[UPDATE: On May 26, 2015, the Supreme Court reversed the Fourth Circuit’s decision in Carter and held that the Wartime Suspension of Limitations Act is limited to criminal offenses. Kellogg Brown & Root Services, Inc. v. Carter, No 12-1497 (U.S. May 26, 2015) [pdf]. Our discussion of the Carter decision is available here.]

Whether the Wartime Suspension of Limitations Act tolls the six-year statute of limitations for civil claims under the False Claims Act will soon be addressed by the Supreme Court. In Kellogg Brown & Root Services, Inc. v. United States ex rel Benjamin Carter, No. 12-1497 (July 1, 2014), the Court will have the opportunity to address several important questions about the application of the WSLA. Should it apply to civil claims or be limited to criminal actions? Does the tolling specified in the WSLA require a formal declaration of war? And does the WSLA apply to a qui tam claim in which the United States declines to intervene?

[Note:  The case also asks the Court to address whether the FCA’s “first-to-file” bar applies to cases filed after the first case is dismissed.  We’ll look at that question in another post.]

The case comes to the Supreme Court following the Fourth Circuit’s decision in U.S. ex rel Carter v. Halliburton Co., 710 F.3d 171 (4th Cir. 2013). In that case, the Fourth Circuit held that the WSLA tolled all civil actions—including civil FCA claims brought by qui tam relators—until the President or Congress declared a “termination of hostilities.” The Supreme Court accepted Halliburton’s petition for certiorari and will hear the case in 2015.

We believe the Fourth Circuit’s opinion represents a significant expansion of the WSLA. As Judge Agee points out in his dissenting opinion, a particularly troublesome aspect of the Fourth Circuit’s decision is its application of the WSLA to civil qui tam actions in which the United States has not intervened. The underlying purpose of the WSLA is to allow the law enforcement arm of the United States government to focus on its “duties, including the enforcement of the espionage, sabotage, and other laws’” in times of war. Id. (citing Bridges v. United States, 346 U.S. 209, 219 n. 18 (1953)). In a qui tam action initiated by a private citizen, the rationale for tolling the limitations period is diminished.

Continue Reading Will the Supreme Court uphold tolling of the six-year limitations period for civil False Claims Act cases during times of war?

The Federal Circuit’s decision in Raytheon Co. v. United States, No. 2013-5004 & 2013-5006 (Fed. Cir. April 4, 2014) [pdf] affirms a $59-million judgment arising from a government challenge to Raytheon’s calculation and payment of pension fund adjustments. It is certainly an important case because of the money at stake for Raytheon and its analysis of CAS 412 and CAS 413.

It may have much broader relevance. One of the most striking elements in the decision is the court’s discussion of the relationship between the Cost Accounting Standards and the cost principles in FAR Part 31. In a few direct and succinct paragraphs, the court summarizes the differences between allowability under the FAR and allocability under the CAS. Here are the highlights drawn from the opinion:

  1. The FAR Cost Principles govern matters of cost allowability. A determination that a particular cost is allowable reflects a policy judgment that the cost is of a type that should be paid by the Government.
  2. The CAS does not address allowability. Rather, the CAS addresses the measurement, assignment, and allocability of costs.
  3. If there is a conflict between the CAS and the FAR as to an issue of allocability, the CAS governs.
  4. According to the CAS, measurement includes defining the components of costs, determining the basis for cost measurement, and establishing the criteria for using alternative cost measurement techniques. Allocability addresses the relationship between a cost and a cost objective (e.g., a contract), such that the cost objective bears the appropriate portion of a cost.
  5. An agency may include a provision in its contracts or regulations that disallow certain types of costs because they are unreasonable in amount or contrary to public policy. Unallowable costs may nevertheless be allocable to a contract.

The decision also concludes that the Government bears the burden of proving that a contractor’s accounting practices do not comply with the CAS.

It should come as no surprise that the contracting policy changes in the National Defense Authorization Act for 2014 [pdf] reflect a continued focus on reducing spending. But they also encourage collaboration between the government and the private sector and emphasize the need for innovative contracting strategies and greater flexibility in the procurement process, which may benefit contractors in the long run. Here is a breakdown of a few of the highlights:

  • Extension of restrictions on contractor services spending. Section 802 of the 2014 NDAA amends Section 808 of the 2012 NDAA to extend the temporary limit on the amounts obligated for DOD spending on contract services in FY 2014 to the amount requested for contract services in the President’s budget for FY 2010. It also requires that the heads of each Defense Agency continue the 10-percent-per-fiscal-year reductions in spending for staff augmentation contracts and contracts for inherently governmental function for FY 2014, and requires that any unimplemented amounts of the 10 percent reductions for FY 2012 and FY 2013 be implemented in FY 2014. Continue Reading Procurement reforms in the FY 2014 National Defense Authorization Act

Metcalf Construction Company and the Navy argued their positions today in the appeal of Metcalf’s $27-million claim on its contract to design and build military housing in Kaneohe Bay, Hawaii. The appeal focuses on the December 9, 2011 decision by Judge Susan G. Braden of the United States Court of Federal Claims, which addresses the liability issues presented by Metcalf’s claim. See Metcalf Constr. Co. v. United States, 102 Fed. Cl. 334 (2011) (Metcalf I). A second decision issued on December 10, 2012 addresses the damages issues presented in the case. Metcalf Constr. Co. v. United States, 107 Fed. Cl. 786 (2012) (Metcalf II). Regardless of how the Federal Circuit resolves the appeal, the case is bad for federal construction contracting.

Duty of good faith and fair dealing

In Metcalf I, the court found that Metcalf could not establish its claim that the Navy breached its duty of good faith and fair dealing. This conclusion is based entirely on the Court’s interpretation of the applicable standard for proving such a claim. In Judge Braden’s view, “a breach of the duty of good faith and fair dealing claim against the Government can only be established by a showing that [the Government] ‘specifically designed to reappropriate the benefits [that] the other party expected to obtain from the transaction, thereby abrogating the government’s obligations under the contract.’” Metcalf I § C.1.b (quoting Precision Pine & Timber, Inc. v. United States, 596 F.3d 817, 829 (Fed. Cir. 2010)).

Continue Reading The story of Metcalf Construction and why it’s bad for federal construction contracting

The Contract Disputes Act imposes a six-year statute of limitations on all claims, whether they are asserted by the contractor or by the Government. See 41 U.S.C. § 7103(a)(4)(A). The limitations period begins to run upon accrual of a claim, which is “the date when all events . . . that fix the alleged liability of either the Government or the contractor and permit assertion of the claim . . . were known or should have been known.” FAR 33.201. Because six years must Aeroplane Sunsetpass before the claim expires, the precise date of accrual is often little more than an academic question. Indeed, there have been relatively few cases applying the CDA limitations period to Government claims. But accrual has recently become a real and sometimes insurmountable obstacle to Government claims. Here is a short summary of the basic concepts that have emerged from the decisions that have addressed the issue.

1.         The government has the burden of proving timeliness. 

The CDA limitations period is “jurisdictional.” When the government asserts a claim against a contractor, the government has the burden of proving jurisdiction. To do so, the government must establish that the claim was timely asserted. If the government cannot show that the claim was asserted within six years of accrual, the Board or the Court lacks jurisdiction to hear the claim. Raytheon Missile Systems, ASBCA No. 58011 (Jan. 28, 2013) [pdf].

Continue Reading “Accrual” of government claims under the Contract Disputes Act

Cover of OIG Sept 18 2013 report.jpgDe-regulation of the U.S. Postal Service’s purchasing policies has stymied the prosecution of defective pricing fraud cases, according to a September 18, 2013 report issued by the USPS Office of Inspector General (OIG).  U.S. Attorney’s offices have thus declined to criminally prosecute suppliers for submitting defective cost or pricing data in procurement actions valued at $36 million. The OIG therefore recommends that the Postal Service require suppliers to certify that cost or pricing data are accurate, complete, and current. USPS management, however, disagrees. The Postal Service believes its interests are already fully protected and the disadvantages of imposing a new certification requirement would outweigh any benefits.

Continue Reading USPS’s de-regulated purchasing policies stymie defective pricing fraud cases

Contributed by Husch Blackwell Associate Thomas J. Rath

It makes sense to require contractors seeking reimbursement of costs they incur in the performance of a government contract to show that the costs were reasonable. According to the latest decision addressing KBR’s effort to recoup costs incurred to support the United States military in Iraq, the rule is no different for work performed in a warzone. Without additional proof of reasonableness, the Court of Federal Claims concluded that $37 million may be too much for a dining facility needed to feed and protect 6,000 American soldiers. See Kellogg Brown & Root Services, Inc. v. United States, Nos. 09-428C & 09-578C (Fed. Cl. Sept. 27, 2012).

The decision arises from KBR’s claims for costs incurred to construct and operate a reinforced concrete dining facility needed to feed and protect 6,000 soldiers in Mosul, Iraq. Though KBR’s contract was awarded on a cost-reimbursement basis, KBR awarded a fixed-price subcontract for the work to ABC International Group. Army representatives urged KBR to begin work on the new facility quickly, citing the need for “force protection.” Responding to this pressure, KBR accepted a proposal from ABC that doubled the expected monthly cost of labor without seeking competing bids. KBR concluded the increase was reasonable because the work would be conducted amid “violence and the beheading of hostages by terrorists [which] caused a drastic increase in the cost of labor and a severe shortage of available staff.” By the end of the contract, the government asserted that KBR had paid over $12 million more to ABC for labor than it should have.

Continue Reading $37 million may be too much for a warzone cafeteria

Just in time for Thanksgiving, the federal government has withdrawn its False Claim Act suit against KBR alleging $100 million in improper charges for private security costs under KBR’s LOGCAP III contract. We criticized the court’s August 3, 2011 decision denying KBR’s motion to dismiss the case last summer. While KBR has good reason to celebrate the withdrawal of the claim, the court’s approach to the case will continue to present problems for government contractors.

The case arose out of a dispute relating to the allowability of private security costs. KBR attempted to seize the initiative by submitting a Contract Disputes Act claim to the Army contracting officer and then appealing to the Armed Services Board of Contract Appeals. The government responded to the Board case with a False Claims Act complaint in the D.C. federal district court. KBR moved to dismiss the FCA case, contending that there was nothing “false” about its claims for payment of private security costs. KBR argued that the issue was just a contract dispute that ought to be resolved as such.

The court denied KBR’s motion, citing internal KBR emails questioning the allowability of private security costs and KBR’s effort to obtain change order allowing them. The court held that that the government’s allegations satisfied the “materiality” element of the implied false certification theory under the DC Circuit’s SAIC decision.

The government’s decision to withdraw the complaint is certainly a positive development for KBR. Perhaps the claim will be resolved as an ordinary contract dispute, as it should have been in the first place. The informal resolution of the case is not as positive for other contractors facing government efforts to wield the False Claims Act sword in connection with resolving ordinary contract disputes. Without further consideration of the issue in the KBR case, some courts will no doubt be tempted to treat the issue of materiality as a factual, and not a legal, question. The risk remains that the government or a qui tam relator can cite a contractor’s internal discussion of the meaning of ambiguous contract terms as evidence of an FCA violation.

Christiansted Post Office - St. Croix - Virgin Islands.jpgContractors are entitled to recover consultant and attorney costs reasonably incurred in preparing, pricing, and negotiating a change order under federal government contracts, including U.S. Postal Service contracts. That’s the holding in Tip Top Constr., Inc. v. Donahoe, 695 F.3d 1276 (Fed. Cir. 2012). The court overturned a Postal Service Board of Contract Appeals decision that had erroneously limited the contractor’s recovery of these costs. End result: if an agency changes your contract (whether by unilateral direction or constructive change), your request for an equitable price adjustment may include reasonable consultant and attorney costs.

Continue Reading Consultant and attorney costs are recoverable under change proposals

On May 18, 2012, the United States House of Representatives voted 299-120 to approve HR 4310, the National Defense Authorization Act for Fiscal Year 2013 [pdf]. The House vote rejects two amendments that had been the topic of some discussion within the government contracts community. One would have restricted the definition of “commercial item” in order to reduce the DOD’s use of streamlined commercial item procurement. FAR 2.101 currently defines commercial item as an item customarily used by the general public that either has been sold to the general public or “has been offered for sale” to the general public. The amendment would have limited commercial item sales to items actually sold to the public in quantities similar to those purchased by the government. The amendment would have addressed a criticism charging that the government uses streamlined commercial item procedures for items that are either not really used by the public or are used by the public only in token amounts.

The House also rejected a proposal to limit allowable executive compensation to $400,000. Currently, allowable executive pay is capped at $763,029. See 77 Fed. Reg. 24226 (April 23, 2012). The $400,000 limit would have reduced allowable executive compensation to 2004 levels and to the salary of the President of the United States.

Allowable compensation costs for the senior executives of Government contractors is capped by statute. See 10 U.S.C. § 2324(e)(1)(p); 41 U.S.C. § 4304(a)(16). The limitation appears in the FAR Cost Principles at FAR 31.205-6(p). These caps do not actually limit the amount of compensation that an executive may receive from a government contractor. But executive compensation costs in excess of the limit are deemed unallowable costs. They must be paid from the contractor’s profit and not reimbursed by the Government as a direct or indirect cost.

Related articles—

Fatal flaws in DCAA’s challenge to contractor executive compensation (Feb. 1, 2012)

More contractor oversight in the 2012 National Defense Authorization Act (Dec. 23, 2011)

Executive compensation FAQ (June 15, 2011)