ASBCA Rejects Government’s Motion to Dismiss Despite Suspicion of Fraud

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[co-author: Whitney Alston]

The Board’s jurisdiction attaches when the contracting officer renders a final decision or a deemed denial, and a later finding by the contracting officer that fraud is suspected will not deprive the Board of jurisdiction.

TAKEAWAYS

  • Once the Board is vested with jurisdiction over a matter, the contracting officer cannot divest it of jurisdiction by his or her unilateral action.
  • There is a key difference between a claim that is suspected to involve fraud and a claim that in fact involves fraud.

As we have reported previously, in actions at the Court of Federal Claims the Department of Justice often attempts to use fraud counterclaims when justifying its denial of a contractor’s claim. We are also noticing that agency lawyers are using fraud as an affirmative defense more frequently at the Boards of Contract Appeals, which unlike the Court of Federal Claims lack jurisdiction over fraud claims. Contractors should be aware that when the government attempts to use alleged fraud to strip the boards of jurisdiction, a recent decision from the Armed Services Board of Contract Appeals (the Board) makes clear that the Board retains jurisdiction unless actual fraud is found by a competent government agency or established by a federal court.

In Nauset Construction Corporation, the contractor submitted a certified claim requesting costs and a time extension under a construction contract it performed for the Department of the Army. Over the next six months, the contracting officer delayed issuing a final decision several times because of an “ongoing investigation” into the contractor for fraudulent claims. The contracting officer ultimately terminated the contract for default and issued a notice of termination informing the contractor that it could appeal the default termination. The contracting officer, however, did not issue a final decision on the contractor’s certified claim. Over one year after submitting its first certified claim, the contractor appealed to the Board based on the contracting officer’s deemed denials of its certified claim.

While on appeal, the contracting officer issued the contractor a letter stating that the contractor’s claims had been referred to investigative agencies for fraud, and based on the preliminary findings of those agencies, the contracting officer suspected that the contractor’s claimed costs were fraudulent. Accordingly, the contracting officer concluded that she did not have authority pursuant to FAR 33.210 to act on the claims. FAR subpart 33.2 provides that contracting officers have no authority to decide or resolve any claim involving fraud. Additionally, the FAR provides that the contracting officer must refer cases involving suspected fraud to the agency official responsible for investigating fraud.

After the contracting officer issued the letter, the Government filed a motion to dismiss claiming that the Board lacked jurisdiction because the claims involved fraud.

The Board found that it had jurisdiction—denying the Government’s motion. The contracting officer’s determination that she lacked authority to decide the claims did not divest the Board of its jurisdiction because it had already vested based on the contractor’s appeal of the deemed denial. Further, although the contracting officer may have learned something from the ongoing investigation that led her to suspect fraud, that suspicion was not enough to conclude that the contractor’s claims did in fact involve fraud and that she had no authority to resolve them. The Government argued that the ongoing investigation lent support to the contracting officer’s determination that the claims involved fraud, however, the Board found no evidence in the record that a competent authority made such a finding. Accordingly, the Board held that the contracting officer’s suspicion of fraud was insufficient to deprive the Board of jurisdiction.

The Board’s decision highlights that the mere assertion of fraud does not divest the Board of jurisdiction especially where the fraud is only suspected by the contracting officer.

[View source.]

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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