Federal Circuit Decision Further Muddies Path to Compensation for Government Contractors

Morgan Lewis
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Morgan Lewis

In Zafer Construction Company v. United States, the US Court of Appeals for the Federal Circuit reaffirmed that a request for equitable adjustment by a contractor will be treated as a “claim” within the meaning of the Contracts Disputes Act if it has the appropriate objective indicia.

Experienced government contractors know that pursuing a “claim” for monetary recovery is no simple task. How that “claim” is presented, whether in the form of a request for equitable adjustment (REA) or as a certified claim, requires an informed, careful balance that could open the gate toward settlement before litigation or set the stage for that ultimate litigation. Counsel and clients spend many hours wrestling over the nuances that go into the right approach in any given matter, and the court decision in Zafer on July 18 adds another layer of complexity to an area of the law that already demands a complex process for contractors to successfully recover from the US government.

CLAIM OR REA?

Federal contractors have long had separate routes for recovering disputed amounts from the US government. One avenue is submitting to the relevant contracting officer an REA. An alternative approach is to present to the contracting officer a claim, typically certified, under the Contract Disputes Act (CDA). The difference between a claim and an REA has often been muddled, and contractors seeking compensation should be aware of pitfalls that can render an approach procedurally defective.

The Federal Acquisition Regulation defines a “claim” to be “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 this contract.”[1] In contrast, an REA is a request to the contracting officer that seeks an equitable increase to the contract price. Importantly, an REA might qualify as a claim in certain circumstances. Zafer further crystallizes the circumstances when that might occur.

ZAFER

In Zafer, the contractor submitted an REA to the contracting officer seeking $6.7 million while it attempted to negotiate a resolution. The contractor and the government negotiated for four and a half years to no avail. After negotiations failed, the contractor converted its REA into a “proper” certified claim. The contracting officer denied the certified claim as untimely, finding that the government’s alleged conduct had occurred more than six years before the contractor filed its “proper” claim. The contractor filed suit in the Court of Federal Claims, which agreed with the contracting officer and found that the contractor’s REA did not qualify as a claim. The Court of Federal Claims thus dismissed the lawsuit as being barred by the statute of limitations.

The Federal Circuit reversed, holding that the contractor’s REA evidenced the objective indicia of a certified claim, which meant that the contractor had sought relief in a timely manner. The Federal Circuit analyzed whether the REA objectively, through its content and context, put the contracting officer on notice that it was a claim requesting a final decision. The Federal Circuit found that it did because the contractor “meticulously alleges changes and delays caused by the government, explains the reasoning behind its allegations, and requests a sum certain.”[2]

The Federal Circuit also found it significant that in the REA the contractor characterized its request as encompassing all claims incurred by it.[3] These features and others, according to the Federal Circuit, constituted a clear and unequivocal statement that gave the contracting officer notice of the basis and amount of the claim, thereby holding that the submission was a “certified claim” under the CDA and thus allowing the matter to continue.

TAKEAWAYS

Zafer is important for two reasons. First, it adds to the ever-growing body of precedent that guides contractors in their preparation of claims, allowing them to avoid the pitfalls of so many that have come before them. Second and more significantly, Zafer makes the decision to submit an REA more difficult, given the potential for a federal agency to treat an REA as something more than what it is, such as a certified claim.

Experienced government contractors know that pursuing disputed amounts against the US government is never as simple as it is in the commercial world. Zafer makes the pursuit even more complicated. As set forth above, however, informed contractors can make informed decisions to take steps to pave the way for successful claims against the government when contract amounts are in dispute.


[1] 48 CFR § 52.233-1(c).

[2] 40 F.4th at 1365.

[3] Id.

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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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