In two government contracts appeals argued remotely on
In
In
During oral argument Judges
Practitioners should keep an eye on both cases and be mindful of similar arguments the government may raise in future litigation.
The
Prior to 2005, when a contractor changed its cost accounting practices and calculated the cost impact of those changes to the government pursuant to the cost accounting standards, or CAS, the generally accepted practice was that cost increases could be offset by cost decreases, precluding a windfall to the government from accounting practice changes that have little or no net impact.
In 2005, the
After the rule went into effect,
Following a series of claims submitted pursuant to the CDA,
The government's primary contention is that
To support this argument, the government has to stretch two theories of waiver unique to government contract law well beyond their current bounds.
The first is the Blue & Gold rule, so-called after the Federal Circuit's 2007 decision in
[A] party who has the opportunity to object to the terms of a government solicitation containing a patent error and fails to do so prior to the close of the bidding process waives its ability to raise the same objection afterwards in a Section 1491(b) action in the
The second is the patent ambiguity doctrine, an exception to the common law doctrine of contra preferentem, that provides "where a government solicitation contains a patent ambiguity, the government contractor has 'a duty to seek clarification from the government, and its failure to do so precludes acceptance of its interpretation' in a subsequent action against the government."6
There are several problems with the government's theory.
First, Blue & Gold was a bid protest decision interpreting the
Second, the patent ambiguity doctrine and the Blue & Gold rule are both designed to address patent ambiguities and defects within the four corners of a solicitation and other contract documents. But FAR 30.606(a)(3)(ii) is a FAR provision not a contract clause, and both parties agreed it was not incorporated by reference into
Judge
Is there a case that you are aware of … where if a contractor believes that a regulation on its face conflicts with the plain meaning of a statute, that qualifies as a patent ambiguity that must be raised at the time of bidding? …. I always tend to think of it as ... conflicting statements in the solicitation as to what is the quantity of requested items ... or what is the scope of the work, and there are two different statements that seem to conflict with each other—that's the kind of thing that seems like a[n] ... ambiguity that the rule, in cases like Blue & Gold, is trying to induce people to clear up on the front end rather than the back end. I've never heard of a situation where a regulation on its face that arguably conflicts with the statute on its face is where we would … invok[e] the patent ambiguity rule.
Third, the Blue & Gold rule and patent ambiguity doctrine are waiver rules, but the government could not identify what exactly
Counsel: "[T]hey would have had to raise the challenge at the time of contract formation."
Counsel: "Admittedly this is a nonwaveable provision ... and it is not something that the contracting officer has discretion to apply … so it would have to make a judicial challenge."
Counsel: "
Counsel: "The fact is, I simply don't know what the outcome would have been if
I can see the bind you're in a bit because all to often we see the government taking the position that contractors don't have standing, or they lack ripeness, for any allegation that they try to raise in a bid protest. ... If you can't tell us that they definitively would have had standing and any challenge to this regulation in fact would have been ripe at the time of the bid, then I am wondering how can we say that this was in fact waived when they didn't file a protest to this nonnegotiable regulation.
Finally, when the government suggested that
You're talking about a separate action, not in the context of the application in this contract … but an APA challenge in district court doesn't get you to waiver … that has nothing to do with whether they waived in this case.
These exchanges and others during oral argument lend cautious optimism that the Federal Circuit will reject the government's novel waiver argument.
Practitioners should watch this decision carefully. Beyond waiver, the case also raises important issues regarding jurisdiction over exaction claims and, in the event of remand, the validity of FAR 30.606(a)(3)(ii).
The Parsons appeal is a relatively straightforward breach of contract claim filed with the Armed Services
Once the ASBCA decided Parson's breach of contract claims, Parsons appealed to the Federal Circuit. The government cross-appealed, arguing among other things that the ASBCA lacked jurisdiction to hear the case at all because the contract involved nonappropriated funds.
For context, litigation of contract disputes involving nonappropriated funds used to raise complex jurisdictional issues due to the so-called NAFI doctrine, established by the
Pursuant to the NAFI Doctrine, the
The NAFI doctrine was largely overturned in 2011 by the Federal Circuit's en banc decision in Slattery v. US, where Judge
[T[he jurisdictional foundation of the Tucker Act is not limited by the appropriation status of the agency's funds or the source of funds by which any judgment may be paid.8
Apparently not willing to let this anachronistic jurisdictional challenge rest in peace, the government argues that Slattery is limited to cases brought under the Tucker Act, leaving the NAFI doctrine to apply with full force to cases brought under the CDA.
Indeed, the Federal Circuit has recognized that, after Slattery, there remains an open question as to whether the doctrine applies to CDA cases.9 Yet, in deciding Parsons' claims, the ASBCA concluded that, following Slattery, "there remains no basis for continuing to apply the NAFI doctrine to CDA appeals."10
The Federal Circuit panel was presided by Judge
The Board said that this was a NAFI contract, even though on the face of the contract, the contract was entered into with the
Do you have any legal authority that … suggests that just because funding may come from a nonappropriated source, that it is necessarily a contract with a NAFI? … I think you've all jumped over [that factual issue] and gotten straight to the question of saying this is a NAFI — because it's a really interesting issue post-Slattery — but it is not clear to me at all that this is a NAFI, and the fact that there are nonapproriated funds doesn't solve for me the question of whether this is a contract with a NAFI or it is a contract with the
Practitioners dealing with nonappropriated funds and NAFIs should carefully watch this appeal to see how this issue is resolved.
Conclusion
Beyond being contractor appeals argued the same day, the
While interpreting the tea leaves of oral argument is no exact science, it appears that the panels deciding these appears are, at the least, rightly skeptical of the government's ask.
Footnotes
1 Appeal No. 19-2148.
2 Appeal No. 19-1931. Parsons appeals from the Armed Services
3 For analysis of the COFC's decision, see
4 US Response Brief, 19-2148, ECF No. 27 at 37.
5
6 Id. at 1313.
7 For detailed background and analysis, see
8 Slattery v. US, 635 F.3d 1298, 1321 (Fed. Cir. 2011) (en banc).
9
10
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