At times, a prime contractor can effectively be the middle man between the government and a subcontractor. The FAR directs that the prime contractor should always provide value to the overall procurement; however, many prime contractors require the assistance of subcontractors to fulfill this contract requirement. The recent CBCA case VSE Corporation v. Department of Justice spotlights that, even in fixed-price contracting, the prime contractor may or may not have bid with locked in subcontract rates.  If the government accepts the prime contractor’s offer and the subcontractor raises their rates, the prime contractor is liable for the additional costs, not the government.  In VSE, this led to fireworks for the prime contractor, literally.

VSE provided storage services to the Bureau of Alcohol, Tobacco, Firearms and Explosives (ATF) to store seized property. The initial contract was a cost-reimbursement contract for which VSE was paid on a per pound basis.  ATF stored seized fireworks with VSE at a facility owned by VSE’s subcontractor Heritage Disposal & Storage and Heritage charged VSE $0.10 per pound to store the fireworks. Subsequently, the government asked VSE to reconfigure the fireworks for safety reasons. Despite VSE’s contract with Heritage, Heritage increased its storage billing rate from $0.10 per pound to $0.195 per pound based on the reconfiguration.

The government then issued a new solicitation for nationwide seized property to include fireworks. Rather than a cost-reimbursement contract, this contract was fixed-price. VSE submitted a bid where it identified the fireworks and proposed a base year price of $1.95 per square foot. However, this price would not be sufficient to cover the expenses for the fireworks storage as Heritage had been charging VSE approximately $170,000 per month to store the fireworks while the government had only been paying VSE approximately $77,000 per month for storage.   Continue Reading Boom: Fireworks between Subcontractor, Prime Contractor, and Government (Literally)

The Armed Services Board of Contract Appeals (the “Board”) recently issued another reminder in [Redacted], ASBCA No. 61065, that government contractors need to specifically reserve their rights to Contract Disputes Act claims in modifications and releases for final payment. While its name doesn’t quite rival the best of those associated with civil forfeiture cases (for example, United States of America v. An Article Consisting of 50,000 Cardboard Boxes More or Less, Each Containing One Pair of Clacker Balls), [Redacted] does serve as a useful reminder to keep an eye out for any waiver language in payment requests, modifications, or (as here) an invoice for final payment.  Continue Reading Contractor Waives its Right to Pursue Claim Through its Invoice for Final Payment

It is a common principle of contract interpretation that a court will not set aside the clear intent of the parties particularly when it comes to assignments or releases of claims. However, the unique legislative history of the Contract Disputes Act (“CDA”) grants the agency boards of contract appeals the power to set aside an assignment of a claim, if that assignment would waive the contractor’s right to appeal a Contracting Officer’s decision to the boards. A recent Armed Services Board of Contract Appeals (ASBCA) decision highlights this power, which is of great importance to contractors because they keep their right to file affirmative monetary contractor claims against the government and appeal government claims, such as a termination for default.

In Ikhana, LLC, the Armed Services Board of Contract Appeals held that an assignment of all claims to a surety in an indemnity agreement for a performance and payment bond in the event of a default did not prevent the contractor from bringing claims and an appeal of that default to the Board.  ASBCA No. 60462.  Ikhana entered into a contract with the Army Corps of Engineers to provide secured access lanes and remote screening facilities at the Pentagon.  In October 2015, Ikhana filed four claims with the Contracting Officer.  In December 2015, the Contracting Officer terminated the contract for default.  On February 25, 2016, Ikhana appealed the termination for default as well as its four affirmative claims.  The government then made a claim against Ikhana’s performance bond. Continue Reading Assignment of Claims to a Surety Cannot Waive A Contractor’s CDA Appeal Rights

In Appeal of American West Construction, LLC, the Armed Services Board of Contract Appeals considered whether the U.S. Army Corps of Engineers (Government) lost its right to claim a credit under the Changes Clause by waiving its right to insist on compliance with the contract specifications prior to insisting on such compensation.  Finding the Government was fully aware of the Contractor’s use of a less expensive construction method than in the specifications, the Board found the right to claim there was a change to the contract was “dead” and no credit was owed for the work not performed.

American West was awarded a MATOC contract for design-build construction services.  In August 2015, the Government awarded Delivery Order 02 (DO2) under the MATOC contract for construction of bridges over irrigation canals in El Paso, Texas.  The DO2 specifications provided that the work would be performed by first building two temporary bridges over the canals so the Contractor could access the site.  The Contractor, however, sought access to the construction site via a levee owned by the local water district.  However, because negotiations with the water district over access to the levee were pending and the Contractor could not be sure that access would be granted, the Contractor proceeded under the assumption the temporary bridges would still be necessary. Continue Reading You Don’t Always Get What You Pay For: Government Waives a Credit for Work Not Performed

 

In Industrial Maintenance Services, CBCA 5618, the Civilian Board of Contract Appeals (CBCA) found a contractor was entitled to additional payment where the Agency paid certain direct costs associated with a change in the critical path of performance, but failed to include the costs of impacted, unchanged work in the modification.

Contractor Industrial Maintenance Services appealed the denial of its claim by the Department of Veterans Affairs (Agency) for direct costs and markups associated with changes and additions to its scope of work for renovation of a medical center.  The parties executed a bilateral modification, which increased the contract price and provided that the adjustment included “all costs direct and indirect, associated with the work and the time agreed to herein, including, but not limited to…the changes’ impact on unchanged work.”  Despite the language of the modification, the Agency’s representative stated the parties would address the “impact to the schedule” at a later date.  The Contractor similarly noted on the modification that it “reserved the right to be compensated for additional days if needed once the schedule is revised to incorporate this change.” Continue Reading Compensation for Changed Work Not Enough to Fully Compensate for Unchanged Work According to CBCA

The Armed Services Board of Contract Appeals (ASBCA) recently issued its Fiscal Year 2017 annual report, as well as its annual report on Alternate Dispute Resolution (ADR). The reports offer statistics that highlight the high success rate for contractors based on the contractor winning outright or receiving some recovery, a doubling of ASBCA Rule 12 accelerated and expedited appeals, a very high number of appeals resolved through ADR, and a reduction in the ASBCA’s backlog of appeals.  All in all, great news for contractors. Continue Reading ASBCA Reports High Appeal Success Rate for FY 2017; Accelerated and Expedited Appeals Double

Most government contractors are well-aware that the road to preserving and pursuing a claim against the government is one where opportunities for contractors to waive or otherwise lose their right to assert valid claims abound. In a decision where form has once again prevailed over substance, the Armed Services Board of Contract Appeals (“the Board”) recently determined in Appeal of NileCo General Contacting LLC that a typewritten signature block in a company director’s email was not a sufficient signature to certify the contractor’s claim under the Contract Disputes Act (“CDA”).

In December 2011 the U.S. Army Corps of Engineers (”USACE”) awarded NileCo General Contracting LLC (“NileCo”) a contract to construct a dining facility and other structures at Manas International Airport in Kyrgyzstan. Two years later, the government suspended work, and directed NileCo to demobilize and quit the site. By July 2016, the government was still withholding payments. NileCo sent the contracting officer a $2,079,137.25 claim. The emailed claim included certification language required by the CDA, but the sender—the contractor’s director, Anwar Ahmed—included only his typewritten name and not an “electronic or digital signature.”

The government’s contracting officer acknowledged receiving NileCo’s email, advised that he needed additional time to prepare his final decision, and stated that the final decision would “be issued by November 20, 2016.” Soon thereafter, the government terminated NileCo’s contract for convenience. Having received no final decision by Nov. 20, 2016, NileCo filed its notice of appeal with the Board. The government sought to dismiss NileCo’s appeal because it contended that NileCo’s email did not constitute a valid claim under the CDA as it did not provide the required certification. Continue Reading Form Matters: Contractor Loses $2M Claim Because Emailed Certification Was Not “Electronically or Digitally” Signed

A recent case makes clear the importance of focusing on the fundamentals, such as knowing the rules on who the government is required to pay on a government contract.  In The Hanover Insurance v. United States, the U.S. Court of Federal Claims recently found that a surety’s letter to the Government adequately notified it of the contractor’s default of bond agreement, triggering the surety’s equitable subrogation right to payments issued by the Government.

In that case, the surety, Hanover Insurance Company (Hanover), overcame a summary judgment motion filed by the Government, concerning a Veterans Administration (VA) contract awarded to B&J Multi-Service Corporation (“B&J”) for facilities maintenance at a VA facility in West Haven, Connecticut.  The Government paid termination for convenience (“T/C”) costs to B&J to which Hanover as surety claimed it was entitled.

The Government asserted that Hanover, as surety to B&J, had not given proper notice of B&J’s default, thereby precluding any Government obligation to pay Hanover directly.  The Government argued proper notice was not given because Hanover did not invoke the precise words “the principal is in default” prior to the VA’s payment to B&J.  As evident from the court’s opinion, the Government was aware that Hanover was making payments to B&J’s subcontractors.  Hanover put the Government on notice that the funds for termination for convenience should not be paid directly to B&J, because Hanover was asserting a subrogation right to the T/C funds.  However, the Government ignored the surety and paid the termination for convenience funds directly to B&J. Continue Reading Termination for Convenience: Government Pays the Wrong Party, No Magic Words Needed to Trigger Surety’s Right of Equitable Subrogation

With every new administration, there is both great uncertainty and opportunity in federal government contracting. To help you navigate the rough seas of doing business with the federal government in this new administration, we have assembled nationally recognized practitioners who will cover topics relevant to government contractors large and small, novice and seasoned. Session topics include:
– Ten Things Every Contractor Needs to Know When Doing Business with the Federal Government
James F. Nagle | Oles Morrison Rinker & Baker LLP | Seattle, WA
 
– Writing a Winning Technical Proposal – From the Contracting Officer’s Perspective
Mona Carlson, Mary Jo Juarez | PTAC Kitsap Economic Dvlpmnt. Alliance – Navy Contracting Officer (retired) | Kitsap, WA
 
– Keys to Winning Bid Protests and Defending Contract Awards
Adam K. Lasky | Oles Morrison Rinker & Baker LLP | Seattle, WA
 
– Navigating the Complex Rules Governing Data Rights
Jonathan M. Baker | Crowell & Moring LLP | Washington D.C.
 
– Overlooked Risks of Being a Lower-Tier Government Contractor
Alan C. Rither | Pacific Northwest National Laboratory | Richland, WA
 
– Mistakes to Avoid in the Claims and Litigation Process
Donald G. Featherstun | Seyfarth Shaw LLP | San Francisco, CA
 
– Adapting to Buy American and Domestic Preference Rules in the Trump Administration
Howard W. Roth | Oles Morrison Rinker & Baker LLP | Seattle, WA
 
– Understanding & Managing the Risk of Suspension & Debarment
Dominique L. Casimir | Arnold & Porter Kaye Scholler LLP | Washington D.C.

Thursday, November 16th 

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6869764745_7087710505_zIt is common for corporations to compensate executives (and other employees) based upon stock price performance.  Tax implications lend support for this practice with respect to high-paid employees, as executive compensation is only deductible up to a limit of $1 million per year, so companies are inclined to compensate executives with stock performance-based compensation because it is not subject to a deductible cap.

However, the tax benefits of stock performance based compensation lead to competing interests for government contractors with respect to allowable compensation.  These contractors must be cautious with stock performance based compensation because the Federal Acquisition Regulation (FAR) puts several restrictions on what is allowable compensation.  The restriction that most frequently comes up is the FAR’s own cap on allowable compensation ($487,000 as of 2014 and adjusted for inflation annually).  However, unlike the tax code which treats stock performance based compensation favorably, FAR 31.205-6(i) deems compensation based upon stock performance strictly an unallowable cost, stating in part: “Any compensation which is calculated, or valued, based on changes in the price of corporate securities is unallowable.”

The rationale for deeming stock performance based compensation an unallowable cost has largely been based on the view that compensation is to be based on the employees’ performance, and compensation based on stock prices is not sufficiently related to work actually performed.  A further concern that has been raised is the possibility of short term stock price manipulation by managers.

While these compensation restrictions are not a new development (the FAR provision was first implemented in 1983 and is frequently revised), companies sometimes seek to find ways to indirectly incorporate stock performance into compensation in a way that would deem such compensation allowable under FAR, presumably to allow for the best of both worlds under both tax code and FAR.  For example, in one recent ASBCA decision, the Board wholly rejected the contractor’s argument that because (a) the pool of cash available to the employees was set separately from its stock price, and (b) the formula for calculating compensation was based upon performance relative to its peers, and not on the contractor’s stock price alone, FAR 31.205-6(i) was not applicable.

The takeaway from this recent decision is that the interpretation of this FAR provision continues to be strictly construed, and if contractors with cost reimbursement contracts (and in some cases fixed price contracts that are sole sourced) intend to maximize the amount of allowable compensation to employees, they must balance both the FAR cost caps, and the structure of the compensation packages, avoiding stock performance based compensation entirely.

Image Courtesy of Flickr (licensed) by 401(K) 2013