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When Can A Contractor Raise Excusable Delay as a Defense to a Termination for Default or a Government Claim for Liquidated Damages?
On June 24, 2019, the Armed Services Board of Contract Appeals (ASBCA) handed down its decision in Appeals of Watts Constructors, LLC, ASBCA Nos. 61518 and 61961 (A.S.B.C.A. June 24, 2019), providing critical guidance on when a contractor may raise excusable delay as a defense to a termination for default and government claims for liquidated damages. Traditionally, contractors have always been able to raise excusable delay as a defense against government claims for liquidated damages, or in order to convert a termination for default to a termination for convenience if the termination was based on the contractor’s failure to meet the contract completion date. However, in a series of recent decisions, the Federal Circuit and the ASBCA have limited this right, on jurisdictional grounds. Why does jurisdiction have anything to do with it? Well, understanding that requires a bit of explanation about jurisdiction over contractors’ claims against the Federal government in general.
Under the Contract Disputes Act, the Courts and Boards only have jurisdiction to consider claims that have been presented to the contracting officer for a final decision. In other words, unlike in the private sector, Federal contractors can’t simply file a complaint before a Court or Board of Contract Appeals without first filing a claim with the contracting officer. For those of you familiar with Federal contracting, this is not news; it is well-established that a contractor must first present its claim(s) to the contracting officer before seeking judicial intervention. What is relatively new, however, is how this concept is being applied not only to affirmative claims against the government, but to defenses raised by contractors in response to terminations and government claims.
This trend began with M. Maropakis Carpentry, Inc. v. United States, 609 F.3d 1323 (Fed. Cir. 2010), in which the government sought liquidated damages from a contractor based on the contractor’s failure to complete the contract by the specified completion date. The contractor attempted to defend against the government’s claim by arguing that the delay was excusable. Shooting down the contractor’s argument, the Federal Circuit held that the contractor could not raise excusable delay as a defense to the government’s assessment of liquidated damages, because the contractor had not submitted a claim to the contracting officer seeking a time extension. Then in Securiforce Int’l Am., LLC v. United States, 879 F.3d 1354 (Fed. Cir. 2018), the Federal Circuit considered this jurisdictional limit on defenses in the context of a termination for default. While the Federal Circuit ruled that the defense at issue in Securiforce did not have to be submitted as a claim to support jurisdiction, it stated that “to the extent the affirmative defense seeks a change in the terms of the contract—for example, an extension of time or an equitable adjustment—it must be presented to the CO, since evaluation of the action by the CO is a necessary predicate to a judicial decision.” In other words, whenever a contractor is seeking to change the contract duration or contract price, it has to submit a claim to the contracting officer for the Courts and Boards to have jurisdiction, regardless of whether the contractor is making an affirmative claim or simply raising a defense to a government action.
The ASBCA applied this jurisdictional limit in Appeal of ECC CENTCOM Constructors, LLC, 2018-1 B.C.A. (CCH) P37,133 (A.S.B.C.A. September 4, 2018). In ECC CENTCOM, the government argued that the Board lacked jurisdiction to consider the contractor’s defense of excusable delay to a termination for default on the grounds that the contractor had not submitted a claim for a time extension to the contracting officer. Because the contractor was still within the statute of limitations to file a claim, it sought to stay the proceedings before the Board, so that it could file a claim with the contracting officer and resolve the issue. The Board refused to put the case on hold because it was so late in the proceedings. Then, because the contractor had not filed a claim, the Board ruled that it did not have jurisdiction to consider the alleged excusable delay as a defense to the termination for default. Consequently, the contractor’s effort to convert the termination for default to a termination for convenience failed.
The same situation arose in Watts Constructors, but this time the Board treated it a bit differently. The government sought to dismiss the contractor’s excusable delay defense by arguing that the Board lacked jurisdiction, as in the cases discussed above. The contractor requested a stay so that it could submit a claim for the excusable delay. This time – unlike in ECC CENTCOM – the Board allowed the contractor a brief pause in proceedings to submit a claim to the contracting officer. The contractor submitted its claim but the agency refused to issue a contracting officer’s final decision. In a clear attempt to have its cake and eat it too, the agency contended the contracting officer could not consider the contractor’s new claim for excusable delay because the matter was already before the Board, while simultaneously arguing that the Board did not have jurisdiction to consider the contractor’s excusable delay defense because it was not presented to the contracting officer. The contractor treated the government’s refusal to issue a final decision as a deemed denial, and appealed the claim to the Board. The Board first rejected the government’s argument that the contracting officer could not consider the contractor’s claim because the matter was already before the Board. Then the government argued that the contractor was obligated to submit the claim for excusable delay before appealing the termination for default. The Board disagreed, holding that it had jurisdiction to consider the defense of excusable delay since the contractor had submitted a valid claim for a time extension. The fact that the contractor filed the claim for the time extension after the appeal of the termination for default did not deprive the Board of jurisdiction over the excusable delay claim.
The outcome of Watts Constructors was different from ECC CENTCOM solely because the Board allowed the contractor to go back and submit a claim for excusable delay in Watts Constructors, but refused to make the same accommodation in ECC CENTCOM. The Board is well within its discretion to make such a decision, and Watts Constructors does not guarantee that the Board will allow every contractor the same flexibility. So, what does this mean for you? The lesson for contractors is very clear: any time a contractor is faced with a termination for default or a government claim for liquidated damages and seeks to raise excusable delay as a defense they should submit a claim for a time extension immediately, or at least before appealing a termination for default or challenging a claim for liquidated damages! Otherwise, there is a risk that the defense will be rejected on jurisdictional grounds. While the contractor in Watts Constructors ultimately prevailed, the Board is not required to grant a stay of proceedings to allow a contractor to submit a claim to perfect jurisdiction over the contractor’s defenses. Contractors can avoid this problem completely by simply submitting claims for excusable delay before appealing a termination for default (or an assessment of liquidated damages), rather than expecting to raise such issues later on during litigation.