News
June 27, 2019

Court Rebukes Recovery of Legal Expenses for CBA Negotiations

Advisory

The United States Court of Federal Claims (COFC) recently denied recovery of legal expenses incurred while negotiating a Collective Bargaining Agreement (CBA). Just In Time Staffing v. United States, No. 16-1268, 2019 WL 2427072 (Fed. Cl. June 11, 2019). The reimbursement of legal and consultant expenses should have been non-controversial; nevertheless, the contractor managed to get entangled. The COFC offered valuable lessons for contractors seeking to recover similar expenses. Notably, (1) a contractor cannot present "a materially different factual or legal theory" than it submitted to the Contracting Officer (CO) when appealing a CO's Final Decision; (2) negotiating with labor unions is not an inherently governmental activity; least of all one that de facto determines "whether contractor costs are reasonable, allocable, and allocable" per FAR 7.503(c)(12)(vii); and (3) negotiating a CBA is not a constructive change under a contract that required the contractor to comply with laws like the National Labor Relations Act (NLRA) that required the contractor to engage in such negotiations.

Just In Time Staffing entered into a non-personal services contract "to provide medical clerks and other administrative staffing services" to the United States Army Health Medical Command (MEDCOM). Before the end of the base period of performance, the International Union of Operating Engineers, Local Union 351 (Union) filed a petition with the National Labor Relations Board (NLRB) to require Just In Time's employee subcontractors to vote on whether to join the Union. Id. The CO instructed Just In Time to negotiate a CBA with the labor union and represented that "any 'reasonable' increase in costs resulting from the labor negotiations would be incorporated into a contract modification." Just In Time hired consultants and lawyers to help negotiate the CBA, incurring $105,000.76. Just In Time requested an equitable adjustment for the costs incurred negotiating the CBA. Id. Specifically, Just In Time "alleged that it was compelled to undertake additional responsibilities that were inherently governmental" and that it was entitled to an equitable adjustment for negotiating with the Union in connection with the contract. Id. The CO denied the claim, and Just In Time appealed to the COFC.

Just In Time alleged six different theories for recovery in its complaint appealing the CO's Final Decision. The COFC granted the United State's motion and dismissed Just In Time's appeal.

First, the COFC dismissed three of Just In Time's objections after finding that it did not have jurisdiction to adjudicate the disputes. The COFC explained that it has jurisdiction to render judgment on "a claim arising under, and satisfying the requirements of," the CDA. Id. The COFC noted that it possesses jurisdiction to resolve a dispute when it "arises from the same operative facts and requests essentially the same relief, as a claim presented to the CO, even if the complaint alleges a slightly different legal theory," but not when the contractor presents "a materially different factual or legal theory." Id. Because Just In Time had not alleged that (1) MEDCOM's actions constituted a cardinal change, (2) MEDCOM breached its duty of good faith and fair dealing, or (3) MEDCOM failed to disclose its superior knowledge regarding pending petitions to join the Union, in its claim, the COFC found that it did not possess jurisdiction to address those contentions on appeal. Id. Specifically, the COFC found that each of these claims constituted a "materially different factual theory" that Just In Time never presented to the MEDCOM CO.

Next, the COFC held that Just In Time's allegation that "negotiating on behalf of the Government was an inherently governmental function" failed to state a claim upon which the COFC could grant relief. Just In Time did not allege sufficient facts to show "that it was exercising 'discretion in applying the Government's authority' or making 'value judgments in making decisions for the Government,'" i.e., performing an inherently governmental function, when it negotiated a CBA for its subcontractor employees with the Union. Id. Specifically, the COFC found that the National Labor Relations Act imposed a duty on Just In Time to confer over and negotiate the terms of employment when Just In Time's employees elected "to exercise their collective bargaining rights." Id. While Just In Time argued that "the Government would have been responsible for [Just In Time's] additional expense as a result of the CBA" because the contract included the "Price Adjustment Clause" at FAR 52.222-43, the COFC held that the fact "does not convert [Just In Time's] duty under the NLRA as a private employer to negotiate with its employees into an inherently governmental function." Id. In the COFC's view, the "situation is . . . not analogous to FAR 7.503(c)(12)(vii)'s example of an inherently governmental function of '[d]etermining whether [prime] contract costs are reasonable, allocable, and allowable" because the "Government already exercised its discretion and made a policy decision in the Price Adjustment Clause" included in the contract. Id. The COFC dismissed the claim.

Finally, the COFC held that Just In Time failed to state a claim for a constructive change upon which the COFC could grant relief. The COFC explained that a claim for a constructive change requires the contractor to show (1) that it performed work beyond the contract requirements, and (2) that the additional work was ordered, expressly or impliedly, by the government. Id. Regarding the first prong of the claim, the COFC found that Just In Time failed to allege sufficient facts "that negotiating with the prospective union was work performed beyond the contract requirements, because the contract required [Just In Time] to comply with its statutory duty" under the NLRA. Id. Regarding the second prong of the claim, the COFC found that Just In Time failed to allege sufficient facts to show "that the Government ordered this work." Id. Although the MEDCOM CO instructed Just In Time to negotiate the CBA, because the COFC found that it did "not possess jurisdiction over claims relying on the factual contention that the CO instructed the plaintiff to negotiate with the union," the COFC did "not consider whether the alleged fact that the CO instructed the plaintiff to negotiate with the union would satisfy the second prong of a constructive change." Id.

What remains unclear about this case is the contract type: whether it is cost type, where the Allowable Cost and Payment clause and cost principles would play a role; Time & Materials, with potentially the same issue; or fixed price.  And, under the fixed price context, would The Tolliver Group, 140 Fed Cl  520 (2018), with its convoluted inclusion of the legal proceedings cost principle at FAR 31.205-47 into a fixed price contract have had an impact?

Lessons and Conclusion

Just In Time offers at least two timely messages to contractors. First, contractors should raise any factual or legal theories they may later wish to test in the claim the contractor submits to the CO. Perhaps the COFC would have found one of Just In Time's dismissed legal theories persuasive. Second, contractors cannot likely rely on the creative, but ultimately unpersuasive, theory that negotiations with labor unions constitute inherently governmental functions entitling the contractor to recover costs incurred in connection with those negotiations. "While the Government would have been liable for the additional wage costs resulting from the CBA, it was not liable for the costs of negotiating the CBA." Id.

*Eric Valle contributed to this Advisory.  Mr. Valle is a graduate of George Washington University Law School and is employed at Arnold & Porter's Washington,  DC office. He is not admitted to the practice of law.

© Arnold & Porter Kaye Scholer LLP 2019 All Rights Reserved. This Advisory is intended to be a general summary of the law and does not constitute legal advice. You should consult with counsel to determine applicable legal requirements in a specific fact situation.

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