AFTER THE AFTERTHOUGHTS: REAs VERSUS CLAIMS

On November 14, 2017, a PCI Consultant posted a blog article about Requests for Equitable Adjustments (“REA”) versus claims. It seems to me that the original discussion and the blog overlooked an important problem in contract administration today—the failure of contracting officers (“CO”) to do their duty to review and engage in negotiations on both REAs and claims. The blog said:

On September 28, 2017, Professor Ralph Nash and Tim Sullivan hosted a virtual classroom on the topic of Requests for Equitable Adjustments and Claims. Following the virtual classroom, I interviewed Professor Nash to ask questions related to the discussion during the training.

Question: I would assert that if examined just from the perspective of reading case law on the issue, the difference between an REA and a claim feels like a distinction without a purpose. What is the use of an REA – is it still a useful submission or should we just submit claims so that you have the right to appeal?
Response: The purpose of the REA is to start negotiations. Fundamentally when something happens during performance that leads a contractor to conclude that they are entitled to additional compensation, the right thing to do is to submit an REA to the contracting officer. The contractor should offer to clear things up. The purpose of contract administration is to clean things up and get the job done. The purpose of the REA is to engage in administrative negotiation not litigation.

The one thing that is pretty well understood is that the great bulk of contractors do not file a CDA claim first because they want to negotiate. Filing a CDA claim starts the wheels running for litigation, and no rational contractor wants to do that if they can avoid it.

One of the significant problems experienced by the smaller contractors is that COs ignore legitimate REAs or even legitimate claims, forcing the contractor to file claims after their REA is ignored and appeals after their claim is ignored. As readers know, one of the most “contractor-friendly” provisions in the Contract Disputes Act of 1978 (as amended) was the “deemed denial” provision regarding claims. Originally codified at 41 U.S.C. § 605(c)(5), and recodified in 2010 at 41 U.S.C. §7103(f), the provision states as follows:

Failure by a contracting officer to issue a decision on a claim within the required time period [60 days unless the contractor is notified of the time within which a decision will be issued] is deemed to be a decision by the contracting officer denying the claim and authorizes an appeal or action on the claim…

Although there is no similar “deemed denial” provision for REAs, a contractor can place a CO on notice that it will not wait forever, by including in its REA submission a time frame that states “if you [the CO] do not act on this REA within [30, 60, 90] days, the contractor will deem it denied and submit a formal claim.”

This author cannot determine how many claims have been submitted after a CO ignored an REA, nor even determine exactly how many appeals were brought after a “deemed denial” of a claim. However, a very simple Westlaw search resulted in more than 325 deemed denied appeals before Boards of Contract Appeals that cited either 41 U.S.C. § 605(c)(5), or 41 U.S.C. §7103(f). And although the author does not know the size status of the more than 325 appellants, very few of them appear to be on the top 100 contractor list, and most “look” to be small business.

For whatever reason, unknown to this writer, COs are not doing the job they signed up to do. Professor Nash and Mr. Sullivan are absolutely right that “the purpose of the REA is to start negotiations.” But how does a contractor negotiate with a CO who ignores the REA? The corollary to that statement is that the purpose of a claim is also to get the CO to examine and analyze the claim, and to allow any portion that is found to be factually and legally correct and indicates that something is owed to the contractor. Indeed, the Contract Disputes Act defines the CO’s duty as follows (for a claim):

Each claim by a contractor [] shall be submitted to the contracting officer for a decision. [] Each claim [] shall be the subject of a written decision by the contracting officer. [] The contracting officer shall issue a decision in writing []. CONTENTS OF DECISION-The contracting officer’s decision shall state the reasons for the decision reached and shall inform the contractor of the contractor’s rights as provided in this chapter. Specific findings of fact are not required. [].

41 U.S.C. § 7103(a),(d)& (e).

The submission of either an REA or a claim should initiate some kind of dialogue and/or negotiation between the CO and the contractor. At a minimum, the CO has a duty to review a claim and state any reason(s) for allowing or denying it. The statute makes it clear that the CO has a duty to review a claim, with potential settlement as a significant goal of that review. Indeed, the Federal Circuit has stated that “[a] major purpose of the [Contract] Disputes Act was ‘to induce resolution of contract disputes with the government by negotiation rather than litigation.’” Pathman Const. Co. v. United States, 817 F.2d 1573, 1578. (Fed. Cir. 1987), citing Great Lakes Educ. Consultants v. Federal Energy Management Agency, 582 F.Supp. 193, 195 (W.D.Mich.1984).

On REAs, the FAR frequently mentions that contractors may seek an “equitable adjustment.” Only a contracting officer has the authority to make such an equitable adjustment. Isn’t it reasonable to expect that COs would review and seek to negotiate REAs? Indeed, the Defense FAR Supplement requires a contractor to certify larger REAs. See DFARS 243.204-71 mandating the certification at DFARS 252.243-7002 for REAs above the simplified acquisition threshold. This certification states as follows:

252.243-7002 REQUESTS FOR EQUITABLE ADJUSTMENT (DEC 2012)

(a) The amount of any request for equitable adjustment to contract terms shall accurately reflect the contract adjustment for which the Contractor believes the Government is liable. The request shall include only costs for performing the change, and shall not include any costs that already have been reimbursed or that have been separately claimed. All indirect costs included in the request shall be properly allocable to the change in accordance with applicable acquisition regulations.

(b) In accordance with 10 U.S.C. 2410(a), any request for equitable adjustment to contract terms that exceeds the simplified acquisition threshold shall bear, at the time of submission, the following certificate executed by an individual authorized to certify the request on behalf of the Contractor:

I certify that the request is made in good faith, and that the supporting data are accurate and complete to the best of my knowledge and belief. (Official’s Name) (Title).

(c) The certification in paragraph (b) of this clause requires full disclosure of all relevant facts….

Why should a contractor need to certify that its REA is accurate and complete, including its supporting data, if the CO is not going to bother to review that REA? Of course that’s the job of the CO. But frequently, as is the case with claims, the COs do not do their job on the REAs.

The takeaway from all this is that Professor Nash and Mr. Sullivan are correct about an REA starting the process of negotiations, but perhaps COs need to be periodically reminded that they have a duty to review and decide on REAs and/or claims that is commensurate with the contractor’s accurate and correct submission of REAs and/or claims. As I write this comment, I can’t help but think of Paul Newman’s line from the 1967 film, Cool Hand Luke: “What we’ve got here is failure to communicate.” Actually, what we’ve got in government contracting is a failure to negotiate. And that failure is a result of non-compliance by Contracting Officers with the FAR, DFARS and the Contract Disputes Act. Professor Nash and his colleagues Professors Cibinic and Nagle summarized the role of the CO very succinctly:

One of the major duties of a contracting officer is to deal with disagreements between the government and contractors. In performing this function, a contracting officer should first attempt to dispose of such matters through negotiated settlement agreements that bind the parties involved. If an agreement cannot be reached and the contractor submits a claim, the contracting officer must issue a final decision from which the contractor is entitled to appeal…

Cibinic, Nash and Nagle, “Administration of Government Contracts” (GWU, 4th Ed.) at 1286.

I simply ask: Why don’t COs fulfill their assigned duty on claims and REAs more frequently, especially with smaller contractors?

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