After nearly a decade of litigation, justice was finally meted out in an extreme case of Government over-reach against a government contractor. The Government had sought to recover over $1.6 million from a government contractor whose subcontractor had underpaid a handful of employees by $9,900.

When all was said and done, a federal appellate court finally rejected the Government’s legal theory as essentially frivolous and ordered it to pay the contractor’s attorney fees, estimated at roughly $500,000.  When the Government expressed concern that this would have a “chilling effect” on its efforts to vigorously enforce the False Claims Act, the court stated: “One should hope so.”  The case is called U.S. ex rel. Wall v. Circle C Constr., LLC, No. 16-6169, (6th Cir. Aug. 18, 2017).

The story starts when the prime contractor, Circle C Construction, won a contract to construct buildings at the Fort Campbell military base. Circle C hired a subcontractor, Phase Tech, to perform the electrical work. The prime contract required compliance with the Davis-Bacon Act, which is similar to the Service Contract Act but applies to construction work. Like the Service Contract Act, the Davis Bacon Act requires the prime contractor and all subcontractors to pay construction workers the prevailing wages and benefits set by the Department of Labor. The Davis-Bacon Act also requires that the contractor submit certified payrolls as a condition of contract payment.

While Circle C did not have a written contract with its subcontractor Phase Tech, it did provide Phase Tech with the Wage Determinations from its prime contract. But Circle C did not verify whether Phase Tech was in compliance with the Davis Bacon Act. Phase Tech did not submit payroll certifications for two years after the project commenced, and later contended it was not aware it had to do so.

Eventually, one of Phase Tech’s employees brought a qui tam False Claims Act action against both Phase Tech and Circle C based on the under-payment of wages. Phase Tech settled the case by agreeing to pay $15,000, leaving Circle C as the remaining defendant. The Government agreed to take over the case from the employee and pursued the claim against Circle C.

Initially, the case did not go well for Circle C. The federal trial court hearing the case granted plaintiff’s motion for summary judgment and damages of $555,000 (the entire cost of the electrical scope of work on the project), which was trebled to a total award of $1.66 million against Circle C.

Continue Reading Government ordered to pay contractor’s attorney’s fees in False Claims Act case

On August 29, 2017, the White House Office of Management and Budget announced that it would immediately pause the pay-data collection requirement of the revised EEO-1 form that was scheduled to take effect in March 2018. The data collection requirement would have significantly expanded employers’ reporting obligations to the EEOC to include pay data by gender, race and ethnicity on the annual EEO-1 form. The EEO-1 is required of employers with 100 or more employees and federal contractors and subcontractors with 50 or more employees.

The expanded EEO-1 reporting requirements had their genesis in an April 8, 2014 Presidential Memorandum, which directed the Secretary of Labor to propose “a rule that would require Federal contractors and subcontractors to submit to DOL summary data on the compensation paid their employees, including data by sex and race.” In a January 29, 2016 fact sheet, the Obama administration explained that the heightened EEO-1 reporting requirements would “help focus public enforcement of our equal pay laws and provide better insight into discriminatory pay practices across industries and occupations.”

President Trump’s OMB sees things differently. In its memorandum halting implementation of the proposed rule, OMB says that the heightened reporting requirements “lack practical utility, are unnecessarily burdensome, and do not adequately address privacy and confidentiality issues.” Further, these burdens outweighed any benefit that might come from implementing the expanded requirements at this time. OMB directed the EEOC to submit a new information collection package for the EEO-1 form for OMB’s review and to publish a notice in the Federal Register confirming that businesses may use the previously approved EEO-1 form in order to comply with their FY 2017 reporting obligations.  

Continue Reading OMB pauses new data collection for the 2017 EEO-1

Small business status impacts government contractors in several ways. Set-aside procurements and financial assistance programs are available for small businesses. Small business status is important for those seeking to meet the goals and commitments set forth in their small business subcontracting plans. Looming over all determinations of small business size status is the concept of affiliation. If the Small Business Administration finds that two business concerns are “affiliates” (one controls or has the power to control the other or a third party controls or has the power to control both), a business may no longer be a “small business.”

Affiliation determinations are likewise essential for pharmaceutical companies seeking to have the Food and Drug Administration waive the user fee for reviewing a new human drug application. Under § 736(d)(4) of the Federal Food, Drug, and Cosmetic Act, 21 U.S.C. § 379h(d)(4), a small business is entitled to a waiver of the prescription drug user fee when the business meets three criteria:

  1. The business must employ fewer than 500 persons, including employees of its affiliates.
  2. The business does not have a drug product that has been approved under a human drug application and introduced or delivered for introduction into interstate commerce.
  3. The application must be the first human drug application, within the meaning of the FD&C Act, that a company or its affiliate submits to the Food and Drug Administration for review.

Continue Reading FDA breaks with SBA on small business affiliation

In Joe Tex’s song about unrequited love, the Southern Soul singer belts out, “I gotcha, never shoulda promised to me.” Joe Tex may have thought this approach is the right one for romantic disappointment, but parties to a contract have a different set of obligations.

A lawsuit by Washington State contractor Nova Contracting should serve as an alert to owners dealing with the assessment of a contractor’s performance. Nova’s lawsuit came about because of the owner’s termination of the contract. Nova claimed the owner was using a “gotcha” review process for its submittals that was designed to prevent performance. The trial court agreed with the owner.

Culvert_with_a_dropNova appealed and the court of appeals found sufficient questions of fact to send the dispute back to the trial court. The opinion offers insight into fair dealing and good faith in the performance of construction contracts. Nova Contracting, Inc. v. City of Olympia, No. 48644-0-II (Wash Ct. App. Apr. 18, 2017). Continue Reading Good faith and fair dealing puts an end to the “gotcha” in submittal review

The U.S. Postal Service spends about $3 billion per year to move the mail by truck and does so under a special type of contract called a Highway Contract Route (HCR) contract. These contracts have unique contract clauses, and even their own lingo. For example, an HCR “amendment” is what the rest of the government contracting world would call a contract “modification.”

One of the biggest differences between HCR contracts and other government contracts is the Changes clause. Under an HCR contract, the contracting officer has limited ability to direct unilateral changes. The CO may only issue a unilateral change, called a “minor service change,” if the price impact would be $5,000 or less. Under a Contract Delivery Service (CDS) contract – a subset of HCR contracts for mailbox deliveries – unilateral changes must be $2,500 or less. Even for these changes, a contractor who disagrees with the CO’s determination may file a claim for additional compensation.

In addition to these monetary thresholds, unilateral changes are further restricted to certain types of changes. The only unilateral changes a CO can direct are an extension, a curtailment, a change in line of travel, a revision of route, and an increase or decrease in frequency of service or number of trips. The CO has no authority to unilaterally direct any other change, even if the price impact would be $5,000 or less. For example, the contracting officer may not unilaterally direct a contractor to change equipment or buy new equipment. Continue Reading The unique Changes clause in Postal Service HCR contracts

Every government contract contains implied duties, such as the duty to cooperate and the duty of good faith and fair dealing. Such implied duties generally prohibit one party from interfering with the other’s performance or taking actions that undermine the other’s expected benefit of the bargain.

Implied duties offer important protections when an issue is not clearly addressed in the text of the agreement. But courts have been reluctant to apply them in a way that overrides express contract language. A party generally does not breach the duty of good faith and fair dealing, for example, simply by exercising a right that is expressly provided in the contract.

But the government does not have carte blanche. Even if there is express language that gives the government a certain right, the government cannot exercise that right unreasonably or in a way that interferes with the contractor’s performance. In Agility Public Warehousing Company KSCP v. Mattis, No. 2016-1265 (Fed. Cir. Apr. 4, 2017), for example, the Federal Circuit explained that the government can breach the duty of good faith and fair dealing even if its conduct is otherwise consistent with the express terms of a contract.

Airmen serve dinner in the field in a mobile kitchen trailer during Global Medic 13 on Fort McCoy, Wis., July 16, 2013. The food service specialists are assigned to the 940th Force Support Squadron, Beale Air Force Base, Calif.
Source: DOD Image Library

Continue Reading Can the government contract around the duty of good faith and fair dealing?

Claims for personal injuries that can be connected in some way to construction work often include allegations that the contractor was negligent. Even if the injured party sues only the property owner, the owner will often seek to pass this liability through to the contractor. In many states, such negligence claims are barred by the acceptance doctrine, which limits contractor liability to third parties for injuries that occur after the owner has accepted the work.

A recent decision by the Missouri Court of Appeals illustrates and applies this rule. In Wilson v Dura-Seal and Stripe, Inc., No. ED 104570 (Mo. Ct. App. Mar 21, 2017), the plaintiff alleged that she tripped in an area paved by Dura-Seal and Stripe, Inc. Dura-Seal paved a drive lane, but the paving did not extend all the way to the curb. The result was a gutter area and a resulting height differential. Ms. Wilson claimed she tripped on and because of the height differential.  Ms. Wilson sued the school district for which Dura-Seal did the work. The school district then sued Dura-Seal.

The trial court granted summary judgment for Dura-Seal because the work had been accepted. The court of appeals affirmed. Under Missouri law, a contractor is not liable for third party personal injuries after the owner accepts the work. The acceptance doctrine is founded on the assumption that the owner has made a reasonably careful inspection of the work of the contractor and the owner knows of the defects, if any. The owner then “accepts the defects and negligence that caused them as his own.” Continue Reading How the acceptance doctrine protects Missouri contractors from personal injury liability

Similar to a Termination for Convenience clause, a Termination with Notice clause (often found in U.S. Postal Service contracts) allows a party to end a contract without breaching it. Under the clause, either party may terminate the contract without cost consequences by providing advance written notice – usually 60 days – to the other party. The Postal Service Board of Contract Appeals (PSBCA) addressed the limits that apply to the exercise of this clause in a decision on two closely related cases. Cook Mail Carriers, Inc., PSBCA No. 6583, and Patricia Joy Sasnett, PSBCA No. 6584, issued on March 24, 2017.

Cook and Sasnett each had separate Highway Contract Route contracts to transport mail at designated times between various points in Alabama. In March 2014, the Postal Service made changes to its processing network that affected several contractors, including Cook and Sasnett. While the network changes could have been effected by modifying their contracts, the Contracting Officer (CO) instead exercised the Termination with Notice clause.

When he terminated the contracts, the CO misunderstood the network changes.  He thought the changes were needed because the Gadsden, AL mail processing facility was closing.  In fact, the Gadsden facility was already closed and revised routes were needed because other mail transportation hubs were being relocated.

Propriety of the termination

Cook and Sasnett filed claims asserting the terminations were improper and the case ended up at the Postal Service Board of Contract Appeals (PSBCA). Examining the Termination with Notice clause, the PSBCA noted that while it does not include any express limitations, its use “is not truly unlimited.”  The PSBCA then considered whether the CO’s action was proper under three separate legal principles. Continue Reading Three legal principles that limit the Termination with Notice clause

President Trump’s April 18, 2017 Executive Order announces that it is “the policy of the executive branch to buy American and hire American.” It demands that federal agencies enforce and comply with all current “Buy American Laws.”

There is nothing remarkable about that. New policy initiatives and statutory changes will come later, presumably with the input of the affected agencies. The Order requires federal agencies to assess and monitor their enforcement and implementation of existing Buy American Laws, including their use of waivers and the impact waivers may have on jobs and manufacturing. Based on the 150-day deadline in the Order, the agency reports are due by September 15, 2017.

The most controversial and most significant changes resulting from President Trump’s Order are likely to come as a result of changes to existing trade agreements. The President’s Order requires the Secretary of Commerce and the United States Trade Representative to assess the impact of all United States free trade agreements and the WTO Government Procurement Agreement. By November 24, 2017, they are to submit a report to the President containing “specific recommendations to strengthen implementation of Buy American Laws.”

Continue Reading Will “Buy American and Hire American” hurt American business?

The 1996 Congressional Review Act has been getting a lot of use since President Trump’s inauguration. On March 27, 2017, President Trump signed House Joint Resolution 37, revoking the “blacklisting regulations” put in place following former President Obama’s July 2014 Executive Order on Fair Pay and Safe Workplaces (EO 13673). As we discussed in an earlier post, the EO and the regulations implementing it directed federal agencies to take into account an employer’s workplace safety and other labor law violations as part of the their procurement decisions.

The CRA is an obscure legislative tool that can rescind recent executive actions, and thereby limit agency authority. Under the CRA, Congress has 60 legislative days (which are counted differently than calendar or business days) to pass a “joint resolution of disapproval” in the House and Senate. Joint resolutions of disapproval cannot be filibustered. A simple majority in both houses of Congress can overturn agency rules and regulations if the president signs the joint resolution.

There were significant questions regarding due process concerns with the blacklisting regulations. Industry strongly criticized the regulations because they allowed agencies to exclude contractors based on mere accusations, such as safety citations that had not yet gone through any adjudicatory proceedings.

Revoking the blacklisting regulations was the first of several actions President Trump and his allies in Congress intend to pursue to reduce the administrative/regulatory burdens on employers.

Continue Reading Will the rollback of Obama’s executive orders be permanent?