Legal Insights: Recent Developments in Jurisdiction Over Appeals of Contract Claims
Summer 2010

This summer both the U.S. Court of Federal Claims and the Armed Services Board of Contract Appeals issued opinions addressing the jurisdiction of these forums over appeals of claims brought by contractors against the federal government pursuant to the Contract Disputes Act. One decision was contractor-friendly, the other decidedly not.

The Court of Federal Claims considered jurisdictional issues in Paradigm Learning, Inc. v. United States, 93 Fed. Cl. 465 (2010), an opinion handed down in June. In this case, Paradigm developed what the Court described as a learning tool entitled “ZODIAK, The Game of Business Finance and Strategy.” This product was originally developed by Paradigm for a private customer. Subsequently, Paradigm was asked to demonstrate ZODIAK to the Defense Acquisition University (DAU). The DAU determined that it wanted to use ZODIAK as one of its training tools.

DAU declined to enter into a license for ZODIAK but consented to the execution of a confidentiality agreement to provide Paradigm with equivalent protection for its seminars, training services, and training materials. To acquire the product, the DAU placed its order for ZODIAK through a General Services Administration schedule contract with another contractor. Paradigm later entered into its own GSA schedule contract with the DAU for ZODIAK.

Paradigm began delivering its product to the DAU in compliance with purchase orders. Unfortunately for Paradigm, during this period the DAU began to develop a clone of ZODIAK. Paradigm responded to the clone by filing a certified claim for breach of contract with the contracting officer asserting a claim for breach of contract under both GSA schedule contracts. The contractor alleged that the DAU violated the confidentiality agreement that was a part of the purchase orders and also violated the proprietary legends contained on the products delivered under the purchase orders. The contracting officer denied the claim and Paradigm appealed to the Court of Federal Claims.

In the Court of Federal Claims, the Government moved to dismiss Paradigm’s complaint for lack of jurisdiction. In addressing the motion, the Court noted there are three jurisdictional requirements that must be satisfied for a contractor to assert a claim against the Government under the Contract Disputes Act. First, the contractor must have submitted a proper claim to the contracting officer. This is a written demand seeking, as a matter of right, the payment of money in a sum certain. Second, the contracting officer must have issued a decision on the claim or it must be deemed denied by the contracting officer’s failure to decide. Third, the contractor must properly appeal the contracting officer’s decision or lack thereof to the Court of Federal Claims or the cognizant board of contract appeals.

Among the Government’s arguments as to why the Court lacked jurisdiction, the Government contended that neither the confidentiality agreement nor the restrictive legends placed on the products were incorporated by reference into the GSA schedule contracts. The Court rejected this argument finding that the provisions of the confidentiality order and the restrictive legends did not need to be incorporated into the contracts to base a contract appeal upon them. Instead, the Court found the GSA schedule contracts contained a provision that permits negotiation of data rights outside the four corners of the contracts.

The Government further contended that the Court lacked jurisdiction because Paradigm’s breach of contract claim was really a tort claim for misappropriation of trade secrets. Tort claims may not be pursued under the Contract Disputes Act. The Court rejected this argument as well, however, holding that it is well-established where a tort claim stems from a breach of contract the cause of action is ultimately one arising in contract and that was appropriately within the jurisdiction the Court of Federal Claims.

A contractor and its subcontractor did not fare as well before the ASBCA in J.P. Donovan Construction, Inc., ASBCA No. 55335, 2010 WL 2899029 (July 16, 2010). This case involved a contract awarded to J.P. Donovan Construction to repair a runway at the naval air station in Key West, Florida. Donovan subcontracted with Costello Industries for joint resealing, concrete spall repairs, herbicide application, and incidental related work. Costello subsequently submitted to Donovan a request for equitable adjustment for $559,764 and asked that Donovan certify the request and submit it to the Navy. Donovan sent the request to the contracting officer by means of a letter entitled “Claim for Equitable Adjustment.” Not only did Donovan submit Costello’s claim, but it also added a claim for recovery of associated costs incurred by Donovan. The claim letter included the following statement:

Of the $559,764.00 that Costello is claiming, Donovan is herein stating that Donovan has or will have approximately $65,000.00 of additional direct and administrative costs that should be added to this Costello requested amount.

The contracting officer denied the claim and Donovan appealed to the ASBCA. On appeal, the Board noted that a valid claim under the Contract Disputes Act seeking the payment of money must set forth a sum certain. This requirement, said the Board, means that the amount being demanded in the claim not be subject to qualifying language such as “approximately.” When a claim describes a claim as approximate and never states a sum certain, the requirement has not been met.

The Board did note that where qualifying language is used in a claim in relation to a cost but the sum certain being demanded is expressly stated or is ascertainable elsewhere in the claim, the requirement is met. It also acknowledged it is not material that the cost elements may be estimates, for it is the final amount being demanded in the claim that must appear as a sum certain.

The Board concluded that Donovan did state a sum certain for the portion of its claim belonging to Costello, but used qualifying language as to Donovan’s own add-on and never thereafter stated a total sum certain. Since Costello’s alleged costs and Donovan’s were not separate claims, the entire single claim must be in a sum certain. The ASBCA dismissed the appeal for lack of jurisdiction.

Conclusion
Although one decision went in favor of the contractor and the other did not, what Paradigm and Donovan both show is that contractors must walk a very narrow path to present a proper appeal of a contract claim. Even if an alleged deficiency does not result in the dismissal of an appeal, the Government will assert the technical defenses available thus increasing the cost of pursuing a claim. Contractors should pay close attention to each and every requirement of the Contract Disputes Act as they prepare and appeal claims. Technical defenses lurk everywhere and they will be raised, often successfully.

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