In the case of K-Con Building Systems, Inc. v United States, K-Con appealed a federal Claims Court decision to the US Court of Appeals for the Federal Circuit. The contractor brought three separate claims on appeal: 1) the liquidated damages clause that appeared in the contract was unenforceable; 2) the federal Claims Court erred in its ruling that it did not have jurisdiction over K-Con’s appeal of the contracting officer’s denial of extensions of time; and 3) K-Con was due compensation for additional work performed secondary to change orders.
Jurisdiction over Different Types of Claims
The first thing the court ruled on was whether the lower court had jurisdiction over the claims presented. “Jurisdiction exists over those claims which satisfy the requirements of an adequate statement of the amount sought and an adequate statement of the basis for the request.”
The claim must adequately specify both the amount sought and the basis for the request. The court will treat as separate claims any which request different remedies or assert grounds that are materially different other factually or legally. This gives a contracting officer and ample prelitigation opportunity to “rule on a request, knowing at least a relief sought in what substantive issues are raised by the request.”
The court has differentiated claims seeking different types of remedies such as expectation damages versus consequential damages. The mere addition of factual details or legal arguments does not create a different claim; however presenting a materially different factual or legal theory does create a different claim.
K-Con submitted three different request for remedy: 1) it claimed the liquidated damages clause was unenforceable and requested $109,554 plus interest, which was the amount withheld by the Coast Guard; 2) K-Con claimed that it was entitled to time extensions, which the Coast Guard never provided; 3) it claimed that the Coast Guard made contract changes requiring additional work and entitling K-Con to $196,126.38 above the liquidated damages.
The court ruled that the federal Claims Court got it right and that it had jurisdiction over the first and third claims, but not over the second. K-Con sent a second letter to the contracting officer after it filed its original complaint in federal Claims Court. It was only in this letter that the contractor adequately presented “enough detail to provide adequate notice of the basis for any time extension.” The appellate court ruled that the Court of Federal claims did not have jurisdiction over K-Cons time extension claim. “At bottom, the time extension claim is a request for remission of liquidated damages on the ground that the Coast Guard failed to issue time extensions for additional work added to the contract. K-Con squarely placed the claimant litigation through its original complaint, which means that K-Con had to present that claim adequately in its first letter, not in the post-suit second letter. But the first letter plainly fails to allege enough detail to run adequate notice of the basis for any time extension. Indeed, K-Con admitted to the Court of Federal claims that its first letter could not be a valid time extension claim.” K-Con’s failure to adequately articulate its basis for time extension deprived it of its opportunity for judicial review for what may have been its strongest claims.
Liquidated Damages Clause Enforceable As Long As It Is Reasonable
The contention in this case was that the contract’s liquidated damages clause was unenforceable. K-Con alleged that the computed amount of $589 per day was inaccurate due to a mathematical error. The court ruled that even if that was true, the amount of $589 was not unreasonable and did not constitute an impermissible penalty on K-Con. K-Con argued further that the rate was unreasonable because it reflected personnel time, which would have been incurred the matter what. The court pooh-poohed that argument as well, stating that while personnel hours may have been spent regardless of the delay, “it is reasonable to expect that delay would force them to reallocate their hours and impair their ability to give planned attention to other projects, to the detriment of those other projects. In short, inefficiency plausibly preach administrative costs which the agreed-upon rate here properly estimated.”
Written Notice Required To Get Increased Cost From Change Orders
The US Court of Appeals for the Federal Circuit ruled regarding K-Con’s allegations failed that it was entitled to increase cost due to change orders because it did not provide the contracting officer with written notice within the time required by the contract. The contract in question allowed for 20 days for the contractor to alert the contracting officer of an increase in cost due to change orders. The record shows that K-Con did not submit its contract changes claim for more than two years after the changes were issued. The Court noted “timely written notice to differentiates request the contractor views as outside the contract from those it deems contemplated by the contract.” It added that notice also eliminated the government’s surprise of later money claims.
Lesson one is to make sure you read, understand, and agree with all of the elements of the contract that you are signing. We will never know what would’ve happened if K-Con had objected to the liquidated damages clause in the contract before signing it worth it had asked for an amendment to the amount of liquidated damages. The excitement of being awarded a contract can easily cloud a contractor’s perspective, but it never hurts to ask for an amendment. Even if the contracting officer says no, your objections to the clause becomes part of the record.
The second take away from this case is that it is extremely important to pay attention to comply with all notice requirements found in your contract. K-Con had 20 days to provide notice of increase cost secondary to change orders but it took more than one year to raise the issue at all and more than two years to formally raise an objection. This delay essentially defeated any hope they had in being compensated for their additional work.
The third important lesson is to be certain to get to raise all of your basis for claims to the contracting officer before proceeding to litigation. Had K-Con done this, the Court of Federal claims been granted jurisdiction in ruled on whether or not contracting officer’s denial of request for time extensions was reasonable given the circumstances.
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