Source: https://govtcontractsmonitor.jacksonkelly.com/terminations/
Timestamp: 2019-04-25 01:50:05+00:00

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Busy contractors focused on day-to-day issues and future opportunities sometimes put other matters off to the extent they miss contractual deadlines. The recent decision of the Armed Services Board of Contract Appeals (ASBCA) in Black Bear Construction Company, ASBCA No. 61181 (November 14, 2017) serves as a reminder of the potentially high cost of excessive procrastination.
The matter involved an appeal by Black Bear Construction Company (Black Bear) of a contracting officer's denial of a claim seeking $462,160.00 for settlement costs due to the government’s termination for convenience of its contract for runway improvement construction in Afghanistan. Black Bear claimed the costs sought were incurred between its receiving a notice to proceed and the government’s terminating the contract for convenience. The government filed a motion for summary judgment based on the fact that Black Bear waited more than one year to file its settlement proposal as required by the contract.
The parties did not dispute that the contract incorporated by reference Federal Acquisition Regulation (FAR) clause 52.249-2, TERMINATION FOR CONVENIENCE OF THE GOVERNMENT (FIXED-PRICE) (APR 2012)-ALTERNATE I. That clause provides in pertinent part: “After termination, the Contractor shall submit a final termination settlement proposal to the Contracting Officer . . . promptly, but not later than I year from the effective date of termination, unless extended in writing by the Contracting Officer upon written request of the Contractor within this I-year period.” Also undisputed was the time line: after the government terminated the contract for its convenience on August 12, 2012, Black Bear waited until March 25, 2017 before submitting its termination settlement claim to the contracting officer. The record contained no evidence that Black Bear had requested an extension of time from the contracting officer.
The Board first confirmed its jurisdiction over the appeal, explaining that the Court of Appeals for the Federal Circuit has held that the ASBCA has jurisdiction over termination settlement appeals where, as here, the contractor has failed to submit a settlement proposal within one year but has filed a certified claim with the contracting officer. It then made short work of Black Bear’s claim. FAR 52.249-2 allowed Black Bear one year to file unless it received an extension of time from the contracting officer. Because no extension of time was ever sought, much less granted, and the claim was submitted to the contracting officer after that one year period had passed, the Board had no trouble agreeing with the government that the claim was late and the appeal must be denied.
The takeaway here is simple: don’t let other concerns prevent you from timely preparing and submitting your termination settlement claim before the due date established by your contract. If you do, you’re essentially throwing money away.
As we approach the end of the Government’s fiscal year at the end of September, we are once again facing a risk that the Federal Government could shut-down. The risk is heightened this time by: (1) the impending debt ceiling crisis, which Treasury estimates will be hit on September 28 or 29; and (2) President Trump’s reiteration earlier this week that he would be willing to shut-down the Government if he does not get the requested funding for his proposed U.S./Mexico border wall. As you may recall, the latter was a sticking point last spring, when a shut-down was avoided by President Trump stating that he would defer seeking such funding until this Fall as part of the FY18 budget. It seems likely that the debt ceiling will be increased and a crisis avoided on that score, as Republicans are unlikely to want to have the Government default on their watch. However, FY18 budget differences may be more difficult to resolve, particularly given the Democrats’ opposition to funding the wall. There is certainly the possibility of a further Continuing Resolution to buy additional time to reach agreement, and House Speaker Paul Ryan raised this possibility earlier this week.
At this point there are lots of questions, and government contracting industry experts, including a recent panel sponsored by the Professional Services Council, are urging contractors to take the threat seriously and undertake advance contingency planning. We therefore urge contractors to review their current contracts, and start planning and communicating with their respective government contracting officers about how to address a possible federal government shut-down at the end of September (likely effective Monday, October 3, 2017), if a further continuing resolution is not passed. If there is a shut-down, virtually all federal government contractors face serious impacts. Action now will enable contractors to respond appropriately in the event of a shut-down, and minimize adverse impacts to government programs, control non-reimbursable costs and mitigate, document and account for shut-down costs for which the Government will be liable.
Timely submit and claim reimbursement for all reasonably incurred shut-down costs.
In addition, contractors should assess the impact of a shut-down on non-contract deadlines. Contractors also may want to assess their ability and plans to continue other business operations in view of delays in government payments in the event of a shut-down or debt ceiling crisis. Contractors may want to review their available bank credit lines or other financing sources, to ensure sufficient credit availability and flexibility to deal with possible Government payment delays. They also should expedite the submission of any pending invoices for current work.
Background: No money can be paid from the Treasury except pursuant to Congressionally-passed funding authorizations. Federal officials cannot obligate funds before an appropriations measure has been enacted, and cannot accept voluntary services. However, contracting officers are authorized to incur costs necessary to shut-down operations.
This means that contractors cannot rely upon oral or even written assurances, and should not “volunteer,” with the expectation of being paid later. While government employees have been paid retroactively in connection with past shut-downs, the same cannot be said as to contractor employees. Contractors therefore need to protect themselves.
Current Status: The federal Government is presently operating under a continuing resolution (CR) that expires at midnight on September 30, 2017. Thereafter, the Government must shut-down unless Congress passes new authorization and funding for FY18, or some new CR is passed and signed by the President. It is possible that Congress could pass a short-term CR extension to buy time to permit further negotiation of a longer-term resolution. If no resolution is agreed upon, there will be a lapse in funding and the government will shut-down.
Legal Parameters: If there is a shut-down, all contracts dependent upon FY18 funding will be shut-down, with only limited exceptions for activities determined necessary to save lives or protect property. Contracts that are already fully funded will not be affected, nor will those few contracts otherwise authorized by law to continue notwithstanding a shut-down.
Ideally each contracting officer would issue a “stop work” order for each affected contract, directing each contractor specifically as to what to do on such contract. However, it is more likely that contracting officers will issue broad guidance memos affecting multiple contracts, under which each affected contract will be subject to a “stop work” order. Upon receipt of notice, each affected contractor will be obligated to shut-down operations as directed, and mitigate the government’s shut-down costs exposure. Contractors will be entitled to recover reasonable and necessary shut-down costs. However, contractors will need to carefully document and separately account for such costs, and timely submit appropriately documented claims to recover them. Re-start costs will need to be tracked separately, and should be negotiated at the time of re-start. “Volunteered” interim activities will not be reimbursed; and any promises or agreements to compensate interim activities likely will not be honored as being outside the authority of any involved government official.
During any shut-down contracting officers will be barred from making new awards, issuing new task orders under ID/IQ contracts, entering into contract amendments or modifications and exercising contract options, which depend on current year funding. Note that other government deadlines, such as for option exercises, proposal submission, claims and agency appeals, bid protests and court filings, will not necessarily be stayed by a shut-down, and contractors will need to assess carefully their obligations in each such instance.
Conclusion: If a shut-down occurs, such will have far-reaching consequences for all government contractors, going to the very heart of their business operations. Contractors need to be prepared and take appropriate actions to minimize their costs and the adverse business impacts of a shut-down. The key is careful planning and timely and regular communication with all involved, particularly the relevant government contracting officers.
As President Trump approaches the end of his first 100 days, there is a risk that the Federal Government could shut-down starting at midnight this coming Friday, when current funding expires. Congress, which is finally back from its two-week Easter recess, is working on both a short one- or two- week interim extension, as well as a longer extension through the end of the current Government fiscal year (i.e., September 30, 2017). Prospects for some agreement have improved with President Trump’s withdrawal of his demand that any extension include initial funding for the proposed U.S./Mexico border wall, and statement that he will defer seeking such funding until Fall as part of the FY18 budget. However, there are still a number of other issues to be resolved, and there are elements on both sides of the aisle that appear willing, and even eager, to let a shut-down occur. President Trump has stated he wants to avoid a shut-down. However, he needs Democratic support to pass the needed extension. Democrats have been united in opposing virtually everything, and are eager to embarrass the President (although they don’t want to be blamed for a shut-down). Meanwhile, some Republicans appear to believe that a shut-down wouldn’t be that serious. The odds at this point suggest that some resolution will be reached, at least on an interim basis. However, Government agencies are preparing for the possibility, and last Friday OMB issued contingency plans just in case, which are available for review here.
Contractors similarly need to start planning and communicating with their respective government contracting officers about how to address a possible federal government shut-down, possibly as early as this coming Saturday if some continuing resolution is not passed. If there is a shut-down, virtually all federal government contractors face serious impacts. Action now will enable contractors to respond appropriately in the event of a shut-down, and to minimize adverse impacts to government programs, control non-reimbursable costs and mitigate, document and account for shut-down costs for which the government will be liable.
In addition, contractors should assess the impact of a shut-down on non-contract deadlines. Contractors also may want to assess their ability and plans to continue other business operations in view of delays in government payments in the event of a shut-down.
Current Status: The federal Government is presently operating under a continuing resolution (CR) that expires at midnight this coming Friday. Thereafter, the Government must shut-down unless some new CR is passed and signed by the President. It is possible that Congress could pass a short-term CR extension to buy an extra week or two to permit further negotiation of a longer-term resolution to the end of the fiscal year. However, even if an interim resolution is reached by midnight this coming Friday, the situation will recur when that expires unless a longer-term resolution is reached. If no resolution is agreed, there will be a lapse in funding and the government will shut-down at midnight, April 28, 2017.
Legal Parameters: If there is a shut-down, all contracts dependent upon FY17 funding will be shut-down, with only limited exceptions for activities determined necessary to save lives or protect property. Contracts that are already fully funded will not be affected, nor will those few contracts otherwise authorized by law to continue notwithstanding a shut-down.
As we have discussed, contractors must pay careful attention to, and comply strictly with, timeliness and related submission requirements, whether in the claims or bid protests context. This is not a one-way street, however. Government contracting officers also must comply strictly with such requirements. The equal application of these principles is reflected in two recent decisions involving the “deemed denial” doctrine. In the most recent case, the Armed Services Board of Contract Appeals (ASBCA) held that a contracting officer’s failure to set a precise final decision deadline did not comply with the CDA, entitling the contractor to immediately appeal to the Board on a deemed denial basis. In the second case, the Court of Federal Claims (COFC) held that the contracting officer gets only one bite at extending the final decision deadline, and that an attempted second extension was invalid and again entitled the contractor to appeal immediately on a deemed denial basis.
By way of background, and as you likely know, the CDA requires contracting officers to issue a final decision within 60 days of receipt of a properly certified claim over $100,000, or notify the contractor of the time within which the decision will be issued. 41 U.S.C. § 7103(f)(2); FAR 33.211(c)(2). In setting such further decision deadline, the contracting officer can consider the size and complexity of the claim, the adequacy of the contractor’s supporting data and other relevant factors. 41 U.S.C. § 7103(f)(3); FAR 33.211(d). If the contracting officer issues a proper final decision, such decision triggers the start of the contractor’s 90 days within which to appeal to the Board or one year to the COFC. However, if the contracting officer fails to issue a decision within the initial 60-day period, or any timely proper extension thereof, then the contractor can deem such failure as a denial and appeal immediately to the Board or Court. 41 U.S.C. § 7103(f)(5); FAR 33.211(g).
The Board summarily denied the government’s motion, stating that the CDA requires the contracting officer to “pinpoint” a specific future date by which the final decision will be issued. The Board stated that “[i]t is not enough to state that a final decision will be issued within a specified number of days of the occurrence of some future event.” Aetna therefore was free to construe the contracting officer’s improper attempted extension of the decision deadline as a “denned denial,” and immediately appeal. The Board also rejected the government’s alternate request to stay proceedings and remand to the contracting officer for a final decision, stating that the government provided no rationale for such request.
The COFC similarly held the government to strict compliance with the CDA’s decision timeframes in Rudolph and Sletten, Inc. [R&S] v. U.S., COFC No. 14-647, 120 Fed. Cl. 127 (2015). That case involved a $27M certified claim for delay and disruption and other costs. R&S submitted its claim on August 20, 2013. On the very last day (adjusted for the 60th day being a weekend day), the contracting officer informed R&S that, due to the complexity and extensive nature of the claim, a final decision would be issued within nine months from the date of such letter. So far, so good. However, on July 8, 2014, the contracting officer informed R&S that the final decision would not be reached by July 15, 2015, as originally estimated, but instead would be issued on March 15, 2015 – another eight months down the road. R&S declined to wait further, and filed suit at the COFC on July 23, 2014 – eight days after the expiration of the initial nine-month extension. The government again moved to dismiss for lack of jurisdiction, arguing that R&S failed to obtain a final decision before filing suit.
The Court denied the government’s motion, stating that the CDA gives the government only one right to extend the final decision deadline and that the contracting officer needs to consider the claim complexity and other factors in setting such extended deadline. There is no right to further extend the deadline, and a contractor can treat any attempted further extension as a deemed denial. However, the Court, in the interest of judicial economy, did grant the government’s alternative stay and remand request, in view of the government’s representation that the contracting officer’s decision was by then imminent and had “great potential” to narrow the disputed issues. However, the Court put a tight leash on the government, and directed issuance of the final decision within 30 days of the Court’s Memorandum and Order.
The bottom line is that the government also must comply strictly with the CDA’s timeliness requirements. While this does not ease contractors’ compliance burdens, contractors may at least take some solace in the fact that the government similarly is held to account. Specifically, contractors can treat any contracting officer failure, within 60 days of receipt of a properly certified claim, to issue a decision, or extend the decision deadline to a precise, reasonable, future date and issue a decision within such extended period, as a deemed denial and proceed immediately to the Board or Court. The government does not have the right to condition any extended decision deadline on a contingency or further extend the decision deadline a second time.
A recent Postal Service case reminds us how important it is to know how to proceed if your contract is terminated. Clifford B. Finkle, Inc. v. U.S. Postal Service, PSBCA No. 6540 (March 25, 2015). The Postal Service terminated with notice a contract with Clifford B. Finkle Inc. (CBF) who then (i) appealed the termination to the Postal Service Board of Contract Appeals (Board) and subsequently (ii) filed a monetary claim with the contracting officer (CO). When the CO denied its monetary claim, CBF failed to appeal the CO’s decision, despite the fact that the CO provided written notice of the appeal rights and counsel for the Postal Service sent CBF an email admonishing them to “keep in mind” that CBF has a “90 day deadline to appeal the recent final decision.” CBF didn’t listen. The Postal Service moved to dismiss the termination appeal arguing the Board lacks jurisdiction where, as here, the contractor (i) challenges a termination without a monetary claim and prior to receiving a decision from the CO and (ii) fails to file a notice of appeal within 90 days of receiving the CO’s final decision on its monetary claim.
As most of us know, the Contract Disputes Act (CDA) requires that contractor claims be in writing, certified (if over $100,000), and submitted to the contracting officer for a decision. The contracting officer must then issue a decision in writing, whereupon the contractor, if it wants to appeal this decision to the Board, must do so within 90 days from the date of receipt of the decision. The Board is then authorized to hear and decide the contractor’s appeal from the decision of the contracting officer.
CBF made a mess of its termination and, as a result, eliminated any possibility of obtaining relief. Don’t make the same mistake. Know the rules and follow them. If you don’t, you’ll see that Boards have hearts of stone.
Small businesses participating in the Small Business Administration’s (SBA’s) 8(a) Business Development Program (BD Program) would do well to recall the story of Pinocchio, the marionette who wanted to be a real boy. Pinocchio learned two important lessons: be self-reliant and don’t lie. Similarly, the petitioner in the recent The Desa Group, Inc., SBA No. BDPT-543 (February 5, 2015) decision was given credit for trying to tell the truth, but found out the hard way that you cannot rely too heavily on another, non-disadvantaged, entity. The decision makes clear it is not enough that a socially and economically disadvantaged business be free from the control and management of a non-disadvantaged business; overreliance on the non-disadvantaged business may independently lead to the 8(a) firm’s termination from the BD Program.
The appeal arose in response to the SBA’s termination of The Desa Group (DGI) from the 8(a) BD Program based on two grounds set forth in SBA’s Regulations (13 C.F.R. §124.202): DGI alleged (i) submission of false information in its program application, and (ii) failure to maintain full-time, day-to-day management and control by a disadvantaged individual. Specifically, SBA received a tip that DGI’s president, Dionne Fleshman, whose socially and economically disadvantaged status qualified DGI for the 8(a) BD Program, actually worked for DESA Inc. (DESA) and did not manage DGI. DESA was owned by Ms. Fleshman’s mother, Diane Sumpter, who is no longer disadvantaged.
On appeal, OHA rejected SBA’s conclusion that DGI should be terminated from the program based on Ms. Fleshman’s allegedly false statements in the Program Application, finding her statements contained merely honest and reasonable mistakes. Absent evidence of intent to deceive SBA, OHA concluded that inaccurate statements are not grounds to terminate an 8(a) firm from the BD Program. OHA also rejected the SBA’s finding that DGI was managed and controlled by a non-disadvantaged individual (Ms. Sumpter), after considering and rejecting the evidence on which SBA based its conclusions: that (i) DGI and DESA were referenced on each other’s LinkedIn and Facebook profiles and company websites; (ii) Ms. Fleshman was listed as a “leader” on DESA’s website and earned between $7,000-$10,000/month from DESA over a two-year period; and (iii) DGI’s website referenced the accomplishments of DESA.
OHA found that none of the evidence identified by SBA established that DESA controlled DGI. For example, according to OHA, DESA and DGI’s references to each other on their websites only showed that DESA and DGI were related. Moreover, the monthly payments to Ms. Fleshman were actually payments to DGI under a subcontract from DESA and did not establish that Ms. Fleshman worked for DESA instead of DGI. OHA concluded that, at most, the evidence showed that DGI and DESA were interconnected, not that DGI was controlled or managed by DESA or Ms. Sumpter.
But OHA’s inquiry did not end there however. OHA considered additional evidence and, based on this evidence, concluded that DGI and DESA were so interconnected that their business relationship interfered with DGI’s ability to “exercise independent business judgment without great economic risk” – a different basis for terminating DGI from the 8(a) BD Program.
This decision underscores for 8(a) firms the importance of closely examining their relationships with individuals and entities that are not disadvantaged. Even if such individuals or entities do not manage, own or control the participant, the 8(a) firm’s interconnectedness with non-disadvantaged companies and individuals (including sufficiently substantial contractual relationships) may still be enough to justify the 8(a) firm’s termination from the BD Program. On a positive note, The Desa Group, Inc. decision should provide 8(a) BD Program applicants with a sense of relief that an honest misunderstanding about an application question is unlikely to provide grounds for 8(a) BD Program termination.
Lara Nochomovitz is responsible for the contents of this article.
Last month the Armed Services Board of Contract Appeals (ASBCA) affirmed that even a defective termination notice starts the 90-day appeals clock, unless the contractor can establish it was actually prejudiced by the defective notice. In Mansoor International Development, ASBCA No. 58423, September 04, 2014, the ASBCA denied the government’s motion to dismiss the appeal as untimely, but only because it found both that the termination notice in question lacked the notification of rights required by FAR 33.21 l(a)(4), and that the contractor was actually prejudiced by the defect in the notice.
Mansoor was an inexperienced Army contractor providing trucking services in Afghanistan. On March 31, 2012, the contracting officer (CO) sent Mansoor a letter stating that (i) Mansoor’s contract would be terminated at the completion of its current task order and (ii) Mansoor could appeal the termination under the Disputes Clause. Months later, on September 1, 2012, the CO issued a modification to the pending task order, again giving notice of contract termination as described in the March 31, 2012 letter, but this time setting out the full notice required by FAR 33.211(a)(4) which includes a clear statement that the contractor has a right (i) to appeal to the ASBCA by furnishing written notice of that intent within 90 days or, instead, (ii) to bring an action directly in the United States Court of Federal Claims within 12 months of the CO’s decision.
Mansoor filed its notice of appeal with the Board within 90 days of its receipt of the September notice. When the Board sought comments from the parties concerning the timeliness of the appeal, the government filed a motion to dismiss for lack of jurisdiction based on timeliness. The questions raised before the Board were whether or not the March 31, 2012 letter was a proper notice of termination and, if not, whether the notice’s lack of an explicit statement of appeal rights prejudiced Mansoor’s ability to prosecute a timely appeal.
The Board, relying on Decker & Co. v. West, 76 F.3d 1573 (Fed. Cir. 1996), held that a contractor cannot rely on a defective notice of termination to delay the due date of an appeal unless it can demonstrate it was prejudiced by the notice. Here, Mansoor presented evidence that it “understood and believed that any time limits flowed from the completion of the contract close out process, including the completing of outstanding missions and submission of final invoices and claims” and that it “did not understand [its] appeal rights and obligations and was prejudiced by the failure of the Contracting Officer in March to explicitly recite them." On the basis of the evidence presented, the Board found that Mansoor was prejudiced by the defective notice. But even a slightly different fact pattern might have triggered a different result.
The lesson? Because a contractor must be able to show prejudice before relying on a defective termination notice to excuse an otherwise untimely appeal, it is vitally important to clarify any notice suggesting termination, however faulty it may seem to be, and to assume the most conservative approach to the start date for counting down the days within which to file a timely appeal with a Board or the Court.
Heather Joyce is the lawyer responsible for the contents of this article.

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