Afterthoughts: REAs versus Claims

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.

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?

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.

This a chart that was used during the virtual classroom presentation to discuss the difference between REAs and Claims.

CDA Claim

REA

Four-pronged certificate if over $100,000

Two-pronged certificate if over the simplified acquisition threshold (generally $150,000) and submitted to DOD agency

No certificate if submitted to non-DOD agency

Must request CO decision

Should request negotiation

Must state sum certain

Should contain statement of basis for compensation and pricing logic

Costs of preparation are unallowable claim prosecution costs

Reasonable costs of preparation are allowable contract administration costs

CDA interest starts to run when CO receives the claim

CDA interest does not start to run

If CO issues a decision (or fails to issue a timely decision), contractor can appeal to an appeals board or the Court of Federal Claims

If CO issues a decision, contractor has no right of appeal but can submit a CDA claim to start the appeals process

Why don’t you like the sum certain requirement for a CDA claim?

They are basically meaningless. If you read the case law, it states that if you use the term “approximately” or “not to exceed” or some other fuzzy word that doesn’t have a specific amount, you have not submitted a CDA claim. In most of the cases the contractor has submitted sufficient information so that the contracting officer can review the claim and issue a decision. The decision will either state that the contracting officer is entitled to $X or nothing, and the contractor has appealed that decision. So whether they stated a specific amount is fundamentally irrelevant. If the contractor gave sufficient information for the contracting officer to analyze and rule on the claim, it shouldn’t matter. And in reality, it doesn’t matter a bit. During review of the claim, the contracting officer doesn’t care if the word approximately was in the submission. The downside is that if contractors put the wrong word in the claim, the Board or court will tell them that they have no jurisdiction. The contractor would have to start over. In that situation it is likely that the contractor will resubmit the same information but take out the offending word. The contractor may try to persuade the contracting officer to send them the same contracting officer’s final decision as before. And then you file another appeal. This is all just a nice way for lawyers to make a few extra bucks but has no practical effect.

Can a gross overstatement of a sum certain mount in a certified claim open a contractor up to prosecution under the False Claims Act?

Of course. It has happened. No question about that. There is a famous case called Daewoo Engrg. & Constr. Co. v. U.S., 73 Fed. Cl. 547 (2006), aff’d, 557 F.3d 1332 (Fed. Cir. 2009), where the contractor asked for $13 million in REA but in the CDA claim he asked for $613 million. The court held that this was a false claim. The government raised it as a counter claim, and the contractor was held liable.

You made a strong argument that the contracting officer should treat the final decision as a final settlement offer. Is this an argument that suggests that some money should be offered regardless of whether the contracting officer thinks there is any entitlement?

Contracting officers cannot give away money. During the presentation I explained that in settlement negotiations, it is common for contracting officers to meet with lawyers and get advice to determine if some amount of the claim might be valid. They would also determine the percentage of possibility that they might lose before a board. For example, the contracting officer might decide that there is a 50% chance that we might lose and if we lost, we would pay the contractor $5 million. Thus, the contracting officer might offer $2.5 million to settle the issue.

What happens when that analysis occurs while negotiating an REA and then the contractor files a CDA claim? What should the contracting officer rule in the final decision? Should they rule that the contractor gets nothing or should they put in the decision, I will give you $2.5 million. If you treat the final decision (as some contracting officers do) as the first step in litigation, the right answer is nothing. The contractor will get nothing. If you treat it as the final settlement offer, the right answer is $2.5 million. With the second option, you have not said that there is no entitlement, you have already determined that there is a 50/50 chance that there is entitlement. This was the type of analysis that I was discussing during the virtual classroom.

I try to persuade contracting officers that the settlement proposal approach is the better option, because once a contractor has the decision, it is money in the bank. That makes it a hard decision for a contractor to analyze. Do I take the money and bank it or do I litigate and incur legal fees? If the contractor decides to litigate, they will incur interest on their claim. Interest is typically a small amount and not likely to cover their legal fees. This is a difficult decision for the company. My guess is that companies would take that offer for $2.5 million and walk away.

Do you think that bifurcation of proceedings at the ASBCA is a good idea?

I think from ASBCA’s point of view it has worked pretty well. I don’t know that anyone has compiled the statistics. If you look at the rulings where the Board has ruled that the contractor is entitled to compensation, I doubt that 10% have come back for a ruling on the amount. By and large, once the government has lost on entitlement, they settle. So from an efficiency point of view, it seems to work. The downside is that you learn a lot when you litigate damages. When damages are not litigated, typically you don’t know as much about your case, but if it works, why change it!

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