Tips for Playing The Price is Right on Your Government Contract Claim Breakout Session # F10

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2 Tips for Playing The Price is Right on Your Government Contract Claim Breakout Session # F10 Date: July 29, 2014 Time: 4:00-5:15pm

3 Your Host Aaron Raddock, Manager Baker Tilly 2

4 Let s Meet our Contestants! Contract Disputes Act 3

5 Come on Down David Kirschbaum, Principal, Baker Tilly Barbara Werther, Partner, Ober Kaler 4 Russell Shultis, Senior Trial Attorney, Navy

6 Game Show Categories Contract Disputes Act Types of Claims Pre-Claim Risk Reduction Techniques Claims Pricing and Submission Questions 5

7 Contract Disputes Act 6

8 Contract Disputes Act Basic statute governing claims Established claims process and forums for disputes Definition of claim written assertion, matter of right, payment of sum certain Initiation of claim submitted to Contracting Officer (CO), request Final Decision Must be Certified if over $100,000 7

9 Contract Disputes Act Final Decision is prerequisite to appeal/litigation Final Decision must be provided in 60 days Unless it isn t can specify a longer period (usually 60 more) Deemed denial if not issued Interest from date of certification Certification Requirement Made by authorized person who can bind the company Claim made in good faith Supporting data are accurate and complete to the best of my knowledge and belief Amount requested accurately reflects the adjustment for which the contractor believes the Government to be liable 8

10 Types of Claims 9

11 Types of Claims Contract Changes Defective Specifications Delays/Acceleration Differing Site Conditions Terminations Convenience Default 10

12 Types of Claims: Changes Per FAR (a) Changes-Fixed Price (Aug 1987) The Contracting Officer may at any time, by written order, and without notice to the sureties, if any, make changes within the general scope of this contract FAR to Contractor must perform changed work as directed and make claim under the Disputes Clause if not paid 11

13 Types of Claims: Changes Types of Changes Formal Constructive Formal/Express Changes or Construction Change Directive Directed Change: unilateral from Government Bilateral: supplemental modification to contract Constructive Changes Conduct by CO or authorized representative which has the effect of causing the Contractor to perform work different from that set forth in the contract Even when change is not described or acknowledged 12

14 Types of Claims: Changes Common changes include: Defective Specifications Delays/Acceleration Differing Site Conditions Additional changes may include: Time of Performance (nights, weekends) Place of Performance Lost Productivity Cardinal Changes Changes beyond general contract scope 13

15 Types of Claims: Defective Specifications The Government warrants the adequacy of its specifications Must be a design specification (implied warranty on Government under Spearin) Specifications contain errors, omissions, inconsistencies Contractor entitled to costs of attempting to comply and for performing corrective work 14

16 Types of Claims: Delays Unanticipated events extending the duration of the project (compared to contractor s baseline schedule) Types of Delays: Excusable Compensable Unexcused Highly fact intensive CPM schedule is normal basis of proof Concurrency Issues 15

17 Types of Claims: Acceleration Unanticipated events resulting in shortened duration of the project Types of Acceleration: Direct Acceleration: Customer requires contractor to shorten project schedule Constructive Acceleration: Contractor requests extension, but is denied and must accelerate schedule to mitigate damages Well recognized doctrine Hard to prove in actuality because of numerous elements (e.g., excusable delays, time extensions, direct accelerations) 16

18 Types of Claims: Differing Site Conditions Granted under FAR Differing Site Conditions (Apr 1984) (a) The Contractor shall promptly, and before the conditions are disturbed, give a written notice to the Contracting Officer of Two Types of Differing Site Conditions: Type I: subsurface or latent physical conditions at the site that differ from what is in the Contract Documents Type II: conditions that differ materially from those ordinarily encountered and to be expected in similar work The Contractor Must Prove: For Type I: It relied on contract and reliance was reasonable For Type II: A reasonable bidder would rely on anticipated conditions, even if those indications are not expressly stated 17

19 Types of Claims: Terminations Contract Termination clauses give the authority to terminate contracts in whole or in part for: Convenience (FAR through ) Default (FAR through ) T for C : CO has the right to terminate a contract when its completion is no longer in the Government s interest Clause will be read into a contract under the Christian Doctrine. G.L. Christian & Assoc. v. US, 312 F.2d 418 (Ct. Cl. 1963) T for D : Contractor fails to perform its obligations under the contract High standard of proof (burden is on the government) 18

20 Pre-Claim Risk Reduction Techniques 19

21 Pre-Claim Risk Reduction Techniques Notice Requirements Record Maintenance Cost Segregation Subcontractor Considerations Claim Alternatives 20

22 Risk Reduction: Notice Requirements Be cognizant of notice requirements These vary depending on circumstances and type (i.e., contract change, termination or REA) Notice Requirements for contract changes: Must be timely Must be in writing Must be sent to the CO Must set forth the nature of the claim Some exceptions do exist (e.g., government knows about claim; no prejudice from lack of notice) 21

23 Risk Reduction: Record Maintenance Keep contemporaneous records as evidence of claim Performance normally continues despite existence of claim Significant amount of time can lapse between notice and settlement Contemporaneous records should illustrate impact of claim: Requisite change CPM Schedule impact Timekeeping and Equipment use records Additional costs incurred 22

24 Risk Reduction: Cost Segregation Segregate costs associated with claim Establish causal link to increase chances of recovery Terminations for Convenience allow indirect costs to be treated as direct Contractors may benefit from claims consultant upfront during planning process 23

25 Risk Reduction: Subcontractor Considerations No subcontractor privity Pass-through claims Prime Contractors Flow down applicable clauses (use shorter deadlines) Must scrub subcontractor claim Subcontractor need only have good grounds for claim Potential False Claims Act liability Subcontractors Same techniques to reduce risk apply 24

26 Risk Reduction: Claim Alternatives Requests for Equitable Adjustment (REA) Serves as vehicle for negotiation and settlement REAs are less formal and need not involve the judicial branch at all But can be converted into a claim later, if necessary REAs may not require certification REA preparation costs can be included 25

27 Risk Reduction: Claim Alternatives ALTERNATIVE DISPUTE RESOLUTION (ADR) Takes many forms Very active mediation program Especially GSA and COFC High success rate Likely to use Board members as mediators No cost to contractors 26

28 Claims Pricing and Submission 27

29 Claims Pricing and Submission Recoverable Costs Pricing Methods Pricing Strategies and Support Audits Submission Process Case Example 28

30 Claims Pricing: Recoverable Costs Claimed costs must be: Made in good faith (depicting true government liability) Reflect actual costs Allowable per FAR 31 and contract terms and conditions Supportable Claims Actual, reasonable cost incurred as a result of triggering event Includes allowable direct costs, indirect costs and reasonable profit Cost of litigation against the government is unallowable 29

31 Claims Pricing: Methods Varies by circumstance. Most common methods: 30

32 Claims Pricing: Total Cost Method Difference between actual costs incurred and original contract bid price Least preferred method Contractor must prove: Impracticality of preparing claim by more direct means Bid was realistic and achievable Actual incurred costs were reasonable Lack of responsibility for additional work performed Limitations: Assumes all costs were the result of change no fault on contractor Heavy reliance on accuracy of bid 31

33 Claims Pricing: Modified Total Cost Similar to Total Cost Method, except adjustments are made for: Inaccurate bid elements Costs explicitly excluded in the original bid Costs that are the responsibility of the contractor Normally preferred over Total Cost Method 32

34 Claims Pricing: Discrete Cost Build Provides for direct quantification of any increased costs Ties increased costs to contract changes (i.e., claim elements) Most precise method; generally preferred Often used for termination settlement proposals 33

35 Claims Pricing: Percent Complete Used only under certain circumstances: Terminations for Convenience of commercial item contracts (FAR ) Calculating adjusted fee on terminated costreimbursable construction contracts (FAR ) Based on calculated percentage of contract completion 34

36 Claims Pricing: Strategies Recoverable costs vary between claims, REAs and terminations Strategies are highly variable based on particular circumstances Claimed costs must be supportable and reasonable Support may vary with contractor systems See Case Example for risks 35

37 Claims Pricing: Strategy and Support Well-supported claims help achieve quick and favorable settlements, and adds credibility Submission should include all records to substantiate claim elements. For example: Accounting/Job cost records Timekeeping or Equipment Usage records Narrative More scrutiny on indirect vs. direct costs Submissions should be easy to understand Preparation costs may be directly recoverable 36

38 Claims Submission: Process Submit claim to CO to request Final Decision Within six years of the date the claim accrues Must be Certified if over $100,000 Made by authorized person who can bind the company Claim made in good faith Supporting data are accurate and complete to the best of my knowledge and belief Amount requested accurately reflects the adjustment for which the contractor believes the Government to be liable 37

39 Claims Submission: Audits Expect one on substantial claims and terminations Often audit REAs before negotiations Post-completion audits before close-out where multiple major change orders Expect auditor to find something Proper documentation to support claimed costs are key 38

40 Case Example: Daewoo 39

41 Lightning Round: Questions? 40

42 And the Winner of the Grand Prize is 41