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.
Continue Reading Federal Circuit Finds ASBCA had Jurisdiction over a Government Affirmative Defense of Fraud—Which the Court Also Characterized as a Defense of Prior Material Breach—and Affirmed the Board’s Grant of Summary Judgment to the Government Based on that Defense

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.
Continue Reading The Federal Circuit Addresses Interesting Damages Issues in Its Second SUFI Network Opinion

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.
Continue Reading ASBCA Finds Hesitation Is Not Repudiation

Fraud_17860840MediumIn parallel decisions published yesterday in Eyak Services, LLC and Eyak Technology, LLC, the ASBCA denied the sister companies’ motions for summary judgment or dismissal and the government’s cross-motion for summary judgment. By distinguishing situations in which fraud was conducted by an appellant contractor as opposed to a subcontractor, the ASBCA was able to maintain jurisdiction. The decisions mean that the parties will continue to litigate the question of whether Eyak owes the government more than $32 million in overpayments for contracts that were allegedly tainted by fraudulent subcontracts.

The dispute raises interesting jurisdictional questions during a time of increasing fraud counterclaims and investigations. These questions should be of particular concern for contractors given that the Mandatory Disclosure Rule requires disclosure to Inspectors General of every overpayment. The decision also reminds contractors that they can be significantly affected by a subcontractor’s misconduct.

Continue Reading ASBCA Parses Questions of Fraud to Find Jurisdiction in Overpayments Cases