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July 24, 2019

2 Sensible Resolutions to CDA Jurisdictional Challenges

Aerospace & Defense Law360, Appellate Law360, Government Contracts Law360

Over the last two weeks, the U.S. Court of Appeals for the Federal Circuit issued two decisions that resolved Contract Disputes Act, or CDA, jurisdictional challenges in contractors' favor, rejecting government attempts to use procedural technicalities to avoid the merits of a dispute. This article summarizes the decisions, Secretary of the Army v. Kellogg Brown & Root Services Inc.,1 and Hejran Hejrat Co. Ltd v. U.S. Army Corps. Of Engineers,2 and their implications.

Kellogg Brown & Root Services: Prior Material Breach Is an Affirmative Defense That Does Not Require Claim Submission

The Kellogg Brown & Root Services decision arose as part of a long-running dispute regarding the allowability of certain private security contractor costs that KBR incurred during performance of the Army's Logistics Civil Augmentation Program, or LOGCAP. Despite previously reimbursing private security contractor costs, the Army midstream changed course, deemed the costs unallowable and withheld $44 million from KBR's outstanding invoices.

The issue traveled through a series of decisions by the U.S. Armed Services Board of Contract Appeals, or ASBCA, and the Federal Circuit. Subsequently, KBR filed an amended complaint at ASBCA alleging, in relevant part, that "KBR 'is entitled to judgment because the Army breached its contractual obligations to provide adequate force protection and the use of [private security contractors] was a permissible remedy.'"3

The Army moved to dismiss this allegation for lack of jurisdiction on the basis that KBR had not submitted a CDA claim to the contracting officer alleging prior breach as a basis for relief, relying on the Federal Circuit's controversial decision in M. Maropakis Carpentry Inc. v. United States.4 The ASBCA denied the Army's motion and granted summary judgment in KBR's favor.

With respect to jurisdiction, the board applied prior Federal Circuit precedent from Laguna Construction Co. v. Carter, which held that the common law defense of prior material breach does not need to be presented as a CDA claim.5 On the merits, the board held that the Army's failure to provide adequate protection constituted a prior material breach, justifying the private security contractor costs.6

The Army appealed, and, among other things, repeated its argument that KBR's prior material breach allegations should be dismissed for lack of jurisdiction. In a nonprecedential decision, the Federal Circuit affirmed the board's decision. The Federal Circuit agreed that its decision in Laguna controlled, and thus KBR's prior material breach claim did not need to be submitted to the contracting officer as a certified claim.7 Notably the Federal Circuit found it irrelevant that, due to the posture of the dispute, KBR was technically seeking to recover funds already in the government's possession:

    We recognize that the posture of this case differs from Laguna. The government in Laguna asserted its defense to withhold payment whereas KBR asserted its defense to recover payment. We nonetheless conclude that Laguna's teachings apply here. The government pays the contractor for services performed, so monies at issue are necessarily in the hands of the government first. Whether prior material breach is asserted to eliminate debt as in Laguna, or to recover withheld payments as here, the effect is the same—the defense is asserted to defeat a wrongful monetary claim.8

Although it seems clear now that a contractor need not submit a separate CDA claim to assert the defense of prior material breach, this area of case law stemming from the Federal Circuit's Maropakis decision is notoriously complex, and almost a decade later it is still essentially impossible to predict which defenses do and do not need to be presented to a contracting officer in the form of a CDA claim. Until this area of law is less volatile, best practice is to present all potential defenses in the form of a CDA claim before relying on them at the board or Court of Federal Claims.

Hejran Hejrat: A Common-Sense Analysis for Requesting a Contracting Officers Decision

The Federal Circuit's recent Hejran Hejrat decision addresses the requirement that, before a request for equitable adjustment can qualify as a claim and provide the basis for CDA jurisdiction, the contractor must actually request a contracting officer's decision and the contracting officer must actually issue a decision— notwithstanding the potential for a deemed denial.

Amid a dispute with the U.S. Army Corps of Engineers regarding contract price adjustments under a contract to provide transportation services in Afghanistan, HHL submitted to the contracting officer a document titled "Request for Equitable Adjustment," which requested compensation and stated that the document should be "treated as a[] [request for equitable adjustment],"9 The contracting officer denied the request in a writing characterized as "the Government's final determination in this matter."10

HHL appealed to the ASBCA, but the board dismissed for lack of jurisdiction because, "at no point, in six years of communication with [the agency], has HHL requested a contracting officer's final decision."11 There was apparently no dispute that HHL's request for equitable adjustment satisfied the other required aspects of a claim.12

The Federal Circuit reversed and remanded to the board for further proceedings, finding that "there was a request for a final decision by a contracting officer and a final decision entered by the contracting officer."13 First, the Federal Circuit squarely rejected the government's suggestion that there is any jurisdictional significance to HHL styling its submission as a[] [request for equitable adjustment] instead of a claim, citing a long line of Federal Circuit precedent recognizing that a requests for equitable adjustment may satisfy the claim submission requirements.

Second, the court rejected the notion that HHL"s request for equitable adjustment submission did not include language clearly requesting a contracting officer"s decision, quoting prior precedent that the circuit:

    is loath to believe that in this case a reasonable contractor would submit to the contracting officer a letter containing a payment request after a dispute had arisen solely for the contracting officer's information and without at the very least an implied request that the contracting officer make a decision as to entitlement. Any other finding offends logic.14

Third, and finally, the Federal Circuit rejected the government's argument that the HHL request for equitable adjustment did not request a contracting officer's final decision because prior HHL communications on the issue had expressly stated that they did not seek a contracting officer's final decision.

The court noted that, while prior correspondence may have expressly stated that no decision was requested, the ultimate request for equitable adjustment did not include any such disclaimer, and postdated the earlier correspondence by more than a year. On this point, the Federal Circuit also found relevant that the request for equitable adjustment "was sworn unlike earlier submissions, and thus had a formality lacking in the earlier submissions".

The HHL decision, like KBR, does not change the law of CDA jurisdiction or provide any groundbreaking analysis. These cases do provide some assurance that the defense of prior material breach need not be raised in a CDA claim before a contractor may rely on the defense, and that requests for equitable adjustment may constitute CDA claims when they otherwise meet the requirements.

But in an area of law that so often results in contractors having their claims dismissed after years of litigation based on unpredictable procedural technicalities that work no real prejudice against the government, it is always appreciated and noteworthy for the Federal Circuit to decide CDA jurisdictional issues sensibly, equitably and correctly. Nevertheless, contractors must be diligent to adhere to the statutory and regulatory prescriptions for a claim, in order to avoid jurisdictional pitfalls that could prevent a contractor from justified recovery on the merits.

  1. Secretary of the Army v. Kellogg Brown & Root Services Inc., No. 2018-1022, 2019 WL 2932769 (Table) (July 9, 2019) (non-precedential)

  2. Hejran Hejrat Co. LTD v. U.S. Army Corps. Of Engineers, No. 2018-2206, 2019 WL 3210172 (July 17, 2019)

  3. KBR, No. 2018-1022 at *2-5.

  4. M. Maropakis Carpentry Inc. v. United States, 609 F.3d 1323, 1326 (Fed. Cir. 2010)

  5. Laguna Construction Co. v. Carter, 828 F.3d 1364 (Fed. Cir. 2016).

  6. Appeals of—Kellogg Brown & Root Servs. Inc., ASBCA No. 56358, 17-1 BCA ¶ 36779 (2017).

  7. KBR, No. 2018-1022 at *9-10.

  8. KBR, No. 2018-1022 at *9-10.

  9. HCC, No. 2018-2206 at *2 (internal quotation and alteration omitted).

  10. Id. (internal quotation omitted).

  11. Id. (internal quotation omitted).

  12. See id. at *3-4.

  13. Id. at *2.

  14. Id. at *5 (quoting Transamerica Ins. Corp. v. United States, 973 F.2d 1572, 1578 (Fed. Cir. 1992), overruled in part by Reflectone Inc. v. Dalton, 60 F.3d 1573, 1579 & n.10 (Fed. Cir. 1995) (en banc)).