Contract Disputes Act claims are subject to a six-year statute of limitations. While the math involved in calculating when that limitations period runs seems easy, determining when a CDA claim accrued is not always so simple. FAR 33.201 defines “accrual of a claim” as the date when the party with the claim knew or should have known all of the events that “fix the alleged liability” of the other party. But the Federal Circuit’s decision in Kellogg Brown & Root Services, Inc. v. Murphy, No. 2015-1148 (Fed. Cir. May 18, 2016) [PDF], shows that the date of accrual is not always clear.
The Army awarded KBR a cost-plus-award-fee contract for work to be performed in Iraq. KBR subcontracted with KCP/Morris for certain tasks. KBR eventually terminated KCP/Morris for default. KCP/Morris challenged the termination, but continued to perform until September 2003, when a replacement subcontractor took over its scope of work.
KCP/Morris sued KBR for costs relating to the terminated work, and the parties settled the case in January 2005. The settlement agreement provided that KBR would invoice the Army on KCP/Morris’s behalf for costs and profit related to its performance under the Master Agreement. KCP/Morris presented its claim to KBR a year and a half later, in August 2006. KBR then submitted KCP/Morris’s claim to the Army. The Army declined to consider KBR’s pass-through claim for KCP/Morris and instructed KBR to reach a final settlement with KCP/Morris. The Army informed KBR that it would not consider a claim for costs or profit payable to KCP/Morris until after KBR reached a final settlement specifying a sum certain due to KCP/Morris.
Some months later, before reaching a settlement with KCP/Morris, KBR resubmitted the claim to the Army. Before receiving a response, KBR withdrew the claim, citing a business dispute with KCP/Morris. KCP/Morris again sued KBR, alleging that KBR failed to submit and pursue KCP/Morris’s claim, as the original settlement agreement required. KBR and KCP/Morris eventually settled the second lawsuit for an additional sum.
In May 2012, KBR submitted a certified claim to the Army for the amount paid to KCP/Morris in the settlement. The contracting officer declined to respond, and KBR appealed to the ASBCA on the basis of a deemed denial. The Army moved to dismiss KBR’s claim as time-barred, asserting that the six-year CDA statute of limitations had run. The Board granted the motion to dismiss, finding that KBR’s claim had accrued either in September 2003 (when KCP/Morris stopped work under the subcontract) or alternatively, in January 2005 (when the parties agreed to invoice the Army for the original settlement amount). KBR appealed.
The Federal Circuit’s analysis
The Federal Circuit reversed the Board’s decision, holding that KBR’s claim was not time-barred. The court first looked to the FAR’s definitions of “accrual” and “claim,” concluding that a “claim” does not “accrue” until the amount of the claim can be stated as a sum certain. Applying this interpretation to the facts at hand, the court accepted KBR’s argument that it did not have adequate information to request a “sum certain” until KCP/Morris first submitted its claim to KBR in August 2006. The court then rejected the Army’s argument that KBR’s claim against the Army accrued on the same date that KCP/Morris’s claim accrued against KBR. Pointing to the Army’s instruction to KBR to settle the claim with KCP/Morris before billing the government, the court reasoned that KBR could not have requested a sum certain from the Army before it resolved its issues with KCP/Morris. The court likened the Army’s instruction to a “mandatory pre-claim procedure” that prevented the claim from accruing until the procedure was satisfied. Concluding that KBR’s May 2012 claim submission was within the six-year CDA statute of limitations, the court held that the claim was not time barred.
The Federal Circuit’s approach to claim accrual presents some important problems. In KBR, the government explicitly instructed the contractor to hold its claim until the subcontractor issues were resolved. It would seem unfair for the contractor to then be penalized for following the government’s instructions and waiting to present its claim. But what about cases where the government has not given such instructions? And what about claims in which the sum certain is an estimate of costs to be incurred in the future? If a claim does not “accrue” until the costs are incurred, can the government argue that claims involving estimated future costs are premature? Can the contractor extend the limitations period indefinitely simply by waiting to finalize a settlement with a subcontractor?
These problems might easily have been avoided by citing the government’s conduct not to delay “accrual,” but to support the application of equitable estoppel. This fairness concept may have been motivating the Court’s decision and it may be a useful approach to the problem of enforcing limitations periods in the future. Unfortunately, new cases will be needed to fully resolve the questions raised in KBR.
Until we know the full impact of KBR, federal contractors and subcontractors should take active steps to identify the applicable deadlines and to preserve their claims. Here are a few common sense guidelines—
- Don’t rely on the government to determine when your claim accrues. Ultimately, it is the contractor’s responsibility to determine when its claim has accrued. While a CO may volunteer his or her opinion on the matter, the government isn’t always right. Relying on a CO’s opinion about an accrual date could result in your claim being time-barred. COs may, on occasion, instruct a contractor to hold off on submitting a claim for one reason or another. Don’t assume that this government instruction will toll the CDA statute of limitations. Instead, evaluate the situation and decide whether you think your claim has accrued. If so, be sure to submit your claim before the six-year limitations period has run.
- Consider executing a tolling agreement. The Federal Circuit’s decision in Sikorsky Aircraft Corp. v. United States, 773 F.3d 1315 (Fed. Cir. 2014), holds that the six-year CDA limitations period is not jurisdictional. This means that contractors may ask the government to enter into a tolling agreement that pauses the applicable statute of limitations. A tolling agreement can be used to extend the normal limitations period to allow for investigations or negotiations and may be useful if the parties decide that the formal claims process is not needed.
- Document any government instruction relating to accrual of your claim. As the KBR decision shows, the government’s instruction to a contractor may be a critical factor in determining whether a claim has been timely filed. Contractors should retain emails, meeting minutes, and correspondence that relates to the claim. Document any relevant conversations or other communications that may be needed to establish the timeliness of a claim.