During the course of performance on a state level government contract, even the smoothest relationships between the contractor and its government customer can go awry. This can happen for a multitude of reasons—ambiguous contract terms, the parties’ discordant course of conduct, changes in personnel, misunderstandings, intervening circumstances, etc. Normally, the parties work out the issues as they arise, and move on. However, what happens when discussions and negotiations between the parties reach an impasse? How can an aggrieved contractor seek the benefit of the contract bargain and fair treatment, and what remedies are available? The answer is that the contractor can utilize the claims and dispute resolution processes provided by the applicable procurement laws and regulations.
The following is the first of a three-part series surveying the claims and disputes processes arising out of state contracts in D.C., Maryland, and Virginia, respectively. For each jurisdiction we will generally discuss what constitutes a claim, what actions a contractor must take to formally submit its claim, the dispute resolution process (including any right of appeal), and the remedies available to the contractor. This segment discusses Maryland state-agency contract claims and disputes.
RELEVANT LAW
Title 15 of Division II of the State Finance and Procurement Article in the Maryland Code generally governs state contract administration and dispute resolution. The corresponding regulations are found in Subtitle 10 of Title 21 of the Code of Maryland Regulations (“COMAR”).
AUTHORITY TO FORM, EXERCISE OPTIONS, MODIFY, AND TERMINATE A CONTRACT
The person given authority to form and administer a contract on behalf of an agency is called a Procurement Officer. See Md. Code, State Fin. & Proc. § 11-101(o). Hence, the Procurement Officer is the primary official for forming, exercising options to, modifying, and terminating a contract.
DEFINITION OF A CLAIM
The term “contract claim” means “a claim that relates to a procurement contract[,]” and “includes a claim about the performance, breach, modification, or termination of the procurement contract.” Md. Code, State Fin. & Proc. § 15-215(b). Also, a “ ‘[c]laim’ means a complaint by a contractor or by a procurement agency relating to a contract subject to this title, except a real property lease.” COMAR 21.10.04.01(B)(1).
A routine request for payment (such as an invoice), a proposed change order, or a request for equitable adjustment typically does not count as a claim unless and until there is a disagreement, denial, dispute by the agency, or the indication of the same by the agency’s lack of response. See, e.g., David A. Bramble, Inc., MSBCA No. 2823, at 8 (July 5, 2013); Syscom, Inc., MSBCA No. 2268 (July 5, 2002). For a construction contract, the legal definition of a claim is more specific.
[C]laim means a written demand or assertion by one of the parties seeking, as a legal right, the payment of money, adjustment or interpretation of contract terms, or other relief, arising under or relating to this contract. A voucher, invoice, or request for payment that is not in dispute when submitted is not a claim under this clause. However, if the submission subsequently is not acted upon in a reasonable time, or is disputed as to liability or amount, it may be converted to a claim for the purpose of this clause.
COMAR 21.07.02.05-1(C).
A subcontractor cannot make a direct claim to the agency. Any claim must be sponsored and brought forward by the prime contractor. See Bd. of County Comm’rs of Frederick County v. Cam Constr. Co., Inc., 480 A.2d 795, 797 (Md. 1984) (lack of direct contractual privity between the government and a subcontractor is not a bar to sponsored claims under Maryland law).
CONTRACTOR CLAIM SUBMISSION
Unless the procurement agency’s regulations or the contract state differently, a contractor must first file notice of a forthcoming claim “within 30 days after the basis for the claim is known or should have been known, whichever is earlier.” COMAR 21.10.04.02(A); but see COMAR 21.07.02.07 (construction contract delays require the contractor to provide notice within 10 days from the beginning of the delay). After the initial notice, the contractor has 30 additional days to file the actual claim with all required information and supporting documentation (expanded to 90 days for construction), unless the Procurement Officer grants an extension. See COMAR 21.10.04.02(B). An extension is appropriate if the circumstances leading to the notice of the claim have not adequately developed to allow the contractor to quantify its costs. See id. The actual claim, when filed, must assert the amount sought (if applicable), provide the supporting information and evidence, and include a certification. See id. Although an area of some ambiguity, the Maryland State Board of Contract Appeals maintains that certain non-monetary claims are permissible. See Syscom, Inc., MSBCA No. 2268, at 7 n.4 (July 5, 2002) (“The Board continues to believe that there is a category of claim over which it has jurisdiction that does not require a demand for money damages.”). Finally, it is important to note that the contractor cannot file a claim after the agency makes final payment on the contract. See COMAR 21.10.04.02(B).
Overall, the 30-day notice requirement prompts a contractor to stay vigilant, because the moment a contract issue ripens into a dispute, it starts a defined period within which the contractor must act or risk waiving its right to submit a claim. Also, as noted above, these are the general rules. The contract and/or the agency’s regulations may add to the notice and claim filing requirements. Further, the rules may be different if the agency is not subject to significant portions of the Maryland General Procurement Law.
GOVERNMENT CONSIDERATION OF THE CLAIM
After receipt of the contractor’s claim, the Procurement Officer may seek additional information, consult with the Office of the Attorney General, or attempt to negotiate with the contractor. See COMAR 21.10.04.03 and 21.10.04.04. If the parties cannot settle the claim, the Procurement Officer will draft a final decision for the agency Reviewing Authority. See COMAR 21.10.04.04. If approved by the agency Reviewing Authority, the Procurement Officer will issue a final decision, which should contain the final agency action notice prescribed by COMAR 21.10.04.04(B). For a construction contract claim valued at $50,000 or less, the procuring agency must make a final decision within 90 days. See COMAR 21.10.04.04(E)(2)(a). For a construction claim valued greater than $50,000, the procuring agency must make a final decision within 180 days. See COMAR 21.10.04.04(E)(2)(b). If the procuring agency fails to make a final decision on the contractor’s claim within the applicable time period, the claim is deemed denied unless the contractor agrees to a longer period in writing. See Md. Code, State Fin. & Proc. § 15-219(g)(2); COMAR 21.10.04.04(E)(3). For a non-construction claim, there is no deemed denial cut-off before which the procuring agency must issue a final decision. See Correctional Servs. Corp. & Youth Servs. Int’l of Md., Inc., MSBCA No. 2509, at 5 (Jan. 2006) (“The Contract provision, however, may not create a right to appeal on a deemed denied basis when the General Procurement Law limits such right to construction contracts.”).
APPEAL OF THE CLAIM DECISION
For procuring agencies subject to the jurisdiction of the Maryland State Board of Contract Appeals (“MSBCA”), “[a]n appeal to the Appeals Board shall be mailed or otherwise filed within 30 days of the receipt of notice of the final decision.” COMAR 21.10.04.09(A). If a mailed notice of appeal is not received by the MSBCA within 30 days, it will not be considered timely unless it was sent by registered or certified mail no later than five days before the deadline. See COMAR 21.10.04.09(D). The Procurement Office should receive a copy of the notice of appeal and, if filed with the notice of appeal, the contractor’s complaint. See COMAR 21.10.06.02. Because the 30-day claim notice requirement forces the contractor to initiate the claims process as claims ripen—causing the agency to issue final decisions in a piecemeal fashion— the MSBCA may grant a stay of the proceedings until all the claims catch up.
CONDUCT OF THE APPEAL
No later than 30 days after the MSBCA dockets the appeal, the contractor must file its complaint (assuming that it has not already done so), and the agency must produce the documents comprising the appeal file (a.k.a. the “Rule 4 file”). See COMAR 21.10.06.04(A); COMAR 21.10.06.06(A). No later than 30 days after the complaint is filed, the procuring agency must file its answer. See COMAR 21.10.06.06(B). Also, no later than 30 days after receipt of the agency appeal file, the contractor must supplement the file with its own document submissions. See COMAR 21.10.06.04(B).
The appeal process includes, as necessary, the filing of motions, discovery (including depositions), evidentiary objections, and the filing of briefs. The dispute will be decided by a panel of three administrative law judges, and may be decided with or without a hearing. Upon the issuance of a formal decision by the panel, either party has 30 days to file a motion for reconsideration. See COMAR 21.10.06.28. Otherwise, the decision is deemed final. See COMAR 21.10.06.27.
AVAILABLE RELIEF
If the contractor prevails on its appeal, it may obtain contract damages or an equitable adjustment, typically quantified as increased costs incurred, reasonable profit on the increased costs, and applicable interest. See Md. Code, State Fin. & Proc. § 15-222 (awards of interest). Also, in certain instances, the MSBCA may provide non-monetary relief, such as ruling that the agency’s default termination of the contractor was improper, or declaring that a contractor is entitled to recovery, even if the quantum of damages has not yet been ascertained. For construction contracts, if agency bad faith is involved, the contractor may recover the costs of claim pursuit, including its attorney’s fees. See Md. Code, State Fin. & Proc. § 15-221.2(b); COMAR 21.10.06.32.
GOING TO COURT
A contractor must exhaust the claims and appeals process at the MSBCA before it can have its claim reviewed in court. See COMAR 21.10.01.01. An MSBCA claim decision is reviewable in any court of competent jurisdiction, e.g., the County or Baltimore City Circuit Court. See Md. Code, State Fin. & Proc. § 15-223. There may be complex jurisdictional issues as to the availability of appeal of an exempted or independent agency’s contract claim final decision.
Opinions and conclusions in this post are solely those of the author unless otherwise indicated. The information contained in this blog is general in nature and is not offered and cannot be considered as legal advice for any particular situation. Any federal tax advice provided in this communication is not intended or written by the author to be used, and cannot be used by the recipient, for the purpose of avoiding penalties which may be imposed on the recipient by the IRS. Please contact the author if you would like to receive written advice in a format which complies with IRS rules and may be relied upon to avoid penalties.
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