the design etc. and is proven wrong after the fact, it is responsible for the cost consequences for abridging the contractor's design alternatives.

Consider performance specifications in their broadest possible form, whether a ship is being constructed or a missile built.

For example, broad performance specifications could be used in a contract for a military cargo ship. The ship will have cranes of a certain capacity. The ship will be so long, so wide, and will use so much fuel per hour. It will haul at least a specified amount of cargo.

Does this Work?

Such specifications result in the contractor having sole responsibility for all design effort to accomplish the results and parameters set out above. This is a broad performance specification situation. There are no design details. The government has simply specified the results that it wishes to accomplish with this ship in terms of cargo transport, size, fuel consumption, etc.

In these circumstances, the government, in theory, waits until the contractor presents the ship for delivery, if the ship will not do what the specifications require, the government may default terminate the contractor and start the process again, paying the contractor nothing, or recovering its progress payments made to the contractor during performance.

Can the Government Leave the Contractor Alone?

This method of proceeding is based upon the premise that contractors should be left alone during performance until delivery at which time the product is subject to the Buyer’s inspection and rejection or acceptance. Specifications such as the ones set out above are common for the purchase of commercial items, such as the transport ship example above.

Unfortunately, the use of such broad, performance specifications do not work well in the government contracting area - the government does not want to be surprised by an item that does not work after a year of contract performance. National security or some other government goal may be compromised.

Thus, the government generally has inspectors that check to ensure the contractor is complying with the contract’s specifications and is progressing in accordance with the contract’s schedule. But how and what are these inspectors checking, and when? What standards do they use, etc.?

Government inspectors in such circumstances really have nothing but their speculation as to whether the contractor is going to be able to meet the broad performance goals. Of course, if they see a ship being built that is only 500 ft. long when the government had specified a length of 800 ft., that is an easy call and the inspector can demand correction of this deficiency.

But what of a situation in which an inspector believes that the hull is being shaped and designed in a fashion that will result in the contractor’s failure to meet fuel efficiency requirements? If the contractor responds that it is comfortable that its design is correct, a difficult situation could then arise. What happens if the government wishes to direct the contractor to fix what it perceives to be the problem? That is discussed next.

Performance Specifications and Their Connection to Cost Type Contracts

In situations in which a fixed priced contract with pure performance specifications is being utilized, if the government allows the contractor to proceed, and either pass or fail on its own individual performance effort, the contractor’s potential claims are effectively barred. The only exception would be perhaps an impossibility of performance claim.

If the government does not intervene in the contractor’s design process while the contractor is attempting to meet broad performance specifications, it is the contractor's responsibility to do what is necessary to correct its design to meet those broad performance specifications.

No claim against the government is possible in this situation - the government took no action, made no corrections, and directed no alterations in the design. The contractor proceeded with its design and simply failed. The contractor must, therefore, correct its deficiencies with its own funds.

Again, if it produced a disastrous financial consequence for the contractor to follow up, and complete the work under such circumstances, he might be excused from performance on an impossibility of performance basis.

Requirements and Specifications Mean the Same Thing (In This Context)

Do the terms requirement and specification mean the same thing? Yes, as a practical matter. Is everything in the contract a requirement or specification? Yes. All are subject to being at least constructively changed and thereby becoming a REA or claim.

Disclaimer Issue

Returning to the discussion of the Board’s decision in Bethlehem Steel Corporation, ASBCA No. 3341, 72-1 BCA ¶ 9186, there are related disclaimer issues that are often associated with these disputes. The Board made the following holding with respect to that disclaimer:

We have no doubt that valid and enforceable contract provisions could be written to require the contractor to base its bid price on the advertised specification, but require that, if the specifications prove to be inadequate and have to be “beefed up” so as to cause a large increase in the cost of building a ship, the contractor (will incur those costs without payment).

What about these disclaimer arguments? What kind of a valid disclaimer is possible?

In the Bethlehem case, the Board of Contract Appeals did not enforce a disclaimer because it found it was too general. The message here for both government contractors and government agencies is that broad open-ended disclaimers will not work. Why? One reason is they are fundamentally unfair and inconsistent with the basic contract bargain.

If the government gives the contractor a detailed design and knows the contractor will bid lower because the engineering work has already been done, how can it then disclaim responsibility for what it has given the contractor while keeping the lower price? Fundamental fairness should nullify the effectiveness of broad, open-ended disclaimers in these circumstances.

See the decision in White v. Edsall Const. Co., Inc., 296 F.3d 1081, 2002 WL 1424175 (Fed. Cir. 2002), in which the Federal Circuit held that the government’s inclusion of a clause requiring contractors to inspect the contract’s specifications did not negate the government’s warranty as to the design it provided where the specifications were mixed performance and design, and the design aspects were based on government engineering calculations.

Detailed disclaimer versus general disclaimer. Does that mean all disclaimers will not work? Of course not. And, the Board says so in the foregoing holding in Bethlehem Steel. Disclaimers that are specific, place the contractor on notice as to what it must do, and allow the contractor to make internal adjustments in its bid before award (i.e. include contingencies or management reserves to deal with various issues), are fair and will likely be enforced.

Recall that the Bethlehem Steel situation involved the failure of the deckhouse to perform correctly to vibration standards. Let us assume that drawing number 125, which is a detailed design of the deckhouse, contains the following warning on it:

Notice – Drawing #125

Contractors are placed on alert that problems have existed with this drawing in previous ship construction efforts by the government. Specifically, the detailed design shown on this drawing has not produced results that allow vibration standards to be met. If this situation occurs on this contract, the government will not pay the contractor any additional costs to correct the detailed design so as to meet the overall vibration standard. Accordingly, contractors are advised to include necessary engineering funds in their bid to correct any errors discovered in this drawing.

What do you think? Will the Board enforce this type of disclaimer? We believe it would. The disclaimer is very specific and advises contractors as to the actions they must take to protect themselves. The disclaimer is basically fair. It will likely be enforced.

Government agency personnel have stated to the authors that the use of such types of detailed disclaimers would result in increased bids. Yes, and that is exactly the point of a fair and specific disclaimer.

Contingency Solutions

The author has seen situations in which government audit agencies, such as DCAA, have struck, as unallowable costs, all such contingencies for possible engineering costs to satisfy disclaimers from contract bids during pre-performance audits. These types of actions during audit functions will result in unenforceable disclaimers.

If a contractor is providing cost or pricing data, there is nothing improper about including contingencies, factors increasing labor and materials, or other similar items so long as they are disclosed before or during negotiations. See FAR §15.404-1(c)(2)(i)(A).

Although the government has a tendency to reject contingencies because it wants absolute certainty in cost information, such certainty does not exist.

For example, it is appropriate to disclose that “we have added 10% to all labor estimates because this is a new item, only partially based on historic costs, and we are not sure we can make the historic figures.”

Like other cost or pricing data, the disclosure of contingencies must be documented to be effective. See Aerojet-General Corp., ASBCA No. 12,873, 69-1 BCA ¶ 7585.

This Issue of Precedence Clauses, General Goals, and Mission Statements in Contracts

It is not uncommon for the government to include an order of precedence clause in the contract requiring that some form of generalized specifications take precedence over much more detailed specifications and/or drawings.

It is also not uncommon for there to be general goals and mission statements in a specification, which appear to take precedence over and/or even conflict with detailed requirements.

For example, consider the following:

• A statement that a maximum amount of flexibility for modification in a computer system must be contained in the hardware of the computer system and that “software fixes should be minimized.”

• A requirement that “a maximum amount of self-testing equipment should be included in the equipment.”

• A requirement that the parties should use “good human factors engineering in all respects on equipment utilized as part of the overall items delivered.”

• A statement that safety requirements in “connection with this equipment shall always be of paramount importance”.

All of the foregoing are statements of general goals and desires, and Courts have by and large rejected them as a basis for the government’s or Buyer’s rejection of contract end-products. They are too generalized, not-specific-enough, and in some ways, they conflict with the more detailed requirements in the specifications, e.g. Kenneth Reed Construction Corp. v. the United States, 475 F.2d 583 (Ct.Cl. 1973); Carol Anne Kleeman v. the McDonnell Douglas Corporation, 890 F.2d 698 (4th Cir.1989).

Thus, including such items in contract specifications, and giving them first preference in a contract “order of precedence” clause (i.e. the contractor must meet the broad goals in any event) will generally not work. As in Bethlehem Steel, the Board will enforce the detailed requirements, but find broad generalized requirements unenforceable, or simply in conflict under the Spearin doctrine regarding a detailed design and a performance specification.

A Checklist for the Analysis of Issues Affecting REA Claims

Set out below is a list of additional issues that flow from the foregoing analysis:

• The contents of the technical proposal and whether it is incorporated or unincorporated in the contract. See TRW, Inc. (GEODSS), ASBCA Nos. 27602, 27299, 87-3 BCA ¶ 19, 964.

• The issue of documents incorporated by reference, e.g. military specifications at difference levels, military handbooks, etc.

• The issue of who is preparing the bid or proposal. (The issue for the government is who prepared the specification and whether it was reduced to meet budgetary limitations.)

• The issue of past experience with the same or similar specifications causing claims: both the contractor and the agency.

• The issue of whether bidding documents are relevant on fixed priced contracts when claims occur. Should an effort be made to include details in bidding documents? What is the impact, good and bad?

• Knowing an agency’s reputation for claims in claims management, do you understand it?

• Is this a one-time contract, or is a contract with a principal agency involved?

How Has The Competition in Contracting Act Affected Claims Generation?

The rules above are impacted by the Competition in Contracting Act (CICA) of 1984, 41 U.S.C § 253, et. seq. Many individuals think that the Act establishes rules at the Federal level with respect to a preference for particular competitive procurement approaches. That is true.

But, the Act has also had an amplifying effect on the generation of claims over the last 30 years. Consider the following:

• Prior to the Competition in Contracting Act (CICA), the Federal Government spent almost ninety percent of its procurement dollars on a sole or limited source basis. That figure is now below forty percent. This is a remarkable increase in competition for federal procurement dollars.

• What happened to all of these sole and limited source procurements?

• What happens when there is now more competition and the Competition in Contracting Act (CICA) certainly created more competition?

• Contracts for think tanks, support services, and other highly complex items are now negotiated competitively when in the past they were placed with long-term contractors who had performed those services for years. Claims were rare.

• How can a contractor be competitive in such highly technical situations?

• The only honest and ethical way that a contractor can be more competitive is to reduce his costs directly and/or interpret the specifications in a way that causes him to lower the minimum standard to which he is bidding and performing.

• What is the consequence of taking minimalist interpretation requirements during contract performance? Is it not more claims? Yes.

• Will the government agency not reject and/or threaten default more often if the contractor goes lower and lower in his interpretations in order to be the most highly competitive to win the solicitation? Yes.

You have now been exposed in an introductory sense to the interrelated issues that are the root causes of REAs and claims and some solutions. Keep these in mind as we examine more complex factual and legal situations that follow. Understanding the root causes of REAs and claims will give you an advantage in solving/preventing the problems they create for the government and for contractors. This is a two-way street: both parties to the contract will benefit from this knowledge.

How Are the Notice of Claims & The Timing of Claims Distinct?

The notice of and timing of claims submissions are not the same things.

A. Notice of Claims

The notice of claims involves legal requirements. When must the claim be asserted or filed to protect the parties’ rights under the contract? This issue is fairly easily dealt with by understanding the rules and exceptions that apply to them.

B. The Timing of Claims

The timing of a claims submission involves practical and strategic issues. When is it most desirable to submit a claim to ensure maximum recovery? This is a complex and subjective area that is worthy of special attention.

• The best-prepared claim will not fare well if submission timing is poor. Contractors are often far too late in submitting claims to maximize recovery. See, ECC International Corp. v. United States, 43 Fed. Cl. 359 (Ct.Fed.Cl.1999)(interpreting Economic Price Adjustments Clause claim submissions)

• What does the contract say? [Examples: Changes, Government Property, and Differing Site Conditions have time limits.] Generally, assert in 30 days. Differing Site Claus is treated differently.

• Why are these provisions in the contract? [Fairness to government and primes] • Case law erosion of government rights – a continual problem.

• UCC Comparison – 2-209. The law that applies to most subcontract transactions – firm notice requirements.

• Service Steel Erectors Co. v. SCE, Inc., 573 F.Supp. 177 (W.D.Va.1983); and

• United States v. Centex Construction, Inc., 638 F.Supp. 411 (W.D. Va.1985).

• Federal Statute of Limitations – generally six years. (Discussion infra.)

• Practice Strategies [An old-fashioned agency contracting officer may enforce the contract’s written terms; I will not consider a claim not submitted within 30 days. Similarity to commercial situations.]

This topic often arises in discussions as to the best strategy for timing the submission of extra work claims. Should they be submitted in small increments as the work goes forward (is that inefficient?) or should they be accumulated and submitted towards the end of contract performance?

Often times the Marketing Department’s views of what is best for the company will come into play, and it will request/insist that the claim should not be submitted on existing contracts because: “we are bidding on new work,” “the government will be irritated by the submission of claims,” or “they think badly of us and it will affect the new awards.”

Also, it is often stated by contractor personnel that it is impossible to price individual claims on a stand-alone basis. The total impact of the claim can only be shown as a group of claims that are aggregated.

While the foregoing are common statements and concerns by management elements, they are in almost every case contractually and legally incorrect. Moreover, from a management strategy point of view, they reflect incorrect analysis and conclusions. Why do we say this?

• First, going back to basics, the changes clause and most other remedy granting clauses in the standard government contract, i.e. government-furnished property, suspension, stop work clause, all require that any claim for increased compensation be at least asserted within 30 days of the occurrence of the events at issue.

• The case law is not strong in the government’s favor in terms of enforcing these particular provisions. By that we mean that if the case were litigated in a Board or a Court, and the government’s sole defense was the lack of a 30-day notice, the government will most often lose.

• But, this situation does not detract from the fact that there is a contractual obligation to assert the claim within thirty days and that a contractor who does not do so should appropriately be criticized by government officials for that failure.

• We believe that more practical issues forcefully support the contractual requirements for prompt submission – the need to maximize cost recovery and the promptness of recovery.

REAs and Claims that are submitted on a stand-alone pricing basis, within 30 to 60 days of their occurrence, tend to be:

• Better prepared.

• Broken into manageable units that the contracting officer and his staff can deal with.

•  Better developed factually because they are written when events are fresh in people’s minds, and

• Better priced/estimated.

It is simply human nature that if you do one small management task at a time, it can be better and more completely done in comparison to letting a whole series of tasks (i.e., claim preparation activities) accumulate to be dealt with at some later point in contract performance.

The author has never seen a contractor who regretted preparing individual claims as they occurred and submitting them incrementally to the agency (or prime).

Moreover, many of those contractors’ claims were settled individually or in packages as the work went forward, thereby avoiding impacts upon cash flow that could affect other contractors who wait too long before submitting their claims.

If the contractor (or sub) waits until the alleged change or extra work is completely performed, and the money spent, it deprives the government (or prime) of fundamental options for administering contract performance:

• The agency had two options for every change it consciously or unconsciously (constructively) ordered.

• It could say no, do not spend the money – the change is then canceled.

• It could say spend some (or all) of the money – or it is your responsibility to the base contract work.

• After the money is spent, the government now has only one option: pay all the money the contractor seeks, or fight such recovery.

• Do you really think an agency wants to pay completely for every change it orders?

• Do you really think an agency won’t withdraw change orders or directives? (They do all the time.)

• And do not rush like an automaton to do everything you are told to do by an agency or prime, which may not have been thought through! Raise the issue promptly and professionally.

The DOD Inspector General’s Indicators of Fraud Manual, states that the repetitive submission of omnibus claims, late in contract performance, is an indicator of fraud.

While the author disagrees with this conclusion, the fact remains that elements of DOD and other government agencies think that this is true. Moreover, for the reasons discussed in more detail herein, there is certainly more room for mistakes and errors at the end of performance, which could in various people’s minds rise to the level of misstatements.

Conclusion

As can be seen from the foregoing, there are a number of legal and contractual rules which must be complied with in the REA and CDA claims area. Those rules are fairly easy to understand and deal with. What is more difficult are the strategy issues: about how the claims process relates to ongoing performance on the contract. There is no sense having good contract performance, and bad relationships with your agency customer because of how you handled the claim situation. It is possible to do both - good performance, good relationship and recovering fairly for extra work as you go forward.