Claims Updates
The Federal Circuit issued its much-anticipated decision in a case that presented the question of whether a company that indirectly licenses software to federal agencies through a reseller can bring a Contract Disputes Act (CDA) claim to enforce alleged violations of the license terms.
- The Civilian Board of Contract Appeals’ (CBCA) had dismissed Avue’s appeal for lack of jurisdiction after finding that the master subscription agreement, by itself, did not constitute a “procurement contract” under the CDA because it was not a contract for the acquisition of property or services.
- The Federal Circuit vacated and remanded the CBCA decision for further proceedings on the merits. The Federal Circuit did not answer the most interesting question on appeal—whether Avue actually has a procurement contract with the government that can be enforced under the CDA. Instead, the Federal Circuit held only that Avue had plausibly alleged it is a party to a federal procurement contract and therefore met the baseline standard for invoking the board’s jurisdiction.
- On remand, the parties will need to engage in further merits proceedings to determine if a procurement contract exists.
This case may eventually answer the question of whether the CDA provides a viable means to enforce license terms that are passed to the government through a reseller. In the meantime, software companies, resellers, and agencies should all be mindful of the complex and uncertain jurisdictional framework that can apply to licensing disputes under government contracts.
- Williams Building Company (WBC) was awarded a fixed-price contract by the Department of State’s Office of Overseas Building Operations (OBO) for construction services at the US Consulate lease-fit-out in Wuhan, China. OBO terminated WBC’s contract for convenience in the wake of COVID-19, and WBC accordingly submitted its total-cost termination settlement proposal seeking its allowable costs, which was later converted into a claim. OBO denied WBC’s claim and WBC appealed to the CBCA.
- On appeal, the CBCA rejected OBO’s argument that because WBC allegedly falsely certified that it had paid its subcontractors when it did not actually do so, WBC’s prior breach of contract barred recovery of all of WBC’s termination costs. The CBCA explained that since OBO terminated the contract for convenience, rather than for default, a prior material breach by the contractor did not impact a claim for termination costs.
- At the same time, however, the factual allegations that WBC did not pay its subcontractors were nonetheless relevant because WBC bears the burden of establishing the costs that it incurred in performing its contract. Thus, the CBCA rejected WBC’s argument that the board did not have jurisdiction to address whether WBC had paid its subcontractors because doing so would require the board to make findings on fraud contrary to the CDA. The CBCA concluded that there was no need for it to make findings about fraud, only about WBC’s ability to establish what costs it incurred during contract performance, including whether it paid its subcontractors.
This case serves as a reminder that if an agency terminates a contractor for convenience, the contractor’s prior material breaches of contract do not wholesale prohibit recovery of a contractor’s claim—as it may in a termination for default—but may still be relevant to the contractor’s burden of proving the costs claimed.
Bid Protest Updates
- GAO dismissed a protest challenging the award of a task order where the solicitation was issued to contractors holding an indefinite-delivery, indefinite-quantity (IDIQ) contract and was valued at less than $25 million but also referenced FAR subpart 8.4 procedures.
- The Department of Labor issued a request for quotations (RFQ) to contractors holding the Army’s Computer Hardware, Enterprise Software and Solutions (CHESS) Information Technology Enterprise Solutions 3 Services (ITES 3 S) IDIQ contract.
- The RFQ referenced ordering procedures applicable to Federal Supply Schedule (FSS) contracts as set forth in FAR subpart 8.4.
- The agency awarded the $17.4 million task order, and in response to the post-award protest, requested dismissal on the basis that GAO lacks jurisdiction over this task order procurement.
- GAO found that although the RFQ invoked FAR subpart 8.4 procedures, that did not transform it into a FSS procurement or indicate that the Department of Labor would place the resultant order under an FSS contract. This was instead a task order competition strictly between firms holding the CHESS ITES 3-S IDIQ contract which could therefore only result in issuance of a task order under that contract. GAO thus lacked jurisdiction over the protest.
Contractors must be cognizant of GAO’s strict requirements for when it will—and will not—hear a protest. GAO does not possess jurisdiction in connection with the issuance of a task or delivery order except where (1) the task order increases the scope, period, or maximum value of the contract under which the order is issued; or (2) where the task order is valued in excess of the jurisdictional thresholds: $25 million (title 10 of the US Code) or $10 million (title 41 of the US Code).
DGCI Corp., B-422188.3, B-422188.4 (March 5, 2024)
- GAO dismissed a protest where the protester was unable to demonstrate it would have had a substantial chance at award even if it succeeded in its challenge to the awardee’s quotation.
- DLA conducted a procurement for jet fuel under the Streamlined Procedures for the Evaluation and Solicitation for Commercial Products and Services set forth in FAR subpart 12.6 where award would be made to the low-priced, technically acceptable offeror.
- DGCI argued that DLA’s award was improper because it unreasonably evaluated the awardee’s technical proposal, which DGCI contended was unacceptable. DGCI also argued that two other vendors—who were lower-priced than DGCI—submitted unacceptable proposals because they must have contained fraudulent certifications regarding the source of their fuel.
- In response, DLA contended that its evaluation of all three vendors’ proposals was reasonable and consistent with the solicitation, which did not require a vendor’s certification to be from a specific source.
- In its comments, DGCI altered its arguments with respect to the two other vendors’ certifications, contending that they must have otherwise been fraudulent given their similarities. Following an investigation by the CO, DLA determined that the certifications were not submitted fraudulently, and confirmed that at least one of the other vendor’s proposals was technically acceptable.
- After reviewing the rationale supplied by the other two vendors, GAO concluded that the vendors’ explanations regarding their certification similarities were plausible, and that DLA’s conclusion regarding the acceptability of one of their proposals was reasonable. Accordingly, GAO dismissed the protest because DGCI could not have been an interested party under the terms of the solicitation.
This decision reinforces GAO’s strict adherence to the interested party requirements for protests. Contractors are encouraged to consult with counsel to ensure they have adequate standing to protest before filing.
- The Court of Federal Claims dismissed a protest where the awardee waived its rights related to a terminated contract.
- The US Department of Veterans Affairs (VA) awarded PDS Consultants a contract for optometry services. The VA later realized that it had made significant errors in the solicitation and severely underestimated the amount of eyewear units it required. The VA considered several corrective actions before ultimately deciding to terminate the contract, rather than amend it, and to cancel the initial solicitation instead of issuing a new one.
- Before canceling the solicitation, the VA and PDS terminated the contract through a settlement agreement. As part of the agreement, PDS “release[d], waive[d], and discharge[d] the Government from any and all liabilities (direct or indirect), obligations, claims, appeals, demands, and requests for equitable (absent fraud), administrative or judicial, legal or equitable, arising out of, or related to [the contract termination].”
- The VA then cancelled the solicitation, and PDS protested the agency’s decision.
- The court dismissed the protest, holding that PDS had waived its right to seek reinstatement of the VA’s award decision when it agreed to terminate the contract in the settlement agreement.
- However, Judge Smith assured PDS that despite its “any and all” language, the settlement agreement was limited to the terminated contract, and that post-termination procurements, solicitations, bid evaluations, and awards are not matters “arising out of, or related to [the contract termination]” within the meaning of the settlement agreement.
PDS Consultants is a helpful demonstration of how the court interprets waiver clauses arising out of contract termination settlement agreements. As always, contractors must carefully read all the fine print before signing any waivers.
False Claims Act Update
Substandard Services as a Possible False Claims Act Violation
- In United States ex rel. Hunter v. Fillmore Capital Partners, LLC, a relator alleged that defendants violated the False Claims Act (FCA) by billing Medicare and Medicaid for substandard medical care at 273 nursing homes.
- A defendant may violate the FCA when they seek reimbursement for a “worthless service,” which is defined as a service that is “so deficient that for all practical purposes it is the equivalent of no performance at all.” Here, the relator alleged that defendants understaffed their facilities to a degree that it would have been impossible to provide adequate care.
- Defendants filed a motion to dismiss. The Eastern District of Pennsylvania granted defendant’s motion to dismiss, noting that the relator failed to plead the alleged FCA violation with particularity as required by Rule 9(b). While the relator claimed that defendants’ facilities were understaffed, the relator never provided factual details that would support the submission of false claims as a result of that understaffing. The court noted that the relator’s claims were “doom[ed]” by the “lack of facts.” Additionally, the relator’s allegations of worthless services were conclusory and did not specify where, when, or how the worthless services occurred.
For contractors, one of the key takeaways from this case is the court’s distinction between worthless services and diminished services. A worthless services claim must assert that the care was so substandard as to amount to no services, and deficient or diminished services do not satisfy this standard. It is important to remember that a worthless services claim cannot proceed if some services have, in fact, been provided.
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