Most contractors know that they may submit a claim under the Contract Disputes Act (CDA) if a problem arises during performance. However, many contractors are not aware that the government also has the ability to bring a claim. Likewise, contractors may not understand the options for responding to a government claim. Given the potential gravity of a government claim, these are issues contractors should be aware of.
To begin, you may be wondering what types of claims the government may bring. The most common government claim is a demand for repayment. This situation often arises if an agency determines that it made an erroneous payment under a contract. For example, the agency may have approved and paid an invoice when the contractor billed services under an incorrect contract line item number. Or, an agency may have paid an invoice and then learned that the contractor had not satisfied a contract requirement (e.g., staffing 25 positions at 40 hours per week). In such circumstances, the agency may issue a letter demanding repayment by a certain date. This demand is a government claim. If the demand letter states that it constitutes a final decision from the contracting officer and notifies the contractor of its right to appeal, it qualifies as a final decision under the CDA—akin to what the contracting officer issues in response to a contractor’s claim. Many government claims are presented in this manner.
Another example of a government claim is a termination for default. A termination for default is treated as a final decision from the contracting officer. A termination for default may be followed by a demand to reimburse the agency for reprocurement costs. Like the examples above, the demand to pay reprocurement costs is a government claim.
If you are on the receiving end of a demand or a termination for default, the critical question is: What next? In the case of a demand letter, a written response may be appropriate. The response can rebut the agency’s assertions and explain why the demanded repayment is not appropriate. Likewise, although many contractors respond to a termination for default by quickly filing an appeal at the Court of Federal Claims (COFC) or the appropriate Board of Contract Appeals (BCA), it is possible to negotiate with an agency to convert a termination for default to a termination for convenience. With the time and resources required for an appeal, negotiations may be in the interest of both parties.
In the case of a final decision or a termination for default, it is imperative to recognize that there is a limited window of time to negotiate because there is a deadline to file an appeal. After a final decision or termination is issued, a contractor has 90 days to file an appeal with the BCA or one year to file an appeal with the COFC. If efforts to negotiate prove to be unsuccessful, an appeal to overturn the contracting officer’s final decision—and deny the underlying government claim—is the contractor’s only option. Notably, depending on the nature of the claim, the government may have the burden of proof at the COFC or BCA. Ultimately, the COFC or BCA will decide whether the agency’s claim has merit.
If you have questions, please contact Michelle E. Litteken – Counsel in PilieroMazza’s Government Contracts Group. Ms. Litteken can be reached at [email protected] or at 202.857.1000.