Source: http://www.wifcon.com/discussion/index.php?/topic/4313-problem-of-the-day/page/2/
Timestamp: 2019-04-25 00:40:37+00:00

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I didn’t search the Forum archives further but, in the Original Post in that thread, FAR Fetched referenced an earlier discussion thread.
I was involved in the appeal to the Fed. Cir. I had no involvement in the case before the Board.
What should a CO do if the FAR commands that something be done, or not be done, and the CO thinks that to obey the command would entail a violation of statute?
Thus, in the particular case, if the acquisition would be valued at or below the SAT, but the CO thinks that obeying the absolute prohibition at FAR 15.403-1(a) by not requiring the submission of certified cost or pricing would violate FAR 15.403-4 and the statutes that command the CO to require submission of certified cost or pricing data, should the CO go ahead and require the submission of certified cost or pricing data? Yes or no?
I do not think that a CO is empowered to interpret a statute and violate FAR if he or she thinks that FAR violates the statute. I think that violating FAR 15.403-1(a), a long-standing regulation promulgated in accordance with 41 USC § 1707, and which has not been invalidated by any tribunal, would be a FAR deviation . The CO would have to obtain approval to deviate before requiring the submission of certified cost or pricing data at or below the SAT. And keep in mind that the definition of the SAT is statutory.
Don's poll asked for a yes or no answer. It was not multiple choice, and it did not provide for conditional answers. I think the only proper answer is No.
By the way, to the best of my recollection, Alberici did not declare the Disputes clause or FAR 33.208 to be invalid. It interpreted the statute with no discussion of the clause or the FAR rule.
"The government argues in its brief that particular regulations prohibit 'claims' for future costs, but that begs the question. Statutes trump conflicting regulations. Thus, this case turns on the meaning of section 611. The government's statement of issues in its brief essentially limits this case to 'a straightforward question of statutory interpretation' involving section 611. See Rule 28(a)(3) of the Federal Rules of Appellate Procedure, which requires an appellant to state the issues presented for review."
To me, this is a statement that the regulations are in conflict with the statute to some degree.
Don's original question raises the issue of how contracting officers are to comply with FAR 1.602-1(b) which says "No contract shall be entered into unless the contracting officer ensures that all requirements of law, executive orders, regulations, and all other applicable procedures, including clearances and approvals, have been met." This seems to imply that contracting officers cannot simply be in compliance with the FAR when awarding contracts, but have to take reasonable steps to ensure that they have complied with applicable laws and executive orders as well.
The FAR does not limit the term "regulation" to the FAR or agency supplements. Instead, "regulation" can be any regulation that is applicable to the procurement such as the regulations promulgated by the Department of Education for procurements conducted where the Randolph-Shepherd Act applies. This brings up the problem of what a contracting officer is to do if a regulation promulgated by an agency to which congress has delegated the power to write regulations implementing a statute is in conflict with the FAR. This is particularly problematic if the other regulation is one having the force and effect of law.
Now what, exactly, does subparagraph (2) mean? What does "otherwise would be due" mean? "Otherwise"how? "Otherwise" on what basis? That language has always struck me as strange and obscure. There was no explanation of it when it first appeared in the regulations before the FAR was issued.
"The phrase “otherwise would be due” sometimes arises in litigation involving a contractor's attempt to convert a Government claim against the contractor into a claim by the contractor against the Government. This may occur where a contractor seeks remission of monies alleged to have been improperly withheld by the Government. See Martin Marietta Corp., ASBCA No. 25828, 84-1 BCA ¶ 17,119 at p. 85,256. A contractor cannot, without more, recover interest upon the disputed amount of a Government claim even if it succeeds in overturning the Government's action. Section 12 of the Contract Disputes Act provides only for interest due upon claims by a contractor pursuant to 41 U.S.C. § 605(a). The contractor is not entitled to interest under a literal reading of the statute unless it files a separate claim of its own, “converting” the Government claim into a contractor claim. See Ruhnau-Evans-Ruhnau Assoc. v. United States, 3 Cl. Ct. 217, 218 (1983). Examples include improper assessments of liquidated damages (J.E.M. Development Corp., ASBCA No. 42872, 92-1 BCA ¶ 25,709), and offsets for alleged violations of labor laws (Delfour, Inc, VABCA Nos. 3803, 3832, 3897, 3901, 94-1 BCA ¶ 26,385). Other than the factually inapposite Neal [& Co., DOTBCA 2084, 90-1 BCA ¶ 22,586], no precedent suggested by the Government supports its unreasonable interpretation."
The board was apparently loathe to find that the FAR is inconsistent with the statute and tried to find an interpretation of “otherwise would be due” that would eliminate any conflict.
I don't think that any tribunal has ruled that FAR 33.208(a)(2) violates statute. In Alberici, the Federal Circuit ruled on the government's interpretation of the statute itself. It did not rule on the meaning of FAR 33.208(a)(2). Thus, we don't know for sure that FAR 33.208(a) violates statute. At least, I don't.
Similarly, while FAR 15.403-1(a) might seem to be inconsistent with statute on its face, a CO cannot know the truth until he or she queries the FAR councils. In light of the statutes and FAR 15.403-4, why does it say what it does?
As for complying with FAR 1.602-1(b)--that's easy. If a CO thinks FAR violates statute he or she should not act on his or her own interpretation, but seek guidance and direction from higher authority. Based on that thinking, I say that the correct answer to Don's poll is No, because I think that a CO cannot say Yes on the basis of his or her own interpretation of statute and FAR. He or she cannot violate FAR 15.403-1(a) by requiring certified cost or pricing data at or below the SAT without having approval to deviate from FAR in hand. No, on the other hand, might mean (a) No, don't demand certified cost or pricing data, or it might mean (b) No, don't do anything until you get guidance and direction. Unfortunately, Don's yes or no poll did not allow a respondent to make a choice in that regard.
In response to Vern’s concern about the language of sub paragraph (2) being strange and obscure, we were taught in the USACE (back in the 80’s and 90’s) that, if a claim was resolved prior to commencing performance of a disputed construction item or prior to procuring materials involved in the dispute, theortically the contractor would not yet have incurred additional expenses. The contractor could theoretically usually recover the extra costs in its normal construction progress payments, as though it had been in the contract all along.
Thus, there would supposedly be no financial impact to the contractor between the contract as changed vs the contract had the extra work or materials been in the contract to begin with.
We were taught that interest was payable for claims where additional expenses were incurred but not paid for until after the claim was settled. Otherwise, contractors would supposedly be encouraged to initiate claims long before the work was performed or extra costs were incurred to collect interest, even though the government couldn’t make progress payments for the work until it was being performed. I don’t have any problem with resolving claims early to avoid impacts but it doesn’t seem right to pay interest before the investment is even made.
It’s something like the bank having to pay interest before you make a deposit or one having to pay interest before borrowing the principal amount of the loan.
The “old rule” made perfect sense to me, except that it ran afoul of the language of the CDA of 1978. The ENGBCA put the Kabosh on that “old rule” thinking.
As for Vern’s general argument that it generally isn’t the KO’s role or duty to comply with statutory changes on their own authority or initiative prior to the administrative rule making process necessary to implement the statute, where applicable - I agree. In contracts, the concept can apply to both the FAR and the technical requirements.
I have seen recently where both the DoD and Civilian Councils and agencies have been issuing Class Deviations to implement changes prior to the FAR or Supplements (when specifically applicable) being updated through the formal rule making procedures.
I seem to remember that the purpose of paying interest on claims was based upon the government’s widespread slow response to resolving claims, usually long after the additional expenses were incurred. The Disputes Clause required the contractor to continue performance while the matter was in dispute but the government would delay response/resolution until much later.
So, I’ll bet that the sub paragraph (2) originated from the premise that interest was intended to provide some monetary relief for contractors who were financing the disputed extra costs. I can’t access HR 95-1556, which accompanied the CDA.
Interesting to note that some of the historical context relates back to Admiral Hyman Rickover’s Nuclear Navy days and his epic fights with the shipbuilding industry (and the Navy hierarchy) in the 1950-1970’s. For you younger folks, one needs to know that we were deep into the Cold War with the USSR during the Nuclear Arms Race.
So, i have a question about payment of interest on a claim in a non-construction contract of a type without progress payments or other financing, such that payment can’t be made until after final performance or delivery.
If a claim is settled prior to any performance of the disputed effort, does the government pay CDA interest on the amount of the settlement upon payment, which might necessarily have to occur much later? Or would the government perhaps separately pay the claim settlement earlier, which might be prior to performance, to avoid interest costs? That would seem awkward to me.
Sorry to stray from the original poll question - but Don did beg the question if following the Disputes clause complies with the CDA and later said that “the topic hasn’t changed”.
If a claim is settled prior to any performance of the disputed effort, does the government pay CDA interest on the amount of the settlement upon payment, necessarily have to occur much later? Or would the government perhaps separately pay the claim settlement earlier, which might be prior to performance, to avoid interest costs?
“Claim” means 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 the contract.
So there are three kinds of claims: (1) a claim for the payment of money, (2) a claim for contract adjustment or interpretation, and (3) a claim for other relief--i.e., something other than the payment of money or contract adjustment or interpretation.
You must distinguish between claims for the payment of money and claims for the adjustment of a contract term such as the price.
In your case, you say the parties settled a claim. What kind of claim? It cannot have been a claim for the payment of money, because at the time of settlement the contractor had not completed any work (fixed-price contract) or incurred any cost (cost-reimbursement contract) on the claim for which it was entitled to payment. It must have been a claim for the adjustment of a contract term. Probably the price.
Interest accrues only on claims for an amount "found due." Since the contractor did not submit a claim for the payment of money, the amount of the contract adjustment was not an amount "found due." Interest accrues from the time the CO receives a claim for payment that the contractor asserts it is owed, and it continues to accrue until the government pays the amount ultimately found due. There was no claim for payment.
Since the contractor in your scenario cannot, in good faith, have submitted a claim for any amount of payment that it believed it was due, because no payment would be due until the contractor completed the work, and no work had been done, the claim settlement in your scenario presumably included only a price adjustment. Thus, the contractor will not be entitled to any interest on the amount of the settlement, because it was not an amount "found due." Nothing will be due to the contractor until it has completed the work and the government has found the work to be acceptable. Presumably, when the contractor seeks payment for the amount due it will submit a routine invoice, which is not a claim. No claim, no interest.
Vern, I was referring to claims concerning disputes over contract requirements or government directives that would involve additional costs but the additional costs had yet to be incurred. The CDA says that interest is payable from the date the KO receives the claim until it is paid.
An example might be rejection of a technical submittal that required what the contractor considered to be a change in order to be approved. Government has one interpretation and contractor has another. Government remains firm and contractor submits a claim for additional costs that it will incur to comply either during installation or during procurement of an item. KO determines merit and settles the claim before contractor pays or incurs the additional cost.
Interest accrues on amounts of money "found due." A contractor cannot make a claim for the payment of money until it can assert in good faith that payment is due, and payment is not due on a price adjustment until the contractor is contractually entitled to payment.
A claim for 'costs" that have not been incurred cannot be considered a claim for the payment of money. It is a claim for the adjustment of a contract term---the price or the estimated cost of performance. Payment won't be due until the contractor has completed the work or incurred the cost. A contractor cannot demand the payment of money because it is entitled to payment. (Such a demand would be for advance payment.) Thus, there is no interest.
Vern, I am confused by your two posts above. Are you saying that if the claim is settled or resolved through litigation for a specific amount before the costs (or all of the costs) are incurred, then there is a distinction between that scenario and the case law below?
The U.S. Court of Appeals for the Federal Circuit has three times held that subparagraph (a)(2) conflicts with the Contract Disputes Act, 41 U.S.C. ? 611, and is invalid. Interest on a contractor's claim accrues from the date that the CO receives the claim, period, even if the contractor has not yet incurred the cost claimed. The most recent decision was Richlin Security Service Co. v. Chertoff, 437 F.3d 1296 (2006). The other decisions were Servidone Construction Corp. v. United States, 931 F.2d 860 (Fed.Cir.1991) and Caldera v. J.S. Alberici Const. Co., 153 F.3d 1381, 1383 (Fed.Cir.1998). The most extensive discussion of the conflict is in the Corps of Engineers Board of Contract Appeals decision in J.S. Alberici Construction Co., Inc. & Martin K. Eby Construction Co., Inc., ENGBCA No. 6179, 97-1 BCA ? 28639. The FAR councils have never changed FAR to reflect the decisions, which I wrote about in the February 2009 edition of The Nash & Cibinic Report, in A mystery: when does interest begin to accrue on a contractor?s claim?
There have been other cases. Perhaps the most famous had to do with an old passage of FAR that said that award fee decisions would not be subject to dispute under the Disputes clause. The Federal Circuit threw that out because it conflicted with the Contract Disputes Act, 41 U.S.C. 601 -613, Burnside-Ott Aviation Training Center v. Dalton, 107 F.3d 854 (1997). The FAR councils corrected the FAR in 1997 to eliminate the conflict. See FAC 97-15, 64 Fed. Reg. 72448 (Dec. 27, 1999).
Whether section 611 permits interest to accrue on a contractor's costs before the business incurs them is the only issue before this court.** Section 611 states that " nterest on amounts found due Contractor on claims shall be paid to the contractor from the date the contracting officer receives the claim pursuant to section 605(a) of this title from the contractor until payment thereof." Id. In Servidone Construction Corp. v. United States, 931 F.2d 860 (Fed. Cir. 1991), we recognized that section 611 "sets a single, red-letter date for the interest on all amounts found due by a court without regard to when the contractor incurred the costs. " Id. at 862 (emphasis added). Section 611's language "clearly sets a date from which to compute interest on awards." Id. If the statute wrongly requires the United States to pay interest on a contractor's prospective costs, Congress may correct it.
Interest on amounts found due contractors on claims shall be paid to the contractor from the date the contracting officer receives the claim pursuant to Section 605(a) of this title from the contractor until payment thereof.
This language clearly sets a date from which to compute interest on awards.
At the time it filed a proper claim, Servidone had yet to incur the total costs which it later recovered. Nonetheless Section 611 awards interest on any amounts later "found due ... from the date the contracting officer receives the claim." This language sets a single, red-letter date for interest on all amounts found due by a court without regard to when the contractor incurred the costs. See Fidelity Constr. Co. v. United States, 700 F.2d 1379, 1385 (Fed.Cir.), cert. denied, 464 U.S. 826, 104 S.Ct. 97, 78 L.Ed.2d 103 (1983).
The CDA's legislative history confirms Congress's reasons for setting a red-letter date for interest. During the legislative process, the Senate's version of the CDA mandated that interest would run from the time the claim accrued or the additional costs were incurred, whichever was later. S.Rep.No. 95-1118, 95th Cong., 2d Sess. 32, reprinted in 1978 U.S.Code Cong. & Admin.News 5235, 5266. Congress declined to adopt this language. Instead, the Senate majority leader inserted in the record a prepared explanation of Congress's reasons for preferring the enacted version of Section 611:Section 12, Interest, is amended to address the concerns expressed by the executive agencies as well as the Armed Services Committee and the Justice Department that the determination as to "the date the claim accrues" could cause problems in defining the actual date when interest should start. There was added concern that contractors might delay submission of claims, thus not allowing the procuring agency the opportunity to review the claim at an early stage and possibly disposed [sic] of it. Because of these concerns, Section 12 has been amended. This will provide a specific date from which interest will be paid and serve as an incentive for contractors to submit claims as soon as they are identified.
124 Cong.Rec. S36267 (1978)*. This passage explains Congress's reasons for adopting an objective, bright line standard. Thus, Section 611's standard for interest accrual effectively advances some of the main policies of the CDA--to expedite dispute resolution and to ensure fair and equitable treatment to contractors. 41 U.S.C. Sec. 601 note (1988). The Claims Court correctly set the date from which interest on Servidone's damages should accrue.
I'm saying what I said, which I think is clear. I'm sorry that you're confused, but that's not my fault. If you think that what I said is inconsistent with the case law, then instead of quoting the case law, say in your own words where and how the conflict lies. I will add this: Too bad for the government if its COs and lawyers do not know how to distinguish between claims for the payment of money, which are the ones that bear interest, and claims for the equitable adjustment of contract terms, which I argue do not.
Too bad for the government if its COs and lawyers do not know how to distinguish between claims for the payment of money, which are the ones that bear interest, and claims for the equitable adjustment of contract terms, which I argue do not.
Can we apply the above to the original poll question, and say "too bad for the government if its rule-makers do not timely follow the direction of Congress and implement the statute correctly into the regulations." Given that's the case, why do those rule-makers continue to have employment at taxpayer expense?
Vern, my examples involve claims that the contract has been changed, the contractors cited sums certain in their claims. The claims were settled or adjudicated before some or all the costs were incurred. I don’t see any legal distinction between that and the case law in my last post.
The costs were “prospective costs” at the time that the claims were settled and the contract was modified.
No. The claim was not that the contract had been changed. The assertion that the contract had been changed was support for the claim, which, I assume (you did not say) was for an adjustment to a contract term---namely, price. My argument is that there are three kinds of claims and only one kind earns interest---claims for payment of money. The government did not make that argument and the court did not address it. Boards and courts respond to the arguments they get. Only rarely do they make an argument of their own, sua sponte.
Sorry, Joel. But you just aren't getting it.
The Statute requires the United States to pay interest on prospective costs, too.
That's how the Alberici board and court interpreted the statute in light of the arguments that were made. Boards and courts, as a rule, address only the arguments that are presented to them.
Michael CHERTOFF, Secretary of Homeland Security, Appellee.
In that case, the claim for CDA interest was denied. The contractor was in no financial position to pay back pay required because the government used an incorrect SCA wage decision. The Court ruled that the government should pay the back pay into an escrow account that the contractor could use to pay its employees the back pay.
How about a contract action for noncommercial supplies between $150K and $250K. Since the law changed SAT to $250K, but FAR still says $150K are you required to obtain certified cost or pricing data? None of the exceptions to requiring certified cost or pricing data at FAR 15.403-1(b) apply.
Not sure what you are asking because the action is below the threshold at 15.403-4 for requiring the KO to obtain cost or pricing data.
I should have changed the question to "are you allowed to obtain certified cost or pricing data?"
I think that question has already been answered (no), plus agencies are issuing class deviations pending s FAR update to the level in the definitions for SAT.

References: § 1707
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