POSTSCRIPT IX REQUESTS FOR EQUITABLE ADJUSTMENT vs CLAIMS

37 Nash & Cibinic Rep. NL ¶ 40

Nash & Cibinic Report | June 2023

The Nash & Cibinic Report

Contractor Claims

Ralph C. Nash

¶ 40. POSTSCRIPT IX: REQUESTS FOR EQUITABLE ADJUSTMENT vs. CLAIMS

For over a decade we have been discussing the difference between Requests for Equitable Adjustment and Contract Disputes Act claims. See Requests for Equitable Adjustment vs. Claims: Is There a Difference?, 26 N&CR ¶ 10, and Postscripts at 26 N&CR ¶ 42, 26 N&CR ¶ 51, 26 N&CR ¶ 61, 30 NCRNL ¶ 7, 33 NCRNL ¶ 58, 33 NCRNL ¶ 65, 35 NCRNL ¶ 30, and 36 NCRNL ¶ 49. These discussions generally have assumed that the contractor has the choice of whether to begin the process of asking for more money by submitting an REA (requesting negotiations) or a CDA claim (requesting a Contracting Officer decision). But some of the recent decisions show that the actions of the CO can play a significant role in pinning down this distinction.

BB Government Services Srl

In BB Government Services Srl, ASBCA 63255, 23-1 BCA ¶ 38,303, 2023 WL 2571534, 65 GC ¶ 84, the contractor, after discussing additional work necessary to meet the contract requirements with agency personnel, submitted an REA for this work. The REA explicitly advised the CO that the purpose of its submission was to recover additional costs and requested an equitable adjustment of $121,214.66. There is no indication in the board’s decision that the REA contained any certification.

The CO responded three months later with a formal CDA decision that the contractor appealed to the board of contract appeals. The board treated the CO decision as valid, stating:

The Board’s jurisdiction under the Contract Disputes Act (CDA) is dependent upon the contractor’s submission of its claim to the CO and a final decision on, or the deemed denial of, the claim. CCIE & Co., ASBCA Nos. 58355, 59008, 2014-1 BCA ¶ 35,700 at 174,816. Because the CDA does not define the term “claim,” we look to the Federal Acquisition Regulations (FAR) for a definition. Reflectone [, Inc. v. Dalton], 60 F.3d [1572,] at 1575 [(Fed. Cir. 1995)]; H.L. Smith, Inc. v. Dalton, 49 F.3d 1563, 1564–65 (Fed. Cir. 1995). The FAR defines a “claim” as “a written demand or written assertion by one of the contracting parties seeking, as a matter of right, the payment of money in a sum certain, the adjustment or interpretation of contract terms, or other relief arising under or relating to the contract.” FAR 2.101; see also M. Maropakis Carpentry, Inc. v. United States, 609 F.3d 1323, 1328 (Fed. Cir. 2010).

An REA, on the other hand, is a relatively non-adversarial request from a contractor to a CO to consider adjusting contract terms. BAE Sys. Ordnance Sys., Inc., ASBCA No. 62416, 2021-1 BCA ¶ 37,800 at 183,577. The distinction between a claim and an REA is frequently unclear and often comes down to the second CDA requirement—whether the contractor requested a final decision from the CO [COFD]. Id. However, an REA may be converted into a claim by fulfilling the CDA’s requirements of a valid claim, including a request for a COFD. See Hejran Hejrat Co. Ltd. v. United States Army Corps of Engineers, 930 F.3d 1354, 1357–59 (Fed. Cir. 2019); Air Services, Inc., ASBCA No. 59843, 2015-1 BCA ¶ 36,146 at 176,424–25 (even a document referring to itself as an REA often meets the definition of a claim in that it makes a non-routine written demand for payment as a matter of right).

Here, while it did not explicitly request a COFD, BBGS’s September 15, 2021, REA “request[ed] the Government [for] a fair adjustment of the contract amount” which was a non-routine request for payment that provided the Air Force with adequate notice of both the basis of the dispute and the amount in question.

The board then denied the Government’s motions to dismiss for lack of jurisdiction. The conclusion that the REA was a CDA claim is puzzling because a well-prepared REA will always give the CO sufficient information to allow negotiation of the matter in dispute. Nonetheless, the board concluded that the CO’s treatment of the REA as a CDA claim made it so.

Hejran Hejrat Co.

As can be seen in BB Government Services, the decision of the U.S. Court of Appeals for the Federal Circuit in Hejran Hejrat Co. v. U.S. Army Corps of Engineers, 930 F.3d 1354 (Fed. Cir. 2019), 61 GC ¶ 237, rev’g and remanding ASBCA 61234, 18-1 BCA ¶ 37,039, 2018 WL 2181454, made it easy for the board to arrive at its conclusion. Vern and I both wrote up the strange decision in 33 NCRNL ¶ 58 and 33 NCRNL ¶ 65. There, the actions of three COs appeared to have cleared up the distinction between an REA and a CDA claim. The first CO requested that the contract be closed out and, in response, Hejran submitted three invoices for alleged extra work. The CO then told Hejran that she was treating this response as an REA and asked if it intended to request a CDA decision. Hejran responded that it had indeed submitted an REA and stated: “In the event that you decide to treat this email as REA and still reject our request for the adjustment of payments, we would then proceed with issuing a certified claim.”

A year later, Hejran sent an email to a second CO called an REA and containing a sworn affidavit stating: “The clauses and points reflected in REA (Request for Equitable Adjustment) in reference to contract # W5J9JE-11-C-0115, to the best of my knowledge are true.” This CO determined that Hejran was submitting an REA but responded by email that a CO decision would be issued shortly—only to send an email entitled “Response to REA.” This email rejected Hejran’s invoices but did not contain any indication that it should be considered a CO’s final decision. Hejran followed up by stating that none of its emails were intended to be claims. Subsequently, Hejran contacted the new CO that had taken over the contract, who replied that she found no merit in the REA and advised Hejran to follow the procedures in its “Disputes” clause. No CO CDA decision was ever issued, but Hejran appealed to the Armed Services Board of Contract Appeals. The board rejected the appeal for lack of jurisdiction but the Federal Circuit reversed and remanded, holding that the email to the second CO was a request for a CDA decision. Here, three COs over a six-year period had attempted to distinguish between an REA and a CDA claim but had not succeeded in the eyes of the Federal Circuit.

BAE Systems Ordnance Systems, Inc.

In BAE Systems Ordnance Systems, Inc., ASBCA 62416, 21-1 BCA ¶ 37,800, 2021 WL 934959, 65 GC ¶ 84, which we discussed in 35 NCRNL ¶ 30, the board framed the issue as follows:

The issue before us in the government’s pending motion to dismiss is whether the Federal Circuit’s recent decision in Hejran Hejrat Co. Ltd v. United States Army Corps of Engineers, 930 F.3d 1354 (Fed. Cir. 2019), so alters the law regarding requests for equitable adjustment (REAs) that a contractor submitting documents plainly intended to be REAs, but not claims pursuant to the Contract Disputes Act (CDA), and scrupulously avoiding requesting final decisions from the contracting officer (CO) must, nevertheless, be considered to have submitted claims pursuant to the CDA. In the case before us, the conversion of the REAs to claims without the contractor’s intent or knowledge would require dismissal of the appeal because the time between the denial of the REAs and the submission of this appeal is beyond the CDA’s statute of limitations.

BAE had submitted three letters, taking great care to make sure they were identified as REAs by not requesting a CO decision and by beginning each letter with the words: “In accordance with FAR 52.243-1, Changes—Fixed Price (Alternate I), and DFARS 252.243-7002, Requests for Equitable Adjustment, BAE Systems Ordnance Systems Inc. (BAE Systems) herein submits our Request for Equitable Adjustment (REA) for….” The letters also contained the two-prong REA certification. The parties exchanged correspondence for the next 16 months. The CO then issued a “final determination” that the REAs had no merit and stating that “if BAE chooses to dispute this determination, it is entitled to submit a claim in accordance with FAR 52.233-1—Disputes.” The CO confirmed her position in the next two months, and BAE finally submitted a CDA claim.

The board rejected the Government’s motion to dismiss because the claim was untimely. Its decision starts with an excellent description of the difference between an REA and a CDA claim. It then concludes that the critical issue was whether BAE requested a CO decision, reasoning:

First, the government identifies no explicit request for a contracting officer’s decision in the correspondence regarding the REA’s. This is hardly surprising as BAE intentionally sought to avoid converting its REAs into claims.

The government, instead, argues that BAE implicitly requested a final decision, analogizing it to the circumstances in Hejran Hejrat. It is mistaken. To be sure, the Federal Circuit in Hejran Hejrat found a document purporting to be an REA on its face and requesting that it be treated as an REA should be treated as a claim because, under the circumstances, the court felt the document implicitly requested a decision by the CO. See 930 F.3d at 1356–58. But in Hejran Hejrat, there had been a year-long exchange of documents and course of dealings between the parties which the Federal Circuit characterized in such a way as to make clear that things had changed between the parties by the time of the submission of the document that the court deemed to be a claim, including, notably, the addition of a certification that had not been present in earlier communications. See id. That is not the case presented here. Instead, there were three original submissions plainly not requesting CO decisions; there was a preliminary determination by the government which included a request for extra information from BAE; BAE provided some additional information in December 2018, but no certification beyond what it had previously done (in contrast to the circumstances in Hejran Hejrat, where the certification was new); and then, in February 2019, BAE generally indicated it might give the CO yet more information upon its request before thinking the better of it and declining to offer more substantive responses to the CO before she made her determination.

Thus, unlike the circumstances in Hejran Hejrat, the posture between the parties did not change substantially as the conversation regarding the REAs went forward. That was underscored by the correspondence between the parties indicating that the CO believed no claim had been submitted for a final decision and by the fact that BAE felt no need to correct that understanding. To be sure, this decision may be a closer call than it would have been prior to the Hejran Hejrat ruling, but on the very specific facts before us, we are persuaded that BAE did all that it could to keep its REAs from falling within the realm of being also considered CDA claims by carefully avoiding making a request—explicit or implicit—for a CO’s final decision. [Footnote omitted.]

While it is not a part of the board’s reasoning, we believe that a critical part of this conclusion is the fact that the CO never treated the REAs as CDA claims.

Our Conclusion

The Hejran Hejrat decision has thrown the dichotomy between REAs and CDA claims into disarray. If the CO does not honor a REA as such, it can make life very difficult for a contractor by forcing it into unwanted litigation. What seems to be missing in cases like BB Government Services is a CO’s awareness that a critical part of her or his job is to negotiate for a resolution of a dispute not to just dump the matter into the litigation process. We also have a problem with the tendency of Government trial lawyers (as seen in BAE Systems) to argue that REAs are really CDA claims when the contracting parties have clearly treated them as REAs. Perhaps we just have the idealistic view that the goal of the contract administration process is to arrive at a fair resolution of a disputed issue, not just to win at any cost. RCN

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