This opinion is significant on the issue of jurisdiction over protests arising from task and delivery orders under Federal Supply Schedule contracts.

This opinion is significant on the issue of bid protest jurisdiction involving task and delivery orders. In this vein it is a companion case to Group Seven, supra, in that in OTI America the Department of Justice did not raise the jurisdictional bar question. It is also significant on the question of downselect procedures.

In 1997, the Mineral Management Service (MMS), Department of the Interior, ordered Amoco (BP’s predecessor) to pay additional royalties on gas leases from the Government for the period January 1989-December 1996. In 1996 MMS advised Amoco that the royalties should “be calculated using the value of gas after it is treated to meet the quality requirements for the nation’s main pipelines” rather than “the value of the gas produced at the well.” In 1996, Congress enacted the Federal Oil and Gas Royalty Simplification and Fairness Act (the Act), applicable to gas production on or after September 1, 1996; this contained a seven-year statute of limitations, applicable both to judicial and administrative proceedings. Amoco appealed the MMS order, disputing MMS’s interpretation of royalty calculation and contending that the six-year limitation in 28 U.S.C. § 2415(a) barred payment in part.

The D.C. Circuit affirmed the district court opinion, agreeing with MMS’s interpretation, creating a conflict with the Tenth Circuit. The Supreme Court affirmed the decision of the D.C. Circuit, citing “the plain meaning of the statutory text.” The Court relied on “the statute’s ‘key terms,’” “action” and “complaint,” which it said “are ordinarily used in connection with judicial, not administrative, proceedings.” Among other things, the Court noted that applying 28 U.S.C. § 2514(a) to administrative as well as judicial proceedings in some instances would conflict with the Act’s seven year statute of limitations.

This ruling is significant in cases in which the Government moves to collect amounts due from contractors and others administratively.

When Bianchi sought additional financing from the bank, the bank obliged but required an SBA loan guaranty and a third lien on all receivables. Afterwards the Government terminated two of the contracts for default; Bianchi defaulted on his bank loans. The SBA paid the bank on the guaranteed loans; the bank in exchange assigned its interest in the guaranteed loans to the SBA.

Bianchi appealed a series of claims to the ASBCA. The parties settled the appeals; under the settlement Bianchi was entitled to $617,500 plus interest and there would be no prejudice to either Bianchi’s claims for Value Engineering Change Proposal Claims (VECPs) or his claims under the Equal Access to Justice Act (EAJA). The Government then erroneously paid Bianchi $1.1 million ($617,500 plus interest). The bank later sued the Government to recover the $1.1 million; the Government sought recovery of the $1.1 million from Bianchi. The Federal Circuit ruled that the bank might recover that amount as Bianchi’s assignee; nevertheless the Government might not recover its payment from Bianchi. The Federal Circuit also held that the SBA’s security interests were subordinate to those of the bank; under the Act and “no set-off” clause the Government could not set off Bianchi’s debt to the SBA. Bank of Am. Nat’l Trust & Sav. Assoc. v. United States, 23 F. 3d 380 (Fed. Cir. 1994) (Bianchi I). Prior to the bank’s suit, the ASBCA awarded Bianchi about $476,000 in EAJA fees. The Ninth Circuit held that the Government was not entitled to set off the erroneous payment against the amount due for EAJA fees. Bianchi v. Perry, 140 F. 3d 1294 (9th Cir. 1998) (Bianchi II).

Bianchi claimed for VECP royalties before the ASBCA, which awarded him $59,000 plus interest. Bianchi then sought a writ of mandamus in district court for payment; the Government interpleaded the bank and prevailed. On appeal the Ninth Circuit held that the district court lacked jurisdiction in that the suit amounted to a breach of contract action over $10,000, which should have been filed in the Court of Federal Claims (CoFC). Bianchi v. Walker, 163 F. 3d 564 (9th Cir. 1998) (Bianchi III). The ASBCA subsequently awarded Bianchi royalties on a second contract; the Government paid them to the bank.

Bianchi sued in the CoFC for the VECP royalties on both contracts. The CoFC dismissed for lack of subject matter jurisdiction on grounds of (a) improper attempt to enforce an ASBCA award in the CoFC, (b) time-barred first VECP claim, and (c) Government entitlement to summary judgment in any event. On appeal the Federal Circuit (1) reversed the CoFC on jurisdiction, (2) affirmed that the first VECP claim was time-barred, and (3) affirmed that the Government was entitled to summary judgment on the second VECP claim. On (3), Bianchi argued that res judicata as to Bianchi I and II required that he prevail. The Federal Circuit held that those decisions concerned subject matter different from that in Bianchi IV; therefore res judicata was inapplicable.

This case is significant as to the intricacies of the Assignment of Claims Act, jurisdiction of the district courts and the CoFC, and applicability of res judicata.

In a per curiam opinion the Federal Circuit affirmed the CoFC (Chief Judge Damich), holding that for the United States to be liable for patent infringement under § 1498, it must practice “every step of the claimed method in the United States.” Nevertheless, the Federal Circuit, reversing the CoFC, held that 28 U.S.C. § 1498 was the sole remedy for patent infringement against the United States. In a concurring opinion, Judge Gajarsa relied on the “plain language” of § 1498. Judge Dyk, in another concurring opinion, held “that the government can only be liable for infringement under section 1498(a) if the same conduct would render a private party liable for infringement .

In his dissenting opinion, Judge Plager first noted that both the question of a Fifth Amendment remedy and that of the requirement for all acts of patent infringement to have been done domestically are new issues for decision. He took issue with the Federal Circuit’s interpretation on both issues. He concluded that Zoltek had “stated a cause of action under § 1498 for which relief could be granted,” at least in regard to the fiber mats processed domestically. He would have remanded the case to the CoFC for further proceedings on both this and the Fifth Amendment issue.

On September 21, 2006, the Federal Circuit denied “both a petition for rehearing and a petition for rehearing en banc.” Judge Newman dissented, characterizing the denials as saying “that there is no jurisdiction in the Court of Federal Claims-or any other court-of a Takings claim for compensation for unauthorized use by the government of a patented invention,” a ruling “contrary to decision, statute, policy, and constitutional right.” Judge Dyk (with whom Judge Gajarsa concurred) wrote “a separate opinion concurring in the denial of the rehearings,” noting “that Judge Newman has misread the majority panel opinion.”

This opinion is significant on the issue of CoFC jurisdiction. Zoltek’s attorney, Dean Monco, told the Research and Development and Intellectual Property Committee that he expected the Government to petition the Supreme Court for certiorari should it lose after the en banc hearing (which evidently will not take place). At a subsequent meeting he informed the Committee that he was planning to petition the Supreme Court for certiorari; the petition is due December 20, 2006, and amicus briefs in support of the petition are due January 19, 2007. Zoltek filed its petition for certiorari on February 20, 2007; the Supreme Court denied certiorari on June 11, 2007.

This opinion is of interest on the issue of CoFC subject matter jurisdiction.

The court found no express delegation of contracting authority to the agents concerned in either statute or regulation. Nevertheless, the court found that the resident-agent-in-charge “had the undisputed authority to approve Brunner’s salary and relocation expenses,” which “implicitly include[d] the power to contract for the same purposes.” This authority, however, did not cover payments “based on indictments, convictions or asset seizures.” The court granted Brunner summary judgment as to the existence of a contract but found no evidence that “a superior with contracting authority knowingly acquiesced in” payments relating to “indictments, convictions or asset seizures.”

This opinion is significant on the issue of authority in a government officer or employee to contract.

See item 6, below, for a companion case.

Telenor Satellite Servs., Inc. v. United States, 2006 WL 1517339 (CoFC June 2, 2006), 48 GOV’T CONTRACTOR ¶ 229: The CoFC held that “[a] State Department official had implied authority to ratify a bailment contract because the ability to approve the bailment was integral to his information-gathering responsibilities.” 

William Wood, deputy assistant secretary for analysis and information management, assigned subordinate Reid Daugherty to the U.S. Agency for International Development Disaster Assistance Response Team (DART), a pilot project to transmit data by satellite. Wood gave Daugherty responsibility to test the DART project. Daugherty’s immediate supervisor told Daugherty to meet with Telenor, “which agreed to provide the necessary computer terminals for two months without charge, provided [that] the State Department agree [sic] in writing that (a) the equipment would be used only for the DART project and then returned, and (b) Telenor had to approve any use longer than two months.” Wood explicitly approved Telenor’s participation. Telenor delivered four terminals to State. After using the terminals, project personnel “left two terminals with the Army,” which allegedly used them for other purposes. On discovering this, Telenor shut down the terminals and billed State for the non-DART usage; State refused payment and Telenor sued in the CoFC.

The court noted that Wood lacked express authority under the Constitution, statute, or regulation to ratify the bailment agreement. Nevertheless, under State’s foreign affairs manual and his job description, Wood had “primary responsibility for collecting and disseminating information.” In furtherance of this, he “needed the ability to enter into ‘temporary expedients with private parties’ the short-term temporary bailment agreement was essential to its success.” The court concluded that “uncontradicted evidence established ratification by Wood.”

This opinion is significant on the question of the authority of a government official to ratify an agreement. See item # 5, above, for a companion case.

The opinion is significant on the issue of subject matter jurisdiction

Northrop Grumman Computing Systems, Inc. v. General Services Administration, GSBCA No. 16367, June 26, 2006: The GSBCA (Judge Daniels) denied the Government’s motion for summary judgment on Northrop’s claim that it was “entitled to be paid for the third year of the lease.”  GSA had an agreement with Northrop on behalf of the Air Force for lease of equipment for three years, subject to availability of funds; nevertheless, the Government committed to using “’its very best efforts’ to extend the lease through all option years.” At the end of the second year the Air Force, facing “a reduced budget environment,” decided not to exercise the option for the third year. Nevertheless, the board found that if “the facts [were] viewed most favorably to Northrop,” the Government had a bona fide need for the lease and had available sufficient funds to continue the lease payments. GSBCA therefore held that the Government could not prevail on the motion for summary judgment. 

The opinion is significant on the issue of the Government’s liability under multiyear contracts.

Blueport Company, LLP, v. United States, No. 02-1622 C (June 29, 2006): The CoFC granted the Government’s motion for summary judgment on Count II of the claim for monetary damages against the United States arising under the Digital Millennium Copyright Act of 1998 (‘DMCA’). The Government contended that “the DMCA does not expressly waive sovereign immunity,” to which the court (Judge Block) agreed. Section 1201(a)(1)(A) of DMCA “prohibits any person from ‘circumvent[ing] a technological measure that effectively controls access to a work protected under [Title 17, governing copyright].’” DMCA §§ 1201(a)(2) and (b)(1) “prohibit trafficking in circumvention technology.” Under Count I, Blueport alleged that the Air Force infringed Blueport’s copyright. Under Count II, Blueport alleged in substance “that Air Force personnel unlawfully ‘hacked’ into the computer program to alter the automatic expiration function, to the Air Force’s advantage.” The purpose of this function was to make the program stop running on expiration of the license and therefore prevent use without renewal.

This opinion is of interest on the issue of waiver of sovereign immunity.

Wesleyan Company, Inc., v. Harvey, No. 05-1522 (Fed. Cir. July 17, 2006): The Federal Circuit (Chief Judge Michel) reversed and remanded the decision of the ASBCA dismissing Wesleyan’s breach of contract claim for lack of subject matter jurisdiction. Wesleyan Co., ASBCA No. 53896, 05-1 BCA ¶ 32,950 (Apr. 22, 2006). 

Wesleyan had submitted an unsolicited proposal to the U.S. Army’s Natick Labs of the FIST/FLEX system, which would allow a soldier to drink from a canteen without removing a protective mask, and of the FIST Fountain, which would enable a soldier to refill a canteen in a contaminated environment (the “Wesleyan system”). Wesleyan and Natick executed a nondisclosure agreement under DAR 3-507.1(a) for the unsolicited proposal. At Natick’s request, Wesleyan then loaned a prototype system to ILC Dover “for incorporation into a prototype protective suit.” The loan was under a bailment agreement that was silent as to safeguarding of proprietary data; nevertheless, the bailment agreement did state that the bailment was “’for the limited purpose’” of feasibility determination and “that the Wesleyan system remained Wesleyan’s property.” Over a period of five years the Army purchased 130 systems from Wesleyan via six purchase orders. None of the six addressed the matter of proprietary data; four, however, stated that the order was “for evaluative or demonstrative purposes.” During the period of the purchase orders Wesleyan obtained patents on the Wesleyan system. 

Wesleyan filed a claim against Natick for nearly $21 million, “alleging that the Army improperly disclosed Wesleyan’s proprietary data to non-governmental third parties, and that its proprietary information was subsequently incorporated into the CamelBak [a commercial concern’s] system.” The contracting officer denied the claim for lack of Contract Disputes Act (CDA) jurisdiction; Wesleyan appealed to the ASBCA. The ASBCA granted the Army’s motion for partial summary judgment, holding that “the Army was entitled to disseminate any proprietary data disclosed publicly in Wesleyan’s patents.” The ASBCA then “determined that the Army’s acceptance of Wesleyan’s unsolicited proposals created a contract permitting the government to use the proposal data ‘in accordance with the DAR legend and memoranda of understanding.’” The Board held, however, that the nondisclosure agreement “applied only to the unsolicited proposals, not to the subsequent bailment agreement or purchases” and requested the parties to submit briefs on the question of subject matter jurisdiction. After receipt of briefs, the ASBCA granted the Army’s motion to dismiss for want of subject matter jurisdiction.

On appeal, the Federal Circuit held the unsolicited proposals and the bailment agreement to be donative in nature and therefore outside of the board’s jurisdiction under the CDA. The purchase orders for prototype systems, on the other hand, “involve[d] the exchange of property for money and thus involve[d] ‘procurement.’” Therefore the ASBCA found that the part of the claim pertaining to the purchase orders came within the board’s CDA jurisdiction. On remand, the court directed the Board to “determine whether language on four of the six purchase orders indicating that the Wesleyan systems are being purchased for evaluative or demonstrative purposes is sufficient to incorporate by reference the confidentiality provisions of the DAR legend, MoU, and Policy Statements.” The court qualified the jurisdiction determination to include only those instances in which the Army purchased the prototype system prior to alleged disclosure.>

The court then noted that Wesleyan’s choice to proceed before the board rather than the CoFC limited the scope of potential relief to that under the CDA, the jurisdiction of which is limited to procurement contracts. A claim before the CoFC, on the other hand, could have been under the Tucker Act, “which grants jurisdiction over disputes ‘any express or implied contract with the United States.’ This would have included the claims arising from alleged disclosures involving the unsolicited proposals or the bailments as well as claims arising from the purchase orders. In dissent, Judge Newman contended that “[t]he Contract Disputes Act does not withhold from the boards of contract appeals the authority to consider the entirety of the claim. There is no basis in the Contract Disputes Act for segregating the contract-based confidentiality obligations that were incurred at the beginning and at the end of this procurement, from that in the middle.”

This opinion is highly significant on the matter of subject matter jurisdiction of boards and the CoFC

Lear Siegler Services, Inc., v. Rumsfeld, No. 06-1080 (Fed. Cir. July 28, 2006):The Federal Circuit (Judge Gajarsa) reversed the ASBCA (2005 ASBCA LEXIS 90, 2005-2 BCA. (CCH) ¶ 33,110), which granted summary judgment to the Government in Lear Siegler Services’ (LSI) claim for price adjustment under the Service Contract Act of 1965, Pub. L. 89-286, 79 Stat. 1034 41 U.S.C. § 351-358 (SCA) and FAR clause at 52.222-43. The Federal Circuit also found thatthe ASBCA “abused its discretion in denying summary judgment to LSI.” Nevertheless the Federal Circuit agreed with ASBCA “that this case involves no genuine issue of material fact”; it granted summary judgment to LSI.  LSI had a firm, fixed-price contract with the Air Force for aircraft maintenance services. The contract was for one year (2001-2002), with renewal options. The contract incorporated the terms of both the SCA and of the applicable SCA wage/fringe benefits determination. The latter included the wages and fringe benefits of a collective bargaining agreement (CBA) involving LSI’s predecessor’s predecessor; an amendment to SCA inserted the “successor contractor rule,” which preserves benefits in predecessor contractor CBAs (41 U.S.C. § 353(c)). Among other matters, the CBA “specifically required [LSI] to provide its employees with a defined-benefit health plan”; this required LSI “to spend whatever is necessary to continue to provide its employees with an agreed-upon level of benefit.” 

LSI submitted a claim for price adjustment under the SCA clause for increased costs of providing its employees with the defined benefits for option year 2003. The Air Force denied the claim; LSI appealed to the ASBCA. The ASBCA “distinguished between increases in an employer’s costs of providing benefits, which it deemed insufficient to trigger the Price Adjustment Clause, and increases in the benefits themselves.” In that there was no change in the CBA, the ASBCA held that the CBA “did not require LSI to incur the increased cost of maintaining the defined level of health benefit.” The ASBCA granted summary judgment to the Air Force. LSI appealed to the Federal Circuit, which reversed the ASBCA’s decision and granted summary judgment to LSI. The court referred to the language of the clause, which provided for adjustment “’to reflect the Contractor’s actual increase or decrease in applicable wages and fringe benefits . . .’ (emphasis added).” Second, the court noted that “this construction is consistent with other provisions of the regulatory scheme.” 29 C.F.C. §4.177(a) (3). Third, the court cited United States v. Service Ventures, Inc., 899 Fed. 2d 1 (Fed. Cir. 1990), which applied the same reasoning to a situation in which the contractor was obligated to increase the period of employee paid vacations over the contract period on the basis of seniority.

This opinion is significant in this day of rapidly increasing health care costs. It is quite unusual in that an appellate court granted summary judgment rather than remanding the case to the lower tribunal for resolution in accordance with the appellate opinion.

B-298627, eFedBudget Corporation, Nov. 15, 2006: GAO sustained eFedBudget’s protest against a proposed Department of State (DOS) sole-source award to RGII Technologies, Inc. (RGII) “for continued implementation, maintenance, enhancement, and support for DOS’s worldwide budget and planning software systems. The protester contended that “the agency unreasonably refused to consider the protester’s approach of developing a non-proprietary software system; and that in any event, the need for the sole-source procurement arose from the agency’s lack of advance planning.”

Under an earlier contract, “RGII, with the protester as a subcontractor, [1] developed the central resource management system of the agency’s Bureau of Resource Management, including the allotment control system, the budget control system, and the budget resource management system. [T]he agency and RGII entered into a licensing agreement limiting the government’s rights in the software that operates the budget and planning systems; [2] the original software was then copyrighted by RGII under the name ‘Monument.’ GAO found that “[t]he agreement provides DOS rights to use the licensed product only within the agency, precludes the combination of the licensed software with other software for the purpose of implementing the software, and precludes the agency from disclosing the licensed software to other contractors or to other government agencies.”

Kenneth Kilgour, attorney for GAO, raised the question of the affirmative duty of an agency to try to seek competition by going around the license. GAO allowed that “it is reasonable to conclude that, given the restrictive nature of the agency’s current licensing agreement with RGII, only RGII can now meet its needs, the agency’s arguments simply [did] not address the issue of whether the agency’s acquisition planning—in the face of those restrictions—was reasonable, given the requirement that the agency make an affirmative effort to obtain competition. The agency has produced no record of any steps that it has taken to end its reliance on the services of the incumbent to maintain the existing software systems. It is possible, for example, that the agency could purchase additional rights to the proprietary software in order to promote competition.” GAO recommended “that the agency conduct a documented cost/benefit analysis reflecting the costs associated with obtaining competition, either through purchasing additional rights to the proprietary software or some other means, and the anticipated benefits” and to “proceed with a competitive procurement” if “the cost/benefit analysis reveals a practicable means to obtain competition.”

This decision is significant in that it sets forth the Government’s affirmative duty to promote competition.

TAS Group (CSI Aviation Services, Inc., subcontractor) v. U.S. Department of Justice, U.S. Marshals Service, DOTBCA No. 4535 (Nov. 16, 2006): The DOTBCA (Judge Somers) denied the Government’s motion for summary judgment, which contended that under the Severin doctrine the subcontract liability release clause expressly absolved TAS from liability to the subcontractor arising from subcontract performance. Judge Somers held that the Government has “[t]he burden of establishing that the prime contractor has no liability to its subcontractor for the latter’s damages.”

TAS brought an appeal in its claim for damages arising from the U.S. Marshals Service’s lease of an aircraft under a basic ordering agreement (BOA). TAS entered into a subcontract with CSI that delegated the entire performance of contract requirements to CSI. The liability release clause stated that “CSI is solely and personally liable for all labor and expenses in connection [with the contract] and for any and all claims, liabilities, damages, and debts, of any type whatsoever that may arise on account of CSI activities; the activities of CSI employees or agents; or the performance of this agreement. Nevertheless, the subcontract also stipulated that TAS “pursue all claims for equitable adjustment and/or [sic] other financial claims related to” the order “to the maximum extent possible.”

Judge Somers found that “the government has not established that an iron-clad release or contract provision in the subcontract completely immunizes TAS from any and all liability to the CSI for the alleged government negligence.” The opinion contains a good discussion of the Severindoctrine, which Judge Somers states has been limited due to its “harsh consequences.” She cited J.R. Roberts Corp, 98-1 BCA.¶ 29,680 (DOTBCA 1998). See also Major John J. Thrasher, Subcontractor Dispute Remedies: Asserting Subcontractor Claims against the Federal Government, 23 PUB. CONT. L.J. 39, at 96-99 (Fall 1993).

BP America Production Co. v. Burton, 127 Sup. Ct. 638 (Dec. 11, 2006): The U.S. Supreme Court ruled that the six-year statute of limitations in 28 U.S.C. § 2415(a) does not apply to administrative proceedings; it applies only to judicial proceedings. In question was “an administrative payment order issued by Department of the Interior Mineral Management Service to collect royalty underpayments on gas leases.” Handout from Contract Claims and Disputes Resolution Committee meeting, Jan. 10, 2007.

Section 2415(a), in pertinent part states as follows: “[E]very action for money damages brought by the United States or an officer or agency thereof which [sic] is founded upon any contract express or implied in law or fact, shall be barred unless the complaint is filed within six years after the right of action accrues.”

The Court reasoned that: (1) “[t]he plain language of the statutes distinguishes between judicial and administrative proceedings”; (2) “[t]the plain meaning of the terms ‘action for money damages’ and ‘complaint’ refers[s] to judicial proceedings”; (3) “Statutes of Limitations are construed in favor of the Government”; and (4) “Subsection (i) of the statute allowing for administrative offsets even where the statute of limitations has run does not make 28 USC 2415(a) applicable to administrative proceedings.” Handout from Contract Claims and Disputes Resolution Committee meeting, Jan. 10, 2007.

Section 552 of the John Warner National Defense Authorization Act for Fiscal Year 2007, Pub. L. No. 109-364: this amends 10 U.S.C. § 802(a)(10) to read as follows: “in time of declared war or a contingency operation, persons serving with or accompanying an armed force in the field” are subject to the Uniform Code of Military Justice (UCMJ). This could subject, among other civilians, contractor personnel to military discipline and trial by court-martial, a matter of importance with numerous contractor personnel working with the armed forces in Iraq and elsewhere. Congress enacted the amendment without hearings or setting forth legislative history as to compelling need for such UCMJ jurisdiction.

In the late 1950s and early 1960s, the U.S. Supreme Court, in several decisions, invalidated UCMJ prosecutions of civilians. See Kinsella v. Krueger and Reid v. Covert, 354 U.S. 1 (1957) (civilian wives who killed military husbands on U.S. military bases overseas); McElroy v. U.S. ex. rel. Guargliardo, 361 U.S. 281 (1960) (civilian employee of military forces overseas in a non-capital case); Kinsella v. Singleton, 361 U.S. 234 (1960) (military dependent in a non-capital case); Grisham v. Hagan, 361 U.S. 278 (1960) (civilian employee of armed forces overseas in a capital case). Whether, for example, changes in the relationship of contractor personnel to the armed forces, the nature of prosecution and trial under the UCMJ, and in the circumstances (the war on terror) would distinguish these decisions remains to be seen. See also Major Karl Kuhn, Contract and Fiscal Law Developments of 2003-The Year in Review: Special Topics: Deployment and Contingency Contracting, THE ARMY LAWYER, Jan. 2004, at 134, 137; and Colonel Lawrence J. Schwarz, The Case for Court-Martial Jurisdiction Over Civilians Under Article 2(a)(10) of the Uniform Code of Military Justice, THE ARMY LAWYER, Oct/Nov. 2002 at 31.

The Battle Space and Contingency Procurements Committee of the ABA Section of Public Contract Law has advised me that it has started a working group to look into this and other issues

Daewoo Engineering and Construction Co., Ltd. v. United States, 73 Fed. Cl. 547 (2006): The court ruled that $50 million of Daewoo’s certified claim for $64 million was fraudulent under the False Claims Act (FCA), 31 U.S.C. § 3729, and Special Plea in Fraud (Forfeiture), 28 U.S.C. § 2514; the court among other things awarded the Government $50 million. The basis for award was section 604 of the Contract Disputes Act, 41 U.S.C. § 604:

If a contractor is unable to support any part of his claim and it is determined that such inability is attributable to misrepresentation of fact or fraud on the part of the contractor, he shall be liable to the Government for an amount equal to such unsupported part of the claim in addition to all costs to the Government attributable to the cost of reviewing said part of his claim.

Daewoo appealed a contracting officer’s final decision denying its claims for additional costs arising from alleged “defective specifications, superior knowledge, and impossibility of performance” on a road construction contract; the Government counterclaimed for fraud under 28 U.S.C. § 1503. Section 605 of the Contract Disputes Act (CDA) removes fraud claims from the CDA process; nevertheless, 28 U.S.C. § 1503 gives the CoFC jurisdiction over Government counterclaims. The court also awarded the Government $10,000 under the FCA but no damages based on Special Plea in Fraud.

According to the West Government Contracts Year In Review Conference covering 2006 (Conference Briefs, page 8-4), “[t]he court’s decision is remarkable, however, for its severity and the degree to which it found fraud.” The court further stated its suspicion that Daewoo’s entire claim was fraudulent; in any event the court allowed Daewoo no recovery.

In addition, the case is unusual in that the Government did not initiate a FCA action in district court; it brought a counterclaim in the CoFC. Arguably, the presence of fraud invalidated the contracting officer’s final decision and negated the jurisdiction of the CoFC. In the event of such a counterclaim, among other things the alleged civil fraud perpetrator would not be entitled to a trial by jury, as it would be in district court. The court did not pass on this issue, however. A close examination of the legislative history of 41 U.S.C. § 604 appears to be in order.

For extensive discussion of fraud arising from estimates, see David Z. Bodenheimer, The Strange Notion of Estimates as Fraud: Will Weather Predictions Be Next Under the False Claims Act? 40 THE PROCUREMENT LAWYER No. 4, Summer 2005, and “False” or “Inaccurate” Estimates, BRIEFING PAPERS SECOND SERIES, No. 05-13, Dec. 2005.

The Coalition for Common Sense in Government Procurement v. Sec’y Veterans Affairs, 2006 WL 2589157 (Fed. Cir. Sept. 11, 2006), 48 GOV’T CONTRACTOR ¶ 358 (Oct. 11, 2006): The Federal Circuit held that a letter from the Department of Veterans Affairs (VA) to drug manufacturers setting a maximum price that DoD would pay for drugs purchased by DoD health plan beneficiaries constituted substantive rulemaking. The maximum price set was the federal ceiling price, for drugs the beneficiaries purchased at network retail pharmacies. In that VA had not provided notice and opportunity for comment, the court held that the letter was procedurally defective under sections 552 and 553 of the Administrative Procedure Act (APA).

In October 2004, based on a DoD position, VA issued a “Dear Manufacturer” letter stating that “VA had determined that DOD’s restructured TRICARE pharmacy benefits program is a ‘depot contracting system’ under § 8126 of the VHCA [Veterans Health Care Act of 1992]. DOD claimed it was entitled to federal ceiling pricing for covered drugs distributed through network pharmacies, and that ‘no published notice or rulemaking is required to make effective the policy and requirements already established by statute and written agreements’”

The court held the “Dear Manufacturer” letter to be “a substantive rule of general applicability,” in that it (1) was not issued “as part of an adjudicatory process” and therefore was not an order, (2) created a refund system and mandated compliance, and (3) had “’general applicability and future effect.’”

In a letter dated January 28, 2004 (Procurement Of Covered Drugs Under The TRICARE Retail Pharmacy Benefit Program), to the Assistant Secretary of Defense for Health Affairs, the Section took issue with DoD’s position that “purchase of the covered drugs by DOD beneficiaries from a retail pharmacy constitutes the acquisition of supplies from the manufacturers under federal procurement laws and regulations.” In summary, the Section concluded that “[a]cquisition of supplies and services by a third party not acting as an agent of the federal government is not a procurement as that term currently is defined under the law. The VHCA does not change this definition.” This letter, a related DoD letter dated August 6, 2003, and a diagram of the TRICARE retail pharmacy program is on the home page of the web site of the Section’s Regulatory Coordinating Committee, www.abanet.org/contract/federal/regscomm.

This case is significant with (1) the burgeoning number of Iraq and Afghanistan veterans seeking health care, (2) the procedural requirements of the APA, and (3) with the substantive issue of whether third-party transactions not so designated by statute may be deemed federal procurements.

Data Monitor Sys., Inc. v. United States et al., 2006 WL 3378468 (Fed. Cl.)Nov. 20, 2006), 48 GOV’T CONTRACTOR ¶ 442 (Dec. 20, 2006): The court held that it lacked jurisdiction to enjoin termination of a contract and refused to enjoin re-solicitation absent a demonstration on the part of the protester that the Government violated a statute and was arbitrary in its decision to re-solicit. The matter arose in the aftermath of T Square Logistics Corporation’s (“T Square’s”) protest against award of a contract to Data Monitor Systems Inc.(“DMS”) for operation support services at Grissom Air Reserve Base.

T Square protested to GAO, alleging “improper agency evaluation and lack of discussions regarding that rating.” The Air Force contended that it did not conduct discussions with T Square because it did not regard the matter in question as “a deficiency, weakness or adverse past performance information which [sic] could be resolved or corrected via discussions.” The Air Force informed GAO that it would take corrective action but did not state that it would reopen discussions; again the Air Force indicated DMS as the successful offeror. T Square again protested to GAO, after which the Air Force informed GAO that it would, among other things, terminate DMS’s contract and reopen discussions. DMS then sued in the CoFC under the bid protest provision, 28 U.S.C. §1491(b), contending that the “proposed termination was wrongful and that the decision to resolicit was arbitrary and unlawful.”

The court ruled that it lacked jurisdiction to enjoin the termination, stating that it was reviewable only under the CDA. Furthermore, it “found the Air Force’s corrective action, including its decision to reopen discussions, to be reasonable and within its discretion.”

This case is significant in that it discusses the relationship between bid protest jurisdiction and that under the CDA.

KSC alleged violation of FAR subpart 42.15, which requires agencies to “prepare an evaluation of contractor performance at the time the work under the contract is completed” and to “share past performance information with other agencies to support future award decisions.” PWC contended that DSCP’s actions were arbitrary and capricious and therefore a violation of the Administrative Procedure Act (APA), 5 U.S.C. § 706. PWC further contended that DSCP’s actions constituted constructive debarment in violation of due process under the Fifth Amendment. Because of a pending Department of Justice investigation of alleged irregularities on the part of PWC, DSCP declined to “participate in past performance surveys for other agencies.”

The district court observed that Congress enacted the Administrative Disputes Resolution Act (ADRA), an amendment to the Tucker Act (28 U.S.C. § 1491) “responding to the previous overlapping jurisdiction of the district courts and the [CoFC] with respect to bid protest cases and other challenges to government contracts.” After a sunset period ADRA consolidated over such matters in the CoFC. Under 28 U.S.C. § 1491(b)(1), the claims ADRA encompasses are “object[ions] to . . . any alleged violation of statute or regulation in connection with a procurement or a proposed procurement.” The district court noted that ADRA does not define “procurement”; nevertheless it cited CoFC case law to define it as encompassing “all stages of the process of acquiring property or services, beginning with the process for determining a need for property or services and ending with contract completion and closeout.” The district court proceeded to hold that this definition included the matters at issue in PWC.

This decision is of interest regarding the relationship between ADRA and APA. For example, it appears arguable that Congress intended ADRA only to consolidate bid protest jurisdiction, as opposed to preempting APA jurisdiction over other procurement-related matters. There is a Section of Public Contract Law monograph (1997) on ADRA that may shed some light on ADRA’s relationship with APA. Another recent case involving preemption of APA remedies by those under ADRA is Suburban Mortgage Assocs., Inc. v. U.S. Dep’t of Housing and Urban Dev., 2007 WL 725715 (Fed. Cir. Mar. 12, 2007), 49 GOV’T CONTRACTOR ¶ 129. See Practitioner’s Comment by C. Stanley Dees and Thomas C. Papson. But for the Practitioner’s Comment I would have recommended this case as a note/article topic. For a fairly recent case involving the relationship between APA and the Contract Disputes Act (CDA), see Lockheed Martin Corp. v. DCAA, 397 F. Supp 2d 659 (D. MD 2005).