Government Contracts Contractor’s Claim Time-Barred, Subcontractor’s Claim Timely
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Wednesday, February 13, 2019

Contractor’s Claim Time-Barred, Subcontractor’s Claim Timely

By Government Contracts Editorial Staff

Cross-motions for summary judgment on the timeliness of the contractor’s appeal were granted in part and denied in part by the Armed Services Board of Contract Appeals because the contractor’s claim was time-barred under the Contract Dispute Act’s six-year statute of limitations, but the contractor’s claim on behalf of its subcontractor was timely filed. The dispute arose from a contract to build six submarines. The contract, which was for a firm fixed price with some cost-reimbursement line items, contained a clause allowing for a price adjustment for certain changes in federal laws or regulations. Although the clause was not included in the list of contractual provisions designated to flow down to subcontractors, the contractor included the clause in its subcontract.

OSHA Regulation. In December 2004, the Occupational Safety and Health Administration issued a regulation requiring the contractor and its subcontractor to post a fire watch during “hot work” in the assembly of the submarines. In February 2005, the contractor submitted a contract change memorandum to the government stating it was entitled to a price adjustment for increased costs resulting from the regulation. Also, the record showed the contractor suffered an injury in August 2005, when it incurred costs it contended were reimbursable under the clause. In August 2010, the parties executed a modification authorizing flowdown of the clause, and the contractor submitted a certified claim in December 2012. The contractor asserted its cause of action did not accrue until the 2010 modification because, until then, the clause barred it from recovering costs for itself and its subcontractor related to OSHA’s regulation. According to the contractor, its subcontractor was an equal partner pursuant to a teaming agreement, which prevented the contractor from seeking relief independently.

Claim Accrual. The board disagreed, finding the contractor was not prevented from presenting a claim for its own costs before the modification permitted flowdown of the clause. The teaming agreement could not change the terms of the contractual relationship between contractor and the government, and there was no merit to the contractor’s argument it had to present a complete claim representing both its and its subcontractor’s costs. The contractor’s claim for its costs accrued in August 2005, after it submitted the contract change memorandum and incurred costs it contended were reimbursable under the clause. The board also rejected the contractor’s argument that it did not have the information necessary to assert its claim until June 2007. Board precedent is clear that claim accrual is not suspended until a party “performs an audit or other financial analysis to determine the amount of its damages” (13-1 BCA ¶35,241). Moreover, the contractor failed to raise a material factual issue that it had to comply with a pre-claim process that tolled the accrual of its cause of action. Also, the continuing claim doctrine did not apply because the submarines were not funded in a “series of independent events” but were a single procurement, and the contractor’s alleged damages were based on a single distinct event, the enactment of the OSHA regulation. Finally, there was no basis for equitable tolling of the statute of limitations.

Subcontractor’s Claim. As for the subcontractor’s cost claim, the board found that the contractor could not assert a claim prior to the 2010 modification. The prime contract prohibited the contractor from requesting an adjustment for “[i]ncreases or decreases in prices charged by subcontractors or suppliers.” Thus, the contractor’s inclusion of the clause in its subcontract did not did not create a right for the contractor to seek an adjustment for the subcontractor’s costs. The claim for the subcontractor’s costs did not accrue until the modification added the clause to the list of the clauses that could be flowed down to subcontractors. (Electronic Boat Corp., ASBCA, ¶95,667).

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