ASBCA Confirms the “Goldilocks Principle” in Government Contract Appeals

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TAKEAWAYS

  • A letter from the contracting officer unequivocally directing the contractor to exclude specific costs from its cost submissions as unallowable may not be an appealable final decision.
  • Contractors should seek clarification that such a letter is a final decision to ensure that a Board of Contract Appeals or the Court of Federal Claims has jurisdiction to hear the matter.
  • Appealing a decision that does not qualify as a “contracting officer’s final decision” will result in the contractor’s case being dismissed for lack of jurisdiction. However, not all final decisions carry all the hallmarks of a final decision and a contractor who delays may lose its opportunity to appeal.

Contractors must ensure that they do not appeal a contracting officer’s decision too early or too late lest they find that the courts and board have no jurisdiction. Yet, the government continues to issue directions that provide no certainty on the issue and, indeed, serve only to muddle the question of what constitutes an appealable final decision. Last month, the Armed Services Board of Contract Appeals (ASBCA or Board) issued a decision in the appeal of Northrop Grumman Corporation, ASBCA No. 62189, dismissing the appeal for lack of jurisdiction and highlighted what these authors will refer to as “the Goldilocks Principle” for when contractors can appeal a contracting officer’s decision that certain costs are not allowable. Frustratingly, the Government often issues unclear decisions that can leave contractors wondering whether the timing for appeal is too early, too late or just right.

The central issue in Northrop was whether the contracting officer had issued a final decision through a letter unambiguously informing the contractor that specific costs the contractor told the Government it intended to include as allowable in its forward pricing rates and incurred costs submissions were “unallowable” and “should be identified and excluded from any billing, claim or proposal applicable to a government contract.” The contractor appealed the contracting officer’s decision to the Board, but the Board concluded that it did not have jurisdiction to hear this matter because the contracting officer’s letter was not a final decision. The Board decided as it did because, according to the Board, the contracting officer’s letter “was not a ‘demand’ or ‘assertion’ seeking either the payment of money the government alleged it was due, the interpretation of contract terms or other relief arising under the contract as required by FAR 2.101 [which defines the term ‘claim’].” The Board noted that instead, “the letter did not seek anything at all” and only “notified [the contractor] that the costs associated with the settlement and litigation were not allowable.”

In arriving at its decision, the Board also noted that the letter at issue did not contain the hallmarks of a final decision that the FAR “requires.” Specifically, the decision did not state that it was a final decision and did not inform the contractor of its appeal rights using language prescribed by the FAR. Contractors, however, should not let such omissions dissuade them from filing appeals. (See Parsons Gov’t Servs, Inc., ASBCA No. 62113, April 15, 2020, 20-1 BCA ¶ 37,586 (dismissing appeal).)

Disputes about what costs are allowable can typically be brought before a Board of Contract Appeals or the Court of Federal Claims (COFC). Upon receipt of a contracting officer’s final decision, a contractor has 90 days to appeal the decision to the applicable Board or one year to appeal to the COFC. These limitations are jurisdictional—meaning if they are not met, the Board or Court has no authority to hear the dispute. (See Military Aircraft Parts, ASBCA No. 60308, 17-1 BCA ¶ 36,680 at 178,609; Cosmic Construction v. United States, 697 F.2d 1389, 1390 (Fed. Cir. 1982).) This means that contractors who delay appealing a decision risk missing their opportunity to appeal. Accordingly, despite the Board’s ruling in Northrop, contractors should think twice before deciding not to appeal letters from contracting officers determining that costs are unallowable—such as is typical with unilateral rate determinations—even where the Government does not seek a specific amount in reimbursement from the contractor. Boards are quick to find such unilateral determinations must be appeal within 90 days even where the determination in no way, announces itself as a final decision, contains none of the language required by the FAR and contains no demand for payment.

The Contract Disputes Act (CDA) is the law that furnishes the Boards and COFC jurisdiction to hear disputes about what costs are allowable (41 U.S.C. 7101 et seq.). CDA jurisdiction “requires both a valid claim and a contracting officer’s final decision on that claim.” (See M. Maropakis Carpentry, Inc., v. United States, 609 F.3d 1323, 1327 (Fed. Cir. 2010).) Determining what is a claim and what is a contracting officer’s final decision can be trickier than one may think—and the Boards’ failures to clarify this issue have cost contractors time, money and wasted effort if their appeal is temporarily dismissed or worse if it decides not to appeal and the board or court dismisses the appeal because it did not file within 90 days of receiving the final decision. This puts contractors in a difficult position (darned if you do and darned if you don’t): if they appeal letters like those at issue in this appeal, they risk finding out many months later that they must start the process over again by seeking another decision from the contracting officer; in contrast, if they wait to appeal such letters and await a further decision by the contracting officer, they risk missing their window to appeal.

The Federal Acquisition Regulation (FAR) defines a claim as “a written demand or written assertion by one of the contracting parties seeking, as a matter of right, the payment of money in a sum certain, the adjustment or interpretation of contract terms, or other relief arising under or relating to the contract.” (See FAR 2.101.). For claims asserted by contractors against the Government, the CDA requires that “[e]ach claim by a contractor against the Federal Government related to a contract . . . be submitted to the [CO] for a decision.” (41 U.S.C. 7103(a)(1).) For government claims asserted against a contractor, “[a] claim is submitted by the government when the contracting officer renders a final decision to the contractor.” (See Sikorsky Aircraft Corp. v. United States, 773 F.3d 1315, 1320 (Fed. Cir. 2014) (Sikorsky III) (citations omitted).)

It is well established that the Boards and COFC lack jurisdiction to consider claims not presented to the contracting officer. (See, e.g., Lee’s Ford Dock, Inc. v. Secretary of the Army, 865 F.3d 1361, 1369 (Fed. Cir. 2017).) This requirement exists to create “opportunities for informal dispute resolution at the contracting officer level and to provide contractors with clear notice as to the Government’s position regarding contract claims.” (See Applied Companies v. United States, 144 F.3d 1470, 1478 (Fed. Cir. 1998).) The considerations are somewhat different when the Government is the one asserting a claim. For Government claims, the contracting officer’s final decision is the claim. (See, e.g., L-3 Commc’ns Integrated Sys. L.P., ASBCA Nos. 60713, 60716, 17-1 BCA ¶ 36,865 at 179,625.) As highlighted by the Northrop decision, determining whether the Government has issued a claim can be challenging, and the CDA’s jurisdictional limits require that an appeal be filed at just the right time. This puts contractors in a difficult position.

While each case is different and must be considered in view of its own unique facts, one option for contractors to consider when evaluating how to respond to a letter determining that certain costs are unallowable is to immediately upon receipt submit a letter to the contracting officer seeking clarification that the contracting officer’s letter is a final decision. Depending upon the response, the contractor could appeal the decision or file its own claim for a contract interpretation. If the Government fails to respond in a timely fashion to the letter seeking clarification or the contractor’s claim, the contractor could appeal both the initial letter and the deemed denial of its claim within 90 days of the initial letter. Such an approach has drawbacks that a contractor in this situation should discuss with its legal counsel, but contractors are left with few good options when trying to file an appeal that is just right—not too early and not too late. When appealing cost allowability matters, contractors may understandably feel like they are in a fairytale that might not have a happy ending.

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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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