Government Contracts Reversal on Government’s Liability under Section 8 Contracts
Monday, March 18, 2019

Reversal on Government’s Liability under Section 8 Contracts

By Government Contracts Editorial Staff

Federal Court of Claims decisions finding Housing Assistance Payment renewal contracts created privity of contract between the government and the landlord-plaintiffs and holding the government liable for underpayment damages were reversed in part, vacated, and remanded because the Court of Appeals for the Federal Circuit concluded the contracts did not create privity with the government. At issue were contracts between the Department of Housing and Urban Development and a public housing agency, and Section 8 HAP renewal contracts between the PHA and private owners of rental housing. The CFC determined the HAP renewal contracts created privity between HUD and the plaintiffs because HUD was a signatory and the contracts provided HUD was a party to contract provisions, including a provision that permitted HUD to correct any default by the PHA and to continue assistance payments to the plaintiffs (60 CCF ¶80,969). The CFC found the government liable for breach of contract and awarded the plaintiffs rent underpayment damages (60 CCF ¶80,969), and it denied the plaintiffs’ request for vacancy damages (61 CCF ¶81,119). The government appealed the CFC’s denial of its motion to dismiss and grant of summary judgment, and the plaintiffs cross-appealed the denial of vacancy damages.

Not a Named Party. Focusing on the threshold issue of jurisdiction, the Federal Circuit noted that neither HUD’s contract with the PHA nor the contract between the PHA and the plaintiffs explicitly named both the government and the plaintiffs as directly contracting parties. Instead, the renewal contracts clearly identified the parties as the "contract administrator" and "owner," the contract administrator as the PHA, and the owners as the plaintiffs. In Katz v. Cisnerso (16 F3d 1204), the Federal Circuit considered similar facts, where HUD contracted with a PHA, which in turn contracted with an owner with HUD’s approval. The conclusion in Katz that the plaintiff did not have privity of contract with HUD applied here. Contrary to the CFC’s reasoning, 42 USC 1437f(b)(1) does not limit authority to execute renewal contracts to HUD, the state agency was a PHA and not a mere contract administrator, and 24 CFR 402.5(a) does not require HUD to be the party that renews a contract. In addition, the renewal contract provision allowing HUD to correct any default by the PHA was contingent on HUD’s acquiescence and discretion. This did not create contractual liability sufficient to trigger a waiver of sovereign immunity. (Park Properties Assocs., L.P., et al. v. U.S., CA-FC, 63 CCF ¶81,598).

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