Government Contracts Without Notice, Contractor Entitled to Withheld Costs
Tuesday, December 11, 2018

Without Notice, Contractor Entitled to Withheld Costs

By Government Contracts Editorial Staff

A contractor was granted partial summary judgment on its claim the government arbitrarily withheld subcontractor labor costs because, according to the Court of Federal Claims, the government failed to provide the required notice of its intent to disallow the costs. The contractor, an unpopulated entity, used subcontractors to perform a cost reimbursement contract to design, construct, and operate a fuel fabrication facility. The contractor did not notify the government that it had placed nearly all of the non-craft workforce into new positions and increased the salaries for 55 of the 863 employees. The contractor increased the 55 employees’ billable rates charged to the government. When the governed noticed the changed billing rates, it asked the contractor to justify the increases. The government was not satisfied with the information the contractor provided and began to withhold two percent of the contractor’s total non-craft labor expenses.

Imprecise Language. The contractor contended the government never issued proper notice of its intent to disallow, as required by DEAR 942.803(a)(2)–(3). The government asserted it gave notice when it notified the contractor “in writing through the invoice review process that supporting data to facilitate [the government’s] determination of cost allowability . . . was required.” However, this writing merely warned the contractor that the government intended to withhold costs pending further investigation. The imprecise phrase the government would take “appropriate action” to protect its interest did not convey the government intended to disallow costs, as required by DEAR 942.803. The government also failed to demonstrate the writing contained any of the other required elements of notice outlined in DEAR 942.803(a)(2)(i)–(ii). The matter was remanded for the government to determine the remainder of withheld costs in addition to the $1,142,112 award. (CB&I Areva Mox Services, LLC v. U.S., FedCl, 62 CCF ¶81,518).

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