Opinion ID: 170933
Heading Depth: 2
Heading Rank: 1

Heading: The Federal Acquisition Regulation System and Prejudgment Interest

Text: Prejudgment interest is an element of complete compensation.... West Virginia v. United States, 479 U.S. 305, 310, 107 S.Ct. 702, 93 L.Ed.2d 639 (1987). It serves to compensate for the loss of use of money due as damages from the time the claim accrues until judgment is entered, thereby achieving full compensation for the injury those damages are intended to redress. Id. at 311 n. 2, 107 S.Ct. 702. The contract's default-termination clause incorporated verbatim the standard federal default clause for fix-price construction contracts. 48 C.F.R. § 52.249-10(a), (c). That clause is part of the Federal Acquisition Regulation System (FAR). See Title 48 C.F.R. (2008). As incorporated into the contract, the clause allowed MK to terminate GIT if the work was delayed by GIT's inexcusable lack of diligence. Id. § 52.249-10. The clause further provided that a wrongful termination would be treated as a termination for convenience: If, after termination ..., it is determinated that [GIT] was not in default, or that the delay was excusable, the rights and obligations of the parties will be the same as if the termination had been issued for the convenience of the Government. [8] J.A. Vol. 10 at 2659; 48 C.F.R. § 52.249-10(c). The contract's dispute clause provides that [a]ny substantive issue of law in [litigation concerning the contract] shall be determined in accordance with the body of law applicable to procurement of goods and services by the Government. J.A. Vol. 10 at 2650. The disputes clause and the contract must be interpreted in light of the regulations controlling the interpretation of federal contracts. Morrison Knudsen I, 175 F.3d at 1230. The controlling regulations since 1984 have been the FAR. Id. In Morrison Knudsen I, this court held MK's termination of GIT was wrongful. 175 F.3d at 1261. Under the terms of the contract and the FAR, therefore, the rights and obligations of the parties are treated under a termination-for-convenience paradigm. MK argues under this paradigm, the district court erred by awarding GIT prejudgment interest. The FAR prohibits the government from paying interest on the amount due under a settlement agreement or a settlement by determination. The Government may, however, pay interest on a successful contractor appeal from a contracting officer's determination.... 48 C.F.R. § 49.112-2(d). MK argues the retrial of this lawsuit constitutes a settlement by determination and therefore precludes the assessment of prejudgment interest. This argument is without merit. Although the termination of GIT must be treated as a termination for convenience, MK wholly failed to act under a termination-for-convenience paradigm and therefore waived its claims to the prohibition on prejudgment interest benefit set out in the FAR. Settlement by determination is not the legal equivalent of settlement through protracted litigation in the federal courts. Instead, it is a term of art encompassing exact procedures through which a government contractor may settle its claims. See 48 C.F.R. § 49.109-7. The primary objective under the termination-for-convenience protocol is to negotiate a settlement by agreement. Id. § 49.201(b). If, however, the government and contractor cannot agree, the government may determine an appropriate settlement fully compensating the contractor, and the contractor may appeal. See id. § 49.109-7(a), (f). Had MK proceeded under this paradigm, the federal regulations would have required MK to provide notice and effect a no-cost settlement if GIT was willing to accept one. Id. §§ 49.109-7(b), 49.101(b). Instead, MK sued GIT for damages. There is thus no prohibition on prejudgment interest. Although there is no prohibition on prejudgment interest, neither does the FAR expressly provide for prejudgment interest. As recognized by the district court, the provision allowing for prejudgment interest in the Contracts Dispute Act (CDA) does not apply to this case. [9] See US West Commc'ns Serv., Inc. v. United States, 940 F.2d 622, 627 (Fed.Cir.1991) (A government contractor's dispute with its subcontractor [is] by definition specifically excluded from CDA coverage.). The district court, however, analogized to this provision, concluding MK forced GIT to appeal its determination that GIT was not entitled to money for work completed under the contract. This analogy is insightful in showing that even where the government is a party to the contract, Congress intended prejudgment interest to be available when the injured party is delayed in obtaining compensation. See, e.g., Frymire, 61 F.3d at 772-73. Thus, we must determine whether prejudgment interest is supported under compensatory principles and fundamental considerations of fairness. Anixter v. Home-Stake Prod. Co., 977 F.2d 1549, 1554 (10th Cir.1992). This court has explained that under federal law, prejudgment interest is generally available. Id.; see also Royal Indem. Co. v. United States, 313 U.S. 289, 296, 61 S.Ct. 995, 85 L.Ed. 1361 (1941) (In the absence of an applicable federal statute, it is for the federal courts to determine, according to their own criteria, the appropriate measure of damage, expressed in terms of interest, for non-payment of the amount found to be due.). Under both compensatory principles and considerations of fairness, the award of prejudgment interest was proper. When GIT was wrongfully terminated, MK withheld payment under the contract. For more than thirteen years GIT has been deprived of the time-value of monies owed to it. Prejudgment interest was proper as a measure of compensatory damages and is not precluded by the equities. See Anixter, 977 F.2d at 1554. The district court did not abuse its discretion by awarding GIT prejudgment interest.