Jurisdictional issues arising from disputes about wages and benefits required by federal minimum wage statutes like the Davis-Bacon Act and the Service Contract Act can be tricky. In some cases, the Department of Labor has exclusive power to resolve such disputes. In others, the dispute must be resolved by the contracting officer, with appeal rights available under the Contract Disputes Act. The ASBCA’s recent decision in Caddell Constr. Co., ASBCA No. 57831 (May 21, 2012) [pdf] helps determine which cases fall on either side of this line.

The case arose from an Air Force contract to build a new commissary and related site work at Fort Campbell, Kentucky. The solicitation included two wage determinations—one for highway construction with low wage rates and another for building construction with much higher wage rates. Prior to bid, the agency told bidders to use the lower highway construction wage determination. During performance, the contracting officer required the contractor to pay wages according to the higher wage determination for building construction.

The contractor submitted a claim in accordance with the Contract Disputes Act. At the Board, the government moved to dismiss the appeal, arguing that such labor disputes are reserved to the Department of Labor. The Board denied the motion, holding that the Board has jurisdiction to hear disputes over wage issues “where there was an alleged mistake (mutual or unilateral) as to the applicability of the Davis-Bacon Act to appellant’s employees.” The Board concluded that it had jurisdiction to hear the contractor’s claim to recover additional wages paid to employees as a result of faulty wage rate information provided to bidders before submission of bids.

But why is this important?

The FAR Council has proposed a new FAR Subpart 22.12 addressing Executive Order 13495 and the Department of Labor’s final rule [pdf] on nondisplacement of qualified workers. The proposed amendments restate the substance of the Executive Order and the DOL rule, omitting only the procedures for investigation and enforcement that do not pertain directly to contract administration. A new mandatory contract clause will incorporate the nondisplacement policy into all contracts and subcontracts at any tier to furnish services in the United States that succeed contracts for the same or similar work in the same location (unless an exemption or waiver applies).

The new FAR language does not address the apparent conflict between the policy requirement for nondisplacement of qualified workers and the requirement to accept the terms of an existing collective bargaining agreement under the NLRB’s “perfectly clear” doctrine. The “perfectly clear” doctrine states that a successor employer is bound by the terms of a collective bargaining agreement when it is “perfectly clear” that the successor will retain all employees in the bargaining unit without changes to the terms and conditions of employment. This differs from a normal successor employer, which is required to bargain with the union but not to comply with the existing collective bargaining agreement. 

Contractors sued for False Claims Act violations face a potential judgment assessing stiff civil penalties and treble damages. Even assuming that the government can meet its burden of proving a violation of the False Claims Act, defenses to the damages elements of the case should not be ignored. Grossly disproportionate penalties One important limit on the assessment of civil penalties appears in the 8th Amendment to the United States Constitution, which prohibits the assessment of excessive fines. To prevail on an 8th Amendment defense, a contractor must show that the fine would be grossly disproportionate to the gravity of the offense. Four factors are relevant here:

  1. the extent of the harm caused;
  2. the gravity of the offense relative to the fine;
  3. whether the violation was related to other illegal activity, and the nature and extent of that activity; and
  4. the availability of other penalties and the maximum penalties which could have been imposed.

In one recent case, the court accepted an 8th Amendment argument that wiped out a $50 million civil penalty against a contractor found guilty of bid rigging. See United States ex rel. Bunk v. Birkart Globistics GMBH & Co., No. 1:02cv1168, 1:07cv1198 (E.D. Va. Feb. 14, 2012). The contract involved moving services for military personnel stationed in Europe. The contractor submitted a bid with 51 line item prices. The court found a violation of the False Claims Act because one of the line item prices was affected by a subcontractor bid-rigging scheme. The government sought to assess a $5,500 penalty for each of the contractor’s 9,136 invoices, yielding a penalty of $50,248,000. Despite the False Claims Act violation, the court refused to assess the penalty because it was grossly disproportionate to the gravity of the offense. The entire contract price was only $3.3 million and the contractor’s profit was only $150,000. There was no evidence of economic harm to the government because the contractor’s services were acceptable and the prices were lower than any competitor’s prices.

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”…

The Contractor’s Perspective is up to three entries on the application of FAR 52.204-10, which requires some federal contractors and first-tier subcontractors to report the compensation of their top-five highest paid executives. Even though it has been almost two years since the requirement first appeared in the FAR, the topic still generates a lot of interest and a lot of questions. Here are answers to some of the questions we received in the executive compensation reporting segment of our recent webinar on Transparency in Government Contracting. We hope you find them useful.

Question: Does FAR 52.204-10 apply only to new contracts or does it also apply retroactively to existing contracts?

Answer: Even though the statutory requirement for reporting executive compensation became law in April 2008 when President Bush signed the Government Funding Transparency Act of 2008, the contractual requirement didn’t go into effect until July 8, 2010, when the FAR Councils published FAR 52.204-10 as an “interim rule.” According to the text of the interim rule, FAR 52.204-10 is required in all contracts over $25,000 that are awarded after July 8, 2010. It does not apply to contracts awarded before on or before July 8, 2010.

Oral contracts do exist, and the U.S. Postal Service cannot force you to sign a contract with different terms than previously agreed upon. That’s the take-way from a recent decision issued by the Postal Service Board of Contract Appeals (PSBCA) in a case called Sharon Roedel, PSBCA No. 6347, 6348, April 10, 2012.  The PSBCA found that the Postal Service breached an oral contract it had with Roedel, and that USPS owed her the profits and wages she would have earned under the six-month emergency contract.

The James Zadroga 9/11 Health and Compensation Act of 2010, Public Law No. 111-347 (Jan. 2, 2011) [pdf] establishes a program to provide health evaluations and medical treatment to emergency responders and other individuals directly impacted by the September 11, 2001 terrorist attacks on the World Trade Center. Funds for the program are to be generated by a two percent excise tax on any “specified Federal procurement payment” received by a “foreign person.” 26 U.S.C. § 5000C. 

In addition to imposing the tax, the Act requires federal agencies to make sure that taxes paid under this law are not “reimbursed.”

The FAR Councils published a proposed rule implementing this requirement on February 22, 2011. See 77 Fed. Reg. 10461 (Feb. 22, 2011). The proposed rule changes amend FAR 31.205-41 “to inform the Government and contractors that costs of the 2 percent tax are not allowable.” It also proposes changes to four FAR contract clauses “to provide that the costs for the 2 percent tax are not included in foreign fixed-price contracts . . . .”

DCAA’s March 28, 2012 memorandum summarizes DCAA’s approach to the new DFARS Contractor Business Systems rules. As we discussed in our earlier entries, the DFARS regulations and clauses call for a determination of the adequacy of a contractor’s business systems—accounting, estimating, purchasing, material management—and allow a contracting officer to withhold five percent of contract payments…

Doing business with the U.S. Postal Service has always been different than contracting with other federal agencies and commercial entities. As an independent agency, the Postal Service is exempt from most federal procurement laws and regulations. That’s why our firm is presenting a full-day seminar on “Postal Service Contracting: What Every Contractor Should Know,” at the Westin Tysons Corner hotel on Thursday, May 10, 2012. Click here to learn more or click here to register.

What happens when a government contractor who thinks its contract performance complied with applicable statute or regulation later learns that it actually was out of compliance?  Are its invoices for that performance false claims that violate the False Claims Act?

The answer depends on whether the contractor acted “knowingly.”  A March 30, 2012 decision of the Fourth Circuit Court of Appeals highlights the fact that proving a False Claims Act violation requires not only the submission of a claim that is false, but also that the false claim was submitted “knowingly”—the contractor knew the claim was false or acted with deliberate ignorance or reckless disregard for the truth or falsity of the claim. United States ex rel. Drakeford v. Tuomey Healthcare System Inc., No. 10-1819 (4th Cir. Mar. 30, 2012) [pdf].