Clearly Unreasonable Contracting Officer = Attorney’s Fees, Overhead, Profit and Interest

What Should I Do If Faced with a Clearly Unreasonable Contracting Officer?

Federal contracting officers have broad discretion – within the limitations and allowances of the FAR. But, contracting officers must respond in writing to claims filed by contractors. If they do not, they are violating the FAR and contractors are eligible for attorney’s fees and other costs and penalties. A recent federal appellate court decision reveals that egregious breaches by unreasonable contracting officers renders the FAR immaterial and courts will rely on the common law of contracts to make contractors whole.

On April 25, 2015 the United States Court of Appeals for the Federal Circuit (“Federal Circuit”) partially overturned a decision by the United States Court of Federal Claims (“Claims Court”) to hold in favor of a contractor because a contracting officer failed to respond to a contractor’s claim (See Sufi Network Services, Inc. V. United States).

The Air Force had contracted with SUFI to operate telephone systems in lodging facilities and SUFI agreed to install equipment at no cost in exchange for network exclusivity. The government broke its promise and SUFI initiated administrative proceedings. SUFI submitted claims to the contracting officer who denied all but one of SUFI’s claims.

SUFI appealed to the Armed Services Board of Contract Appeals (“Board”) which decided in SUFI’s favor on 22 claims. SUFI then submitted a claim for attorney fees to the contracting officer and requested a decision within 60 days. More than six months passed before an Air Force counsel told SUFI to consider its claim “deemed denied.”

SUFI immediately filed suit in Claims Court which awarded attorney fees, but denied claims for overhead and lost profit. SUFI appealed this decision to the Federal Circuit.

The Federal Circuit agreed with SUFI. The Federal Circuit held SUFI was entitled to attorney fees and overhead and lost profit on the pursuit of its claims for attorney’s fees.

Why not follow the FAR?

The disputes clause of the FAR requires contracting officers to decide “any dispute or claim concerning [the] contract.” A contracting officer must resolve the dispute or claim and “state his decision in writing.” Once the contracting officer’s decision is received, a contractor may appeal to the Civilian or Defense Board of Contract Appeals (depending on the contract) within 90 days. If no appeal is made, the contracting officer’s decision is final.

The Claims Court concluded SUFI’s remedies were no longer limited by the disputes clause because the contracting officer’s delay made federal contractual remedies inadequate. SUFI’s attorney fees, incurred in negotiating its breach of contract claims with the contracting officer, are recoverable under the contract’s “changes” clause and are allowed as contract administration costs. The court’s conclusion is based on the common law because attorney fees are recoverable as a foreseeable consequence of a breach of contract. However, the Claims Court did not support SUFI’s claim for overhead and lost profits, so SUFI appealed the decision to the Federal Circuit.

The Federal Circuit not only agreed with the award of attorney’s fees, but went farther to find the award of overhead costs and lost profits also appropriate. The Federal Circuit reasoned that while the FAR prohibits the government from paying “excessive pass-through charges” (generally defined as a contractor’s “indirect costs or profit” resulting from work performed by a subcontractor with “negligible value” added by the contractor), in this situation, SUFI was entitled to overhead and lost profits because as the wronged party, it must be left in as good a position as it would have been had the government fully performed. As SUFI expended resources pursuing its claims in federal court because of the government’s failure to render a decision on its claims, it was entitled to recover claims related expenses.

Federal contractors may complain that the FAR is a blunt instrument used against them, but this case demonstrates that the government has to follow the FAR and act reasonably or it risks losing its benefits, such as the application of the contracts dispute clause.

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