A recent argument a contractor made to the Contract Board of Appeals might lead companies to the wrong conclusion. It is another case of a company trying to recover unanticipated costs under a fixed price contract, costs incurred because of the COVID pandemic. The case is about jurisdiction, though, and not cost recovery. For details, the Federal Drive with Tom Temin spoke with Haynes Boone procurement attorney Zach Prince.
Interview Transcript:
Tom Temin and Zach, you say this specific case makes other people think, oh my God, we can recover prices that we didn’t know we were going to incur. But he doesn’t say it so quickly.
Zach Prince: yes, that’s right. There’s a lot of noise in the press, and I think there’s a clever explanation for that. People took on a lot of prices in the years when COVID was a hot topic, and other people were stuck at home and could also just not work, and they’ve been looking for that for years. And there have been mechanisms. And Congress passed the CARES Act and Section 36. 10, which I talk about a little bit more, but not many corporations benefited from it. In the end, this case may also be about that, when a corporation gets relief under segment 3610, but that may not be the case. We don’t know yet.
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Tom Temin Well, tell us about this case.
Zach Prince So this case was brought by a company called Aviation Training Consulting. They operate, maintain support and upgrade the trainers for the B-52 bombers for the Air Force. So, in 2010, they had people who are home because of COVID, and they thought they ought to get relief under section 36.10. 36.10 was a congressional grant for agencies to have authority to modify terms of conditions of contracts without consideration, to reimburse at contract billing rates for any paid leave that a contractor provided to keep its employees in a ready state. So, the authority was limited. It only applied to a contractor whose employees or subcontractors who couldn’t work on site because of facility closures or other restrictions, and in this case, aviation training was seeking $512,000 or so from the government under 36.10. But 36.10 ultimately was a grant of authority. It wasn’t a mandate that the government had to give that money, which I think is the basis for this case. The contracting officer denied the claim. Aviation training appealed, but then the government moved to dismiss for lack of jurisdiction.
Tom Temin And whose jurisdiction did not have the authority.
Zach Prince It happened before the Armed Forces Contract Appeals Board, and the government said, hey, this is never a basis for a valid claim and it’s not the basis for a contract appeals law, an appeal to the board. You have to do it right.
Tom Temin: But the board didn’t agree with the government.
Zach Prince: They did. And I think it was a pretty undeniable application of the law. Again, I don’t know where the government really comes from. I think this is the second time in a month that we’ve talked about a case where I have no idea where the government stands. Here, they said, well, that’s literally not a statement because there’s kind of an unlimited grant of force to the government for or not those requests. Well, that’s not what a claim is, is it?A claim is explained extensively in the Contract Disputes Act as something similar to a contract with the government. Leading to a contract is broad. This is obviously a contract. So, based on that, it’s a claim. And the board of trustees has jurisdiction.
Tom Temin: Then the board disagreed and said we would take this matter into consideration.
Zach Prince: yes, that’s right. The government has attempted to draw an analogy with Public Law 85-804, which has also gained a lot of attention in recent years as it provides a basis upon which the government can grant ordinary contract relief to contractors. insane prices that you didn’t anticipate and will put you out of business and it’s your business, the government will have to continue, they may just give you relief under this law. This law makes it clear that there is no appellate authority under CDA. Then the government said, “Hey, it’s the same thing. “85-804 CARES Act. But here’s a problem. 85-804 transparently doesn’t allow jurisdiction, right?legislative history, or in the language of law.
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Tom Temin We’re speaking with procurement attorney Zach Prince. He’s a partner at Haynes Boone. So therefore, from the face of it, it looks like then aviation training consultants do have a claim that can validly be brought to the contract Board of Appeals, which will then have to decide on its merits.
Zach Prince: yes, that’s right. I mean, I suspect what they’re going to do is try to show that the government abused its discretion by not offering relief under the 36. 10 segment, which is a pretty high bar. But you know, you’re going to have the opportunity to explore that theory. And the government can’t get rid of it prematurely like it would.
Tom Temin: I think, you know, I suspect that the government, in the minds of the contracting officials, probably doesn’t object to the fact that the contractor might be entitled to that compensation. In this case, it’s only a part of a million. Dollars. Just a big challenge for the contractor. It’s not so bad for the government. But, you know, with the risk of a procedural solution for the rest of the year, because of the lack of a new budgetary authority, you know, new appropriations for the current year. I just wonder, from a practical point of view, if they will have that cash at the end of the year.
Zach Prince, I have to assume this is cash that would have come from last year’s allocations, but you’re right. I see a lot of things where agencies are cutting corners. Maybe that’s a clever way to phrase it with the way they’re giving, you know, help or issuing new contracts for things that they know they want or that they want. . And, you know, dividing lots essentially for what they’re going to want for the total year, because they just don’t know how much cash they’re going to continue to have.
Tom Temin: That’s true. And the CARES Act didn’t necessarily authorize the release of cash to agencies to cover contractor prices incurred due to COVID.
Zach Prince: No, it’s not. And that’s the challenge with some of the other aid that Congress has provided and the National Defense Authorization Act in recent years. Both included provisions authorizing the government to provide relief in the event of higher prices due to inflation. But either depended on assignments. 23 This was never carried out. I think 24 would probably not take place either.
Tom Temin Yes, that’s true. So the government has constant prices and there is an automatic relief of 1% if the CR is maintained throughout the year. It’s, you know, an old budget rule. Therefore, there is rarely cash on the books to pay the prevailing prices of a contract. And I suppose maybe the government thinks so. I’m just looking to guess what the Air Force might have thought, well, they’re still active. We are still supplied with B-52 education systems. I’ll just look away and let them eat it.
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Zach Prince That might be the case. I mean, we’re starting to see programs getting cut. I don’t know that it getting cut had to do with budgets, but maybe. And I think we’re going to start seeing other big programs that are being squeezed in ways that nobody’s happy with because of this budget issues.
Tom Temin Yes, because the contract prices are actually the only variable prices, in a sense, that the government has. It can reduce education and for people, but it is negligible compared to the relief from spending. And if you want to adjust, this is your accordion bellows.
Prince Zach: That’s right. But that’s not the case. In reality, there is no strong commercial defense base. And we keep hearing that the trade base is shrinking. And there are very few corporations willing to do business with the Department of Defense and the government as a whole. Well, that’s not how you help.
Tom Temin’s acquisition attorney, Zach Prince, is Haines’ spouse. Boone, thank you very much.
Zach Prince Thanks for having me, Dan.
Tom Temin: And besides, it’s the CDA that’s going to deal with this issue. So you’ll take a look at what they actually say in substance.
Zach Prince We’ll all be watching. I mean, with the low dollar value at issue, I suspect there’s going to be a settlement if there’s any merit. But you never know. Maybe there’ll be a decision on the merits, ultimately.
Tom Temin And the crux of the matter doesn’t necessarily lie in the company’s allegations, but simply in whether the government has the right to exercise its discretion. This is a wonderful distinction.
Zach Prince Yeah. It is. And the government has quite a lot of, leeway in exercising that discretion. Right. It has to be rational. And rational is a pretty low bar. So, if the contractor is going to prevail here, they’re going to have to demonstrate that it was totally beyond the pale for what the government did. They had money. They could have given it out. They should have given it out. Any reasonable person would have. That’s a really high standard to me.
Tom Temin, yes. So, the entrepreneur has the high bar here and the government has the low bar, to put it simply.
Zach Prince: Yeah, that’s right. Yes. I don’t think the contract can prevail, but I don’t know the facts. So let’s see what happens.
Tom Temin is the host of Federal Drive and has been offering insight into federal generation and control issues for more than 30 years.