Government Contracts Monitor

Contract Disputes: Clarity of Presentation Matters

October 25, 2016

Faced with the daunting process of legally resolving a contract dispute, contractors too often forget one of the strongest tools at their disposal (and one over which they have the most control): a clear presentation of their case so that, ideally, the dispute can be resolved at the agency level. Of course, resolution with the agency is not always possible, which is all the more reason contractors must posture themselves for success in case they need to take the dispute to a Board of Contract Appeals or to the Court of Federal Claims (COFC). The importance of clarity in this context was recently reiterated in Claude Mayo Construction Company, Inc. v. U.S., 2016 WL 5848912 (October 6, 2016).

The plaintiff in this action, Claude Mayo (Mayo) filed suit at COFC to challenge the default termination of a General Services Administration (GSA) contract to renovate office space in a federal building. Mayo alleged that: (1) the termination for default was improper; (2) the GSA itself had materially breached the contract; (3) the improper termination impacted Mayo’s ability to win other government contracts; and (4) GSA was unjustly enriched by Mayo’s performance, for which Mayo argued it had never been properly compensated. The government moved to dismiss grounds two through four, arguing that COFC did not have subject matter jurisdiction over these arguments; Mayo moved for a stay of the remaining ground. The Court granted both motions.

COFC’s jurisdiction over government contract disputes is granted by the Tucker Act, which gives COFC the authority to decide any claim for damages against the U.S. founded upon the Constitution, an Act of Congress, an agency regulation, or a contract between the U.S. and another party—express or implied. (28 U.S.C. §1491). The jurisdiction does not extend to causes of action for alleged torts. Importantly, COFC’s jurisdiction over government contract disputes is also governed by the Contract Disputes Act (CDA), 41 U.S.C. §7101, which applies to all contracts involving appropriated funds.

The CDA has specific jurisdictional processes and requirements that must be followed in the event of a dispute. The contractor or government, as applicable, must submit a proper claim—if the dispute is brought against the government, the contractor must first submit it to the contracting officer (CO). In order for a claim to be considered proper, the contractor must make it in writing and seek, as a matter of right, either payment of a “sum certain,” an adjustment or interpretation of contract terms, or other relief arising from the contract. The claim must be certified using language specified in the CDA, and signed by someone authorized to bind the contractor.

The CO has 60 days to issue a final decision on a proper claim; if he or she fails to do so, the government’s inaction may be viewed as a “deemed denial” of the claim. In the event of a deemed denial, or an express denial by the CO, the contractor can appeal the matter at either the appropriate Board of Contract Appeals or COFC. The CO’s decision is not binding on the Board or COFC. Here, after GSA entered the contract with Mayo, several bilateral modifications were made to it. The scope of the work was enlarged, as was the period of performance. The dollar amount of the contract was increased as well. GSA sent Mayo two additional modification requests concerning additional specifications, and Mayo responded to each, but the parties never reached an agreement on the terms of those requests.

Soon thereafter, GSA sent Mayo a “Notice to Cure,” citing Mayo’s alleged failure to comply with contractual requirements that it provide schedule information, and alleging that Mayo had also failed to properly respond to the modification requests. After Mayo responded, GSA, still unsatisfied, issued it a “Show Cause” notice stating that GSA was considering terminating the contract for default. The parties again failed to reach an agreement, and GSA issued a stop work order before unilaterally incorporating one of the modification requests previously sent to Mayo. It also demanded liquidated damages from Mayo. The contract was terminated for default a few months later; the termination notice stated that it was the CO’s “final decision” and that Mayo could appeal the default termination under the contract’s disputes clause. Mayo did so nearly a year later, requesting that GSA rescind the Notice of Termination, withdraw its request for liquidated damages, and allow Mayo to complete the contract or, in the alternative, pay Mayo for the work it had done and for its lost profits. In response, GSA sent Mayo another letter denying its requests and stating that it was the CO’s final decision and could be appealed in accordance with the CDA.

Mayo then filed an action at COFC. The government responded with a motion to dismiss Mayo’s second through fourth counts. The government argued that the second cause of action had not been properly presented to the CO as required by the CDA, for final decision. It argued that the third cause of action, for the loss of other government contracts, was not proper for COFC to consider, as it arose from allegedly tortious behavior. Finally, it claimed that the fourth cause of action, for unjust enrichment, was beyond the scope of COFC’s Tucker Act jurisdiction. Mayo did not dispute the government’s claims regarding its third and fourth counts, but did assert that the second count had been properly pursued in accordance with the CDA’s requirements. It alleged that its letter disputing the termination for default was a proper demand to the CO. COFC disagreed, finding that Mayo had not complied with the CDA’s dispute resolution procedures. Specifically, Mayo had not adequately demanded a “sum certain.” While Mayo did submit a spreadsheet of its lost profit calculations, and relied on pay applications it had previously submitted, the Court held that this was insufficient because the CO should not be expected to determine the sum certain by piecing together the various documents available to it. The sum certain requirement is intended to provide the CO with a “clear and unequivocal” understanding of the contractor’s demand. As there was no statement of a clear monetary demand here, that burden was not met. The Court dismissed Mayo’s action.

All is not lost for Mayo, however. Because the Court dismissed the action without prejudice, Mayo has a chance to try again. It can submit a proper claim to the CO that meets the CDA’s requirements and, if that claim is denied, Mayo can take the dispute to the Board or back to COFC. With regard to the substantive fight over the propriety of GSA’s default termination, the Court issued a stay, so that issue can be resolved at a later date, after Mayo goes through the process properly. While Mayo is fortunate that it gets a second chance, it might have saved itself the pain and expense of many months of litigation (and the necessity of going through the process a second time) had it properly crafted its claim initially. Perhaps it will be more successful the second time. With government contracting officials consistently being asked to accomplish more with less, it is now more important than ever for contractors to provide the requisite information to “get them to yes”. Contractors will still not always prevail, but the greatest factor within their control is how they present their case from the beginning.