Millions of Americans who were able to obtain health insurance as a result of the Patient Protection and Affordable Care Act (“ACA” or “Obamacare”) are waiting to learn the extent to which Congress and the new administration will repeal, replace, or do something else with the ACA. At the same time, Government contracts lawyers are watching a group of ACA-related lawsuits being litigated at the Court of Federal Claims and the Federal Circuit. The cases involve “risk corridors,” which the ACA implemented to entice insurers to enter healthcare exchanges by reducing downside risk if, among other possibilities, enrollment did not meet projections. After the ACA was implemented (and control of the Legislative branch had shifted), Congress effectively defunded the ACA’s risk corridors (i.e., reduced necessary appropriations), leaving the Department of Health and Human Services (“HHS”) without sufficient funds to pay participating insurers. So far, approximately 20 of those companies have sued and are pursuing damages claims based on the Government’s failure to make promised payments.

Last November, the Court of Federal Claims issued its first merits ruling in one of the ACA risk corridor cases, Land of Lincoln Mutual Health Insurance v. U.S. Judge Lettow’s opinion in that case rejected the plaintiff’s claims based on “statutory entitlement,” breach of contract, and Fifth Amendment taking theories. A decision in a second case, Moda Health Plan v. U.S., was issued late last week by Judge Wheeler—who ruled in that plaintiff’s favor. In Moda Health, the court held that the relevant ACA provision “requires full annual payments to insurers” and, alternatively, that the Government’s non-payment constituted a breach of the implied-in-fact contract with the insurer.

How the current administration and Congress will change ACA—and the American healthcare system—is anybody’s guess. The ACA-related cases before the Court of Federal Claims are not getting the same amount of press as potential changes to the healthcare reform law, but they address important legal and financial consequences of the long-running policy dispute over the ACA. The cases raise complex legal issues that should be of substantial interest to Government contracts lawyers and practitioners before the Court of Federal Claims and the Federal Circuit.

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The Federal Circuit recently affirmed the ASBCA’s grant of summary judgment to the Government based on the Government’s affirmative defense that the court described both as a defense of fraud and a defense of prior material breach. In a case called Laguna Constr. Co. v. Carter, the court initially determined that the ASBCA had jurisdiction over the Government’s affirmative defense. It then affirmed the ASBCA’s grant of summary judgment to the Government because the contractor committed the first material breach. Along the way, the court rejected several arguments advanced by the contractor.
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The Federal Circuit recently clarified when a CDA claim for payment of money accrues for purposes of determining whether the CDA’s 6-year statute of limitations has run. In Kellogg Brown & Root Servs., Inc. v. Murphy, KBR filed the claim with the Army on May 2, 2012 for work done by its subcontractor in Iraq; thus, the critical date of accrual for limitations purposes was May 2, 2006. The ASBCA dismissed the claim, holding that the claim had accrued prior to May 2, 2006 and, thus, the limitations period had run prior to the filing of the claim. The Federal Circuit reversed and remanded for determination of the merits of the claim.
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Concept_Phone-in-Motel-Room_399638Medium-224x300Last Friday, the Federal Circuit issued another decision in the relatively long-running saga of the SUFI Network Services, Inc. v. U.S. litigation, which relates to a telephone network installed by SUFI Network for guests in Air Force lodging facilities in Germany. The decision is down in the weeds of several damages law issues, but it appears to break some new ground that may be helpful for other contractors pursuing damages claims against the Government.

By way of necessary background, a 2004 decision by the ASBCA established that the Air Force Nonappropriated Funds Purchasing Office materially breached a contract by allowing/facilitating service members’ attempts to avoid SUFI Network’s rates (e.g., by using calling cards), resulting in a partial settlement agreement under which the phone network became the Air Force’s property. That partial settlement left open possibilities for litigating lost profits and other damages claims. The ASBCA then the Court of Federal Claims had issued rulings differing with respect to the damages amounts; last May, the Federal Circuit vacated “much of” the Court of Federal Claims’ “lost profits” decision. The lost profits claims have been the subject of a subsequent ASBCA decision on remand. While we await further review of the recent ASBCA decision, the Federal Circuit’s decision from last week addressed SUFI Network’s claims for attorneys fees and expenses related to its pursuit of lost profits, as well as the extent to which a contractor litigating a non-CDA claim can recover lost profits and overhead related to pursuing damages claims. The Federal Circuit came down on the contractor’s side on most of these issues.

The Federal Circuit’s opinion addressed five different legal questions. The issues of “interest” on the awarded attorneys fees and the “standard rates” awarded (sections III and IV of the opinion, respectively) appear to apply relatively straight-forward legal rules and do not merit comment. The court’s rulings regarding “exhaustion” of claims, ability to pursue attorneys fees, and whether the contractor could be awarded an amount to compensate it for overhead and lost profits related to attorneys fees paid to pursue its expectancy claims merit discussion.
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In the decades since the enactment of the Contract Disputes Act (CDA), contractors, agencies, and the tribunals that decide government contract disputes have grappled with the question of what constitutes a claim. In 2010, the Federal Circuit ruled in M. Maropakis Carpentry, Inc. v. U.S. that to raise the adjustment of contract terms as a defense when litigating a CDA claim, a contractor must satisfy the CDA’s jurisdictional and procedural prerequisites by filing a claim with the contracting officer (CO) and receiving a final decision. To some, the Federal Circuit’s Maropakis decision appeared to impose an additional burden on contractors litigating CDA claims. Total Engineering, Inc. v. U.S., a recent decision from the CFC, helpfully suggests a limited application of the Maropakis decision.
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syringe-417786_1280Generally, when a contracting officer (CO) determines that a contractor owes the Government money and issues a decision saying as much, the contractor challenges the decision by filing an appeal with a board of contract appeals or an action in the Court of Federal Claims. Last year, in Beechcraft Defense Co., the ASBCA surprised the Government contracts bar by ordering the agency to file the complaint in the appeal of a CO’s decision and explain (assert) why the company purportedly owed the Government more than $5.8 million for alleged noncompliance with the Cost Accounting Standards. Since Beechcraft Defense, several contractors have brought actions at the ASBCA appealing CO decisions without filing a complaint. In these cases, the contractors have argued that the COs’ decisions assessing liability amounted to Government claims and the Government should file the complaint.

The question arose whether the Beechcraft twist on the typical claim dispute procedure might apply in other contexts. DynPort Vaccine Co. is a recent decision from the ASBCA that provides helpful precedent indicating that contractors confronted with a disadvantageous unilateral modifications might be successful with arguments similar to Beechcraft.

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When the Government terminates a contract for default (“T for D”), there can be a series of nasty consequences for contractors. Among other things, the contractor may be liable for actual or liquidated damages and for excess costs of reprocurement or completion; the contractor can be suspended or debarred; and the Government is not liable for the costs of unaccepted work and is entitled to the return of progress, partial, or advance payments. In contrast, when a contract is terminated for convenience (“T for C”), the contractor is usually entitled to the costs of goods and services furnished, demobilization costs, and a reasonable profit on the work performed. Also, because a T for C is not a breach, neither party is liable for lost profits or other damages allowed for breach of contract.

Default, directional sign

Suffice it to say, a contractor has a big incentive to fight a T for D—and try to have it converted to a T for C (which is the remedy if a T for D is not justified under the circumstances). Recently, the ASBCA issued parallel decisions denying the Government’s motions for summary judgment in a contractor’s challenges to T for Ds, finding in both cases that the Government had not established a prima facie case that the termination was justified. The Board’s opinions in the Capy Machine Shop, Inc. cases may prove useful to contractors challenging a default termination.
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Waiting your callsRarely does a pro se plaintiff defeat a motion to dismiss at the CFC. However, the CFC recently denied the Government’s motion to dismiss a pro se plaintiff’s breach of contract claim based on the Federal Trade Commission’s (FTC) alleged failure to comply with the rules it established in a contest seeking a solution to the problem of robocalls. The court’s opinion in Frankel v. United States provides a good refresher on basic tenets of contract law: offer and acceptance.
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A termination for default (T for D) is “a drastic sanction which should be imposed or sustained only for good grounds and on solid evidence.” A T for D will impact future responsibility determinations and needs to be fought by contractors who want to continue to work in the Government market. In DMW Marine Group v. Department of Commerce, the Civilian Board of Contract Appeals (CBCA) granted a contractor’s appeal, effectively reversing the National Oceanic and Atmospheric Administration’s (NOAA) T for D based on the contractor’s failure to provide a certification called for under the contract. The Board’s decision reflects a common-sense understanding of the exchanges between the parties—and a proper rejection of an overly aggressive use of the “drastic sanction.”
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Editor’s note: This is the first post in a series of posts focused on protest allegations related to discussions with offerors. Planned future posts will cover what qualifies as meaningful discussions, what constitutes unequal discussions, and a round up of recent protests involving discussions.

iStock_000032523472SmallIn a bid protest, the disappointed offeror often alleges that the agency failed to conduct meaningful discussions or engaged in unequal discussions. A threshold inquiry is whether the agency engaged in discussions. The CFC and GAO approach the question of whether agency communications constitute discussions differently, and a protester may want to consider that difference when selecting a protest forum.


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