What is a claim under a government contract?

A company representative asked the following question: What constitutes a "claim" under a government contract?

For most government contracts, the Contract Disputes Act of 1978 (41 U.S.C. & Sect; 601, et seq.) establishes the procedures for the resolution of claims and disputes. The CDA requires that "all claims by a contractor against the government relating to a contract shall be in writing and shall be submitted to the contracting officer for decision."

Similarly, it requires that "all claims by the government against a contractor relating to a contract shall be the subject of a decision by the contracting officer." [See 41 U.S.C. & Sect; 605(a).]

Interestingly, the CDA does not define what constitutes either a claim or a dispute.

However, the standard Federal Acquisition Regulation disputes clause, included by reference in most federal contracts, 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." [See FAR 52.233-1(c) and 33.201.]

Most government contracts include a number of provisions under which the contractor may submit requests for equitable adjustments to obtain relief. REAs may be submitted in response to events as diverse as government-ordered modifications of the contract, differing site conditions, defective or late-delivered government property, and stop-work orders.

The standard disputes clause states that "a voucher, invoice or other routine request for payment that is not in dispute when submitted is not a claim under the act." However, such a submission may be converted into a claim if it "is disputed either as to liability or amount or is not acted upon in a reasonable time." [See FAR 52.233-1(c).] Converting a submission into a claim triggers all of the procedural protections afforded by the CDA, including requirements for prompt resolution of the issues, interest payments and the right to appeal from any adverse decision.

In Dawco Construction Inc. v. United States [930 F.2d 872 (Fed. Cir. 1991)], the Court of Appeals for the Federal Circuit ruled that a contractor's submission could not be considered a claim under the CDA unless the matter at issue had been the subject of a pre-existing dispute between the parties. This prior dispute requirement meant that a contractor could not avail itself of the procedural protections of the CDA unless and until the government disagreed with the contractor's submission, and the contractor thereafter submitted its formal claim. The prior dispute requirement allowed some contracting officers to avoid resolving issues simply by keeping them "under consideration."

However, in Reflectone Inc. v. Dalton [60 F.3d 1572 (Fed. Cir. 1995)], the appeals court partially overruled its Dawco decision. In Reflectone, the court ruled that the prior dispute requirement should be considered as applicable only to routine submissions.

According to the court, nonroutine submissions, including most REAs, would not be subject to the prior dispute requirement. This made it much easier for a contractor to convert an REA into a claim.

However, even after the Reflectone case, vouchers, invoices and other routine requests for payment cannot be treated as claims unless and until they are disputed by the government.

One of the questions left open by the Reflectone case is the difference between "routine" and "nonroutine" requests for payment. For example, it was unclear under the Reflectone analysis whether terminations for convenience were routine or nonroutine. Under normal contracting rules, the contractor is required to submit a settlement proposal following receipt of a notice that the contract has been terminated for convenience.

In James M. Ellett Construction Co. v. United States [93 F.3d 1537 (Fed. Cir. 1996)], the Court of Appeals for the Federal Circuit ruled that a convenience termination settlement proposal can be considered a nonroutine submission under the Reflectone precedent.

According to the court, the purpose of submitting a termination settlement proposal is to facilitate negotiation, but once an impasse is reached, the proposal becomes a claim.

An impasse is reached when a mutually agreeable settlement is no longer possible because the contracting officer has made a unilateral settlement determination.

As part of the Federal Acquisition Streamlining Act of 1994, Congress amended the CDA to require that all claims, except government claims based on fraud by the contractor, must be submitted within six years after the accrual of the claim (Federal Acquisition Streamlining Act of 1994, Pub. L. 103-355, 108 Stat. 3243, 3322, & Sect; 2351 [amending 41 U.S.C. & Sect; 605(a)]). This statute of limitation on the submission of claims makes it even more important to clearly define what a claim is. Unfortunately, as seen from the foregoing discussion, in many ways the issue just becomes murkier.

--Peckinpaugh is a member of the government contracts section of the law firm Winston & Strawn, Washington, D.C. This column addresses legal topics that arise in government acquisition and management of ADP resources. Readers are encouraged to submit topics by e-mail to carl@carl.com. This column discusses legal topics of general interest only and is not intended to provide legal advice. Should you have a specific question or legal problem, consult an attorney.