On June 27, 2018, in Appeal of CiyaSoft Corporation, the Armed Services Board of Contract Appeals held that the Government can be bound by terms of a commercial software license agreement that the contracting officer (CO) has neither negotiated nor seen. CiyaSoft Corporation (CiyaSoft) submitted a claim asserting that the Army had breached its contract to purchase computer software by using more copies of the software than were permitted by the contract. The Army denied the claim, in part, because the contract contained no terms specifying how the government would secure and protect the software. Instead, CiyaSoft had included license terms limiting the software’s use (i) inside the box containing the CDs with the software, (ii) on a piece of paper inside the software’s shrinkwrap, and (iii) in clickwrap that was displayed during the software’s installation process. On appeal, the Board found that although the contract included no license terms and the CO never saw or discussed with CiyaSoft the license terms that accompanied the software delivery, the CO had a duty to inquire about what use rights applied to the software and the failure to do so imputed knowledge of the licensing terms on the Army. Pointing to the longstanding policy embodied in the FAR that that the government should accept commercial computer license terms that are customarily provided to other purchasers, the Board held that “the government can be bound by the terms of a commercial software license it has neither negotiated nor seen prior to the receipt of the software, so long as the terms are consistent with those customarily provided by the vendor to other purchasers and do not otherwise violate federal law.”
On June 14, we presented a webinar titled “Frequently Asked Questions About Requests for Equitable Adjustment and Contract Disputes Act Claims.” The webinar featured some of the most common questions we encounter in the field regarding CDA claims and REAs, as well as a discussion of procedural, substantive, and business considerations that go into the decision to assert a claim or an REA.
The audience Q&A featured a remarkable 30 questions during the 1-hour webinar, so be on the lookout for a “sequel” Claims Recovery v2.0 webinar in the coming weeks, where we will address additional FAQs and new questions that attendees may submit in advance.
Finally, because part of the discussion focused on identifying and pursuing claims, attached here is a description of the Crowell & Moring Performance Review Offering, which describes available training and diagnostic reviews regarding recovery opportunities for clients in the government contracting industry.
Join us for a webinar titled “Government Contracts Recovery: ‘Frequently Asked Questions’ About Requests for Equitable Adjustments and CDA Claims.” During the 60-minute webinar, a team of claims professionals from C&M’s Government Contractor Recovery Practice will address some FAQs that arise in the context of contractor claims / REAs, and solicit audience questions, as we delve into some of the procedural, substantive, legal, and business considerations that factor into whether to assert a claim or an REA.
We hope you can join us on Tuesday, June 14th, 2017 at 1 PM Eastern. To register for this event, please click here.
The Armed Services Board of Contract Appeals published its FY16 Report of Transactions and Proceedings, which provides statistics regarding the adjudication of appeals between contractors and the Army, Navy, Air Force, Corps of Engineers, DLA, DCMA, CIA, NASA, other Defense agencies, and the Washington Metropolitan Area Transit Authority. This year’s report once again reflects the Board’s impressive success at resolving matters via alternative dispute resolution. In total, 93% of ADRs concluded in FY16 – including binding ADR, non-binding ADR, and ADR of undocketed appeals – were successfully resolved. The report also reflects a slight uptick in successful appeals at the Board, noting that the appellant prevailed in 57% the appeals decided in the merits (up from 53% in FY15).
In Lockheed Martin Integrated Systems, Inc. (ASBCA Dec. 20, 2016), a case involving a $100 million breach of contract claim stemming from purportedly unallowable direct subcontractor costs, the Board granted Lockheed Martin’s motion to dismiss the Army’s untenable claim “for failure to state a claim on which relief could be granted,” concluding that the government had “gone forward with a claim for over $100,000,000…based on nothing more than a plainly invalid legal theory.”
Specifically, the Board held that final decisions based solely on an audit report’s “conclusory assertions” and “unsupported conclusions” failed to satisfy the standards required by the Board’s rules for a valid claim and that although prime contractors have a generalized responsibility to manage subcontractors, the Army failed to establish that Lockheed Martin had breached any particular contractual obligation, express or implied, and specifically that Lockheed Martin had no obligation to (1) obtain or audit incurred cost submissions from subcontractors; or (2) to retain documentation supporting prime contractor billings for longer than the contract’s “applicable records retention” period.
ABS Development Corp. (ASBCA Nov. 17, 2016) highlights the importance of providing a fully-compliant certification for CDA claims over $100,000—which includes, according to the Board, the requirement for contractors to provide an identifiable and verifiable handwritten signature or digital e-signature. As the contractor in ABS discovered, the Board considers “typewritten” signatures, regardless of font, to be insufficient.
In ABS, the Board dismissed for lack of jurisdiction certain contractor claims that had been “certified” by means of typewritten names (in signature-font) because a typewritten name “cannot be authenticated, and, therefore, is not a signature.” The Board made clear that the CDA’s purpose is to bind contractors by means of a signed certificate that “cannot be easily disavowed by the purported author.” The Board explained that a signature “is a discrete, verifiable symbol that is sufficiently distinguishable to authenticate that the certification was issued with the purported author’s knowledge and consent or to establish his intent to certify.” Because anyone could type another person’s name on a signature block, the purported author could
disavow the certification and the signature would be nearly impossible to authenticate.
In M.K. Ferguson Co. v. U.S. (Apr. 14, 2016), a case involving a pass-through claim compelled by the prime’s bankruptcy judge, the CFC denied the government’s motion to dismiss and held that the prime’s initial pass-through certification – which stated only that the prime was “authorized to certify the claim” – was not a “failure to certify” (which would have cost the court its jurisdiction) but was instead a “defective certification” that the prime could (and did) cure through its subsequent certification. Although the prime contractor had previously expressed “legitimate concerns as to the amount claimed” to the bankruptcy judge, the CFC concluded that the prime’s compliance with the bankruptcy court’s order showed the prime’s sponsorship was made in “good faith” and remanded to the agency for a final decision, after holding that the prime’s potential liability to the subcontractor (despite the discharge of liability in bankruptcy) was enough to satisfy the “modern” Severin doctrine.
In AeroVironment, Inc. (Mar. 30, 2016), following an apparent settlement of the government’s cost disallowance claim, the ASBCA denied the government’s request to amend its answer (in order to “clarify” entitlement to additional quantum) because the proposed amendments constituted new “claims” that required new final decisions. Acknowledging that parties may ordinarily revise quantum without running afoul of jurisdictional concerns, in this case the Board found that the proposed amendments (which were premised on a new interpretation of FAR Parts 3l and 42, a different calculation methodology, and greatly increased the monetary stakes), involved different “operative facts” and “would alter the ‘essential nature’ and fundamental basis of the claim asserted in the final decisions,” over which the Board lacked jurisdiction.
On February 17, the Federal Register published a proposed rule that would amend the FAR to implement section 857 of the National Defense Authorization Act, making unallowable any “costs incurred by a contractor in connection with a Congressional investigation or inquiry into an issue that is the subject of a proceeding resulting in a disposition as described in 10 U.S.C. 2324(k)(2)” (i.e., criminal convictions, matters involving an allegation of fraud or similar misconduct, suspension and debarment, default termination). The proposed rule would also expand the applicability of section 857’s requirements beyond DoD to all agencies subject to the FAR, and, as written, is not clearly limited to the contractor that is actually the subject of the “proceeding or inquiry,” an important detail that should be addressed in contractor and industry comments submitted over the next 60 days prior to the publication of the final rule.
The 2016 National Defense Authorization Act prohibits the Defense Contract Audit Agency from providing “audit support” to any non-DOD agency until the Secretary of Defense certifies that DCAA has reduced its backlog of incurred cost audits to 18 months or less, a restriction that could cause some disruption for contractors when DOD contracts are not a majority of the contractor’s government work and when audit support has been provided by DCAA in the past. On January 7, 2016, DCAA issued guidance to its auditors that appears to limit the prohibition on “audit support” to incurred cost audits, leaving DCAA auditors free to provide other accounting services to non-DOD agencies, specifically permitting DCAA to perform incurred cost audits that include both DOD and non-DOD contracts when auditors determine that inclusion of the non-DOD contracts involves “de minimis” incremental effort by DCAA, and offering guidance about how to handle such “mixed” audits when the non-DOD contracts will create more than “de minimis” incremental effort.