Test Your Knowledge of Change Orders and Equitable Adjustments

By Dick Lieberman, Consultant and Retired Attorney

You are a construction company that receives a contract to modernize the Internal Revenue Service center. Among other things, the contract requires you to provide a security system. As explained below, the security cabling for that system is required to be “concealed or in conduit (EMT) [Electrical Metal Tubing].”

Your contract states the following:

General Provisions:

1.17 Conduit is required in all unfinished areas where cables cannot be concealed above the ceilings on raceways or in hollow walls or placed in existing cable trays. Cables are concealed when they are run below the raised flooring and above the drop ceiling.

12. All security system cabling shall be enclosed in conduit when exiting the protected [limited access] area.

Definitions and Instructions

7. “Concealed” (as applied to circuitry) – Covered completely by building materials

8. “Exposed” (as applied to circuit) –Not covered in any way by building material

Work of Other Trades

All cabling shall be concealed or in conduit (EMT) unless specifically approved in writing by the contracting officer.

Installation

All security wiring shall be concealed or in conduit as noted.

Conductors and Cables

Conceal cables in finished walls, ceiling and floors unless otherwise directed.

Your bid contemplated the use of PVC [Poly Vinyl Chloride] cable which is “cable tray rated”. The legend on the drawing requires the security cable to be plenum or PVC cable. You begin to install PVC security cabling in cable trays in a raised access flooring system.

The Contracting Officer (“CO”) directs you to install the security cabling in EMT conduit “per the contract.” You explain in detail to the CO that you disagree with his interpretation of the contract, but the CO is adamant, so you comply with the CO’s direction and install all the

security cabling in EMT conduit. You then submit your claim for $491,000 in extra costs for installing in conduit. You state that the use of a cable tray, placed underneath the raised access flooring system or above the drop ceiling meets the contract requirement of being “concealed” because the raised access flooring or drop ceiling each are composed of “building materials” that completely cover the cables.

Will you win your claim? The contracting officer denies your claim, and you appeal the denial to the Civilian Board of Contract Appeals (“CBCA”). How will the CBCA rule? In Columbia Const. Co. v. General Services Administration, CBCA 3258, Jan. 20, 2015, the CBCA granted the entire claim, noting that the contract’s plain language indicated that the company had the option of either concealing the security cable in building materials or installing it in EMT conduit. The CBCA said:

The raised access flooring and drop ceiling were areas that were covered by building materials and the [contractor used the specified installation method]....The terms of the contract allowed appellant to install the security cabling in cable trays under the raised access floor and above the drop ceiling. Where conduit was specifically called out by size in drawings, [the contractor] had the option of using cable trays, so long as the surrounding building materials covered the cables completely and the security cable was installed using [the specified installation method] .... There are other portions of the contract where the drafters indicated that security cables are sufficiently “concealed” when they are run below the raised flooring system or above the ceilings in cable trays. [Cites section 1.17 of specification].

TIPS:

(1) It is crucial that both the CO and contractor read the entire contract carefully. Contract interpretation begins with the plain language of the contract, and here, the plain language allowed the contractor to use cable trays with concealment. If the CO wanted the use of EMT conduit throughout, he could have modified the contract to demand EMT conduit for all security cabling—but this would have required a formal written modification. Such a modification would have granted the contractor the right to an equitable adjustment—which the contractor received anyway by the CBCA because the CO made a constructive change to the contract (a change to what the contract required without issuing a formal written modification).

(2) Just because a CO disagrees on the interpretation of a specification doesn’t make the CO right. Similarly, the contractor is not necessarily right in its interpretation. However, rather than facing a possible default with noncompliance with specifications, Columbia Construction took a safer route—it complied with the CO’s direction and then filed an appropriate claim for the constructive change. The Board agreed with Columbia.

Copyright 2015 Dick Lieberman, Permission Granted to the Maryland PTAC. This article does not provide legal advice as to any particular transaction.

Implied Certifications of Invoices Under the Civil False Claims Act

By Dick Lieberman, Consultant and Retired Attorney

The Civil False Claims Act, 31 U.S.C. §§ 3729-3733, generally prohibits any person from knowingly causing to be presented to the government a false or fraudulent claim for payment or approval, or making or using a false record or statement to get a false claim paid or approved.

To prove a false claim, there are four elements:

(1) a false statement or fraudulent course of conduct

(2) made with the knowledge of falsity (actual knowledge, acting in deliberate ignorance of the truth or acting in reckless disregard of the truth, and no proof of specific intent to defraud is required)

(3) that is material (has a natural tendency to influence or be capable of influencing the government’s decision to pay)

(4) that results in a claim to the government.

But what about routine invoices that are submitted to the Government which do not contain an “objectively false” statement, but where the contractor knows that it has failed to comply with a material provision of a government contract? In other words, are the company’s actions a breach of contract, or a violation of the False Claims Act? The Fourth Circuit recently joined some other circuits in declaring that such invoices, although not actually certified, had “implied certification” and were false claims under the False Claims Act. United States v. Triple Canopy, Inc ex rel Badr. Nos. 13-2190, 13-2191 (Fourth Cir. Jan. 8, 2015).

In Triple Canopy, the Government awarded a fixed price contract for security guard services in Iraq. The contract required that all employees receive initial training on the weapon they carried, and that they had qualified on a U.S. Army qualification course, by meeting a marksmanship score of 23 out of 40. The contractor was to maintain qualifying scores in personnel files for one year. There was nothing in the contract which conditioned payment on compliance with these requirements.

Triple Canopy hired 332 Ugandan guards to serve in Iraq under the supervision of 18 Americans. Although the guards’ personnel files indicated that they met the marksmanship score, upon arrival, the supervisors learned that these guards could not “zero” their rifles and were unable to satisfy the qualifying score of 23 on marksmanship. Regardless, Triple Canopy used the guards and submitted its monthly invoices for them. After a failed attempt at training the guards, a Triple Canopy supervisor directed that false scorecards be created for the guards and placed in their personnel files. The guards never qualified, even upon leaving the guarded facility.

Triple Canopy presented 12 monthly invoices during its one year contract totaling over $4 million. Each invoice listed the number of guards, and each was approved and accepted by a Contracting Officer Representative (“COR”) who filled out a DD-250 form, Material Inspection and Receiving Report, although no DD-250 included any certification from Triple Canopy. A Whisleblower (Badr) began a false claims action against Triple Canopy, but a District court in Alexandria dismissed the action because the invoices did not contain an “objectively false statement.” On appeal, the Government said that Triple Canopy had submitted false claims because the monthly invoices billed for services even though the company knew its guards had failed to comply with an important responsibility—the marksmanship requirement.

The Fourth Circuit reversed and reinstated the case, stating that the False Claims Act was broad, and that a claim for payment is false when it rests on a false representation of compliance with an applicable contractual term, and such false certifications can either be “express” or “implied.” “[C]laims can be false when a party impliedly certifies compliance with a material contractual condition...”

The 4th Circuit held that “the Government pleads a false claim when it alleges that the contractor, with the requisite scienter [knowledge of falsity] made a request for payment under a contract and ‘withheld information about its noncompliance with material contract requirements.’ The pertinent inquiry is ‘whether through the act of submitting a claim, a payee knowingly and falsely implied that it was entitled to payment’” citing U.S. ex rel Lemmon v. Envirocare of UT, 614 F. 3d 1163, 1169 (10th Cir. 2010).

With this case, it now appears that eight Circuit courts have held that “implied certification” of invoices is a valid theory for a False Claims Action, and no “objectively false” statement or claim is required. Two Circuit Courts have rejected implied certification, and three Circuit courts have not yet settled the issue in their areas.

TIPS:

(1) A contractor must comply with all material aspects of its contract, ensuring that its invoices are not false “by implication.” When Triple Canopy discovered the marksmanship problem, it could have sought a modification from the Government permitting a lower score (with some kind of price reduction). Contractors should not ignore compliance with any material condition in a government contract.

(2) The Government could eliminate the need for “implied certification” by requiring in the Federal Acquisition Regulation (“FAR”) that every invoice, in order to be paid, must contain a statement that the contractor has fully complied with all material aspects of its contract during the period. This certification would be similar to, but could be simpler than the certification required for all government contract claims over $100,000. The claim certification reads: “I certify that the claim is made in good faith; that the supporting data are accurate and complete to the best of my knowledge and belief; that the amount requested accurately reflects the contract adjustment for which the contractor believes the Government is liable...” This could easily be modified for invoices to read: “I certify that this invoice is presented in good faith; that the supporting data are accurate and complete to the best of my knowledge and belief; and that the amount invoiced accurately reflects the amount that the Government must pay in accordance with the contract.”

(3) Contracting Officers may eliminate this problem by requiring, in the contract terms, that every invoice be certified as stated above, as a condition for payment.

Copyright 2015 Dick Lieberman, Permission Granted to the Maryland PTAC. This article does not provide legal advice as to any particular transaction.

What is Outside the Scope of a GSA Federal Supply Schedule Contract?

By Dick Lieberman, Consultant and Retired Attorney

The General Services Administration (“GSA”) manages approximately $40 billion a year worth of contracts through the Federal Supply Schedules (“FSS”). These schedule contracts provide agencies with a simplified process for obtaining commonly used commercial supplies and services, as set forth in Federal Acquisition Regulation (“FAR”) 8.401. Although simplified, the procedures satisfy the requirement for full and open competition in 41 U.S.C. § 259(b)(3). More than half the purchases bought under FSS are for services. Agencies frequently conduct limited competition for their requirements by issuing Requests for Quotations (“RFQ”) only to schedule holders.

There are, however, limits to using the schedule contracts, even when there is limited competition. As in all contracts, any purchase must be within the scope of the contract, and agencies may not use these contracts to purchase products or services that are not on the contractor’s schedule. Something that isn’t on the schedule is outside of the scope. In the case of a task order for services, all of the solicited labor categories must be on the successful vendor’s FSS contract. U.S. Investigations Serv, Prof Serv. Div, Inc., B-41054.2, Jan 15, 2015. If an agency seeks labor categories that are outside of the FSS contract, the agency cannot use the simplified FAR part 8.4 procedures, but must use full competitive procedures.

In U.S. Investigations, the Federal Bureau of Investigation (“FBI”) sought services for name checks and its Freedom of Information Act/Declassification programs. The FBI sought four principal labor categories:

(1) research analyst

(2) program manager

(3) general consultant

(4) legal administrative specialist

Both U.S. Investigations and FCi Federal bid, and FCi won the task order. U.S. Investigations protested, because, for three out of four labor categories (all except the “program manager” category), FCi proposed personnel from a single labor category in its FSS contract—“program management analyst”.

The Government Accountability Office (“GAO”) found that the duties, responsibilities and qualifications of the types of employees required by the RFQ were not encompassed within FCi’s “program management analyst” labor category. For example, FCi’s labor category description made no mention of experience with paralegal, records management, declassification review or historical research, or in-depth knowledge of FBI policy and functions, although these were specifically required by the RFQ. The focus of FCi’s labor category was the development of business techniques and organizational development. None of the key responsibilities described in FCi’s labor category descriptions were germane to the work required under the RFQ. Accordingly, GAO sustained US Investigation’s protest, holding that FCi was not eligible for award because the labor categories required to perform were not available under FCi’s FSS contract.

TIPS:

(1) If you hold an FSS contract, and want to bid on an FSS solicitation (RFQ) for labor services, be sure that your contract includes the specific services within its scope. Although the name of the labor service might be different, the actual responsibilities desired in the RFQ must reasonably match the descriptions in your schedule contract. If there is no match, then the agency is not permitted to consider your offer.

(2) Agencies must make a rational consideration of the required labor categories in the RFQ, the categories submitted in each proposal, and the categories in the underlying FSS contract. In U.S. Investigations, the GAO noted that even in responding to specific protest allegations, the agency did not meaningfully explain how it could reconcile the divergence between FCi’s labor category description and the requirements of the RFQ. GAO requires agencies to explain substantively how the definitions in the contractor’s schedule contract and proposal meet the requirements of the RFQ. Contracting Officers should carefully take note, and ensure that their contractor selection can withstand this type of scrutiny in a labor comparison, otherwise they risk a GAO protest.

Copyright 2015 Dick Lieberman, Permission Granted to the Maryland PTAC. This article does not provide legal advice as to any particular transaction.