5 Key Ways a Contractor Can Be Subject to a Government Claim

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The performance of any government contract by a contractor has the potential to bring certain monetary risks of a government claim against the contractor. Below, we discuss 5 key ways a government contractor can be subject to a government claim and best practices to reduce your risks.

1. Overpayment

A common type of government claim is based upon what the government considers to be an overpayment on its part. For example, an agency might have paid an invoice where the contractor used an incorrect contract line item number to designate the services being billed. Or an agency might have paid an invoice before learning that a contractor had not, in its view, satisfied a contract requirement (such as staffing a specific number of positions for a specific number of hours per week), even when this was not the fault of the contractor, but caused by the agency. When this happens, an agency could issue a letter demanding that the contractor repay the amount by a specified date. If the demand letter states that it constitutes the contracting officer’s final decision and notifies the contractor of its appeal rights to the Court of Federal Claims (COFC) or a board of contract appeals (BCA), it qualifies as a final decision under the Contract Disputes Act (CDA). After the issuance of a final decision by the contracting officer, a contractor has 90 days to file an appeal with the BCA or one year to file an appeal with the COFC. Notably, the government may have the burden of proof at the COFC or BCA, depending on the nature of the claim. Ultimately, the COFC or BCA will decide whether the agency’s claim has merit.

2. Termination for Default

The government may completely or partially terminate a contract because of a contractor’s actual or anticipated failure to perform its contractual obligations. A termination for default is treated as a final decision, and a contracting agency may follow it with a final decision that the contractor reimburse the agency for its reprocurement costs. The government could also seek to suspend or debar the contractor from future contracting with the government. Considering the time and resources required for an appeal of both a termination for default or a government claim for reprocurement costs or addressing a proposed suspension or debarment, it may be wiser to negotiate with an agency in advance to terminate the contract for convenience rather than default, which is less damaging to a contractor’s reputation and future business dealings with the government.

3. Delay

Liquidated damages are a fixed amount set forth in a contract to compensate the agency for unexcused delays in the contractor’s performance of the contract. This is particularly important in this era of supply chain problems that are making it harder for manufacturers to find all the parts they need in a timely fashion. If a contractor foresees that a contract will not be completed by the contractual completion date due to excusable or government-caused delays, the contractor should consider requesting an extension of the time period for contract completion. Such extensions can avoid government claims for liquidated damages. The contractor should review the provisions in the contract governing when and how the contractor must notify the government of any delays and also the circumstances in which a delay would be considered to be excusable.

4. Breach of Warranty

Many government contracts have specific warranty provisions which give the government rights after acceptance of the services or products provided by the contractor and can place liabilities on the contractor. Depending on the nature of the warranty provision contained in the contract, an agency can pursue certain remedies for defective services or products. Potential remedies of the government could include:

  • requiring the contractor to either repair, replace, correct, or re-perform the work at the contractor’s expense;
  • the agency curing the defect itself or hiring a third party to do so and then charging the original contractor the costs of the additional work;
  • accepting the performance, but seeking a reduction in the price; or
  • demanding a refund of the contract price from the contractor.

5. Fraud

When a contractor appeals a CDA claim to the COFC or a BCA, sometimes an agency will determine whether it has the ability to present a government counterclaim under the False Claims Act (FCA) for false statements made by the contractor in its claim, in its billing, or some other representation to the government. Thus, any statement or request for monetary damages in the contractor’s claim must be scrutinized carefully to ensure there is nothing in the claim that would give rise to an FCA counterclaim.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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