Beyond Judicial Activism: Federal Circuit Decisions Legislating New Contract Requirements

BEYOND JUDICIAL ACTIVISM: FEDERAL CIRCUIT DECISIONS LEGISLATING NEW CONTRACT REQUIREMENTS

Richard C. Johnson*

* The author acknowledges the wise counsel of his partners John Pachter, Steve Knight and Greg Smith, as well as the research support of associates Richard Snyder, Armani Vadiee and Ashley Barbera. TABLE OF CONTENTS

I. INTRODUCTION...... 3 II. LEGISLATING THE “IN DISPUTE” REQUIREMENT AND ITS ULTIMATE REPEAL...... 8 III. LEGISLATING A NEW ESTOPPEL RULE SHELTERING THE GOVERNMENT AS CONTRACTING PARTY FROM ACCEPTED RISKS OF THE COMMERCIAL MARKETPLACE...... 15 IV. LEGISLATING A NEW RULE FOR ALLOCATION OF STATE TAX REFUNDS...... 19 V. LEGISLATING A NEW RULE ON THE USE OF EXPERTS IN GOVERNMENT CONTRACT CASES...... 23 VI. LEGISLATING A NEW COST PRINCIPLE DISALLOWING THIRD PARTY LITIGATION COSTS...... 28 VII. LEGISLATING A NEW BAR ON CONTRACTOR DEFENSES AGAINST GOVERNMENT CLAIMS...... 35 VIII. CONCLUSION...... 43

2 [A] bare resolution, confined in the breast of the legislator, without manifesting itself by some external sign, can never be properly a law. It is requisite that this resolution be notified to the people who are to obey it. . . . [W]hatever way is made use of, it is incumbent on the promulgators to do it in the most public and perspicuous manner; not like Caligula, who (according to Dio Cassius) wrote his laws in a very small character, and hung them up upon high pillars, the more effectually to ensnare the people.1

I. INTRODUCTION

It is dangerous when courts legislate. As Blackstone points outexpounded, new laws should not be writ small and available only through the scrutiny of obscure texts, but that is what the Federal Circuit has been doing.2

Prior to 1982 the parties to government contracts litigated their disputes for the most part in the various agency boards of contract appeals, with the contractors alone entitled to appeal adverse decisions to the United

States Court of Claims.3 This structure had the beneficial

1 1 WILLIAM BLACKSTONE, COMMENTARIES ON THE LAWS OF ENGLAND : FACSIMILE OF THE FIRST EDITION OF 1765-1769 45-46 (Univ. of Chicago Press, 2 002).Blackstone, Commentaries on the Laws of England, Facsi mile of the First Edition of 1765-1769, Volume I, Univ. of Chicago Press (2002, pp. 45-46). 2 Id. 3 In S&E Contractors, Inc. v. United States, 406 U.S. 1 (197 2), the Supreme Court held that a decision of a board of co ntract appeals was a “settlement” between the parties that was binding on the Government. 406 U.S. 1, 4 (1972). The CDA of 1978 reversed S&E Contractors, providing for limited review of board decisions favorable to contractors, in exch ange for giving contractors the right of direct access to t he Court of Federal Claims, bypassing the boards.

3 effect of enhancing the experience and expertise of the board judges over the decades following WWII. As a result, the boards, and predominantly the Armed Services Board among them, acquired exceptional stature and a reputation for impartiality and fair dealing. Correspondingly, the

Court of Claims, a major percentage of whose jurisidictionjurisdiction was the appellate review of board decisions, acquired a formidable expertise in the intricacies of government contracts law and a reputation for sound and well grounded decisions. It was, in other words, a system that worked and that, moreover, inspired confidence in the contracting community that the system for resolving contractual disputes was fair, impartial and characterized by significant judicial expertise. Lastly, the Boards and the Court of Claims exercised great restraint in their decisions and avoided any penchant for legislating positive law in the government contracts arena.

In the Federal Courts Improvement Act of 1982,4

Congress merged the United States Court of Patent and

Customs Appeals and the appellate division of the United

States Court of Claims, and designated the judges of the former courts as circuit judges.5 Because the new Federal 4 Pub. L. 97–164, 96 Stat. 25, 29, 50 (1982).Pub. L. 97–164, Apr. 2, 1982, 96 Stat. 25. 5 See THE UNITED STATES COURT OF APPEALS FOR THE FEDERAL CIRCUIT: A HIST ORY 1982-1990 1-14 (Published by Authorization of The United

4 Circuit (CAFC) exercised patent law appellate jurisidictionjurisdiction over all of the district courts nationwide, the CAFC rapidly tilted in its intellectual makeup in the direction of intellectual property law, as the former Court of Claims judges retired or died. Because of this predominance of intellectual property cases on its docket, the CAFC’s government contracts jurisdiction became relegated to the status of a step-childstepchild.

The relative infrequency of contract cases on the CAFC docket means that over time the judges of that court have lost the easy familiarity with that subject that was enjoyed by the judges of the former Court of Claims. As

Blackstone once noted in addressing the problem of judges lacking sufficient subject matter expertise, the chances of a sound or unsound decision may become in some instances a matter of chance.6 Moreover, because appeals on certiorari from the CAFC to the Supreme Court are as rare as hens’ teeth, the CAFC has in effect become the court of last appeal in government contract cases. The result has been a

States Judicial Conference Committee on the Bicentennial of the United States, 1991) (describing the creation of the Fe deral Circuit).See The United States Court of Appeals for t he Federal Circuit A History 1982-1990, Published by Author ization of The United States Judicial Conference Committee on the Bicentennial of the United States, pp. 1-14 (1991) (describing the creation of the Federal Circuit). 6 WILLIAM BLACKSTONE , supra, at 11-12.Blackstone, supra, at 11-1 2.

5 general undermining of the government contracting community’s confidence in the quality of Federal Circuit decisions and opinions. The inevitable impact of such a falling off in confidence in the system and the accompanying uncertainty and unpredictability is an increase in the prices the Government pays for goods and services.

To compound the problem of step-childstepchild status and the lack of government contracts expertise among the judges, it has been the penchant of the Circuit to embrace judicial activism in the government contracts arena to the point that it is becoming a legislator. The CAFC has exhibited an unfortunate tendency to prescribe with retroactive application new requirements imposed on top of the legislative and regulatory scheme that add to the burdens of government contractors and confuse the government contracting agencies. For example, who would have imagined prior to Maropakis v. United States7 that companies seeking to defend against government claims may not assert defenses to those claims without first asserting those defenses in the guise of affirmative claims to a contracting officer? Rather than granting relief fairly

7 See M. Maropakis Carpentry, Inc. v. United States, 609 F.3 d 1323, 1331 (Fed. Cir. 2010).M. Maropakis Carpentry, Inc. v. United States, 609 F.3d 1323 (Fed. Cir. 2010).

6 under the laws, the regulations, and precedents, the Court appears to see itself as guardian of the federal fisc.

Yet, an inevitable by-product of this mission is lack of certainty in government contracting. By threatening the existence of a stable environment of rules with predictable outcomes to guide industry, the Federal Circuit’s legislative initiatives increase contract cost and ironically hurt the very entity the Circuit apparently wants to protect.

This article traces a series of quasi-legislative enactments CAFC created through its decisions, some of which it subsequently has reversed. It focuses as well on

Maropakis v. United States, in which the court held that a contractor could not raise defenses to a government claim that the contractor had not previously filed as a CDA claim.8 It further traces how the CAFC’s 2010 decision in

Maropakis is beginning to create yet more uncertainty and instability for government contractors and contracting agencies. The article suggests in its conclusion that steps should be taken to bolster the contracts expertise of the Circuit’s judges, which should go a long way toward correcting the Circuit’s misguided penchant to legislate, or that Congress step in to re-establish the level of

8 Id. at 1325.Id.

7 quality and judicial restraint that existed in government contracts appellate decisions before 1982.

II. LEGISLATING THE “IN DISPUTE” REQUIREMENT AND ITS ULTIM ATE REPEAL

In Dawco Construction, Inc. v. United States,9 the

Federal Circuit held that the definition of “claim” should include a new a requirement for a pre-existing “dispute”, notwithstanding the absence of any such requirement in the

CDA or the Federal Acquisition Regulation (FAR).10 This ruling gave rise to a series of cases in which courts and boards were forced to engage in a minute examination of the mental state of the parties to determine whether they were actually “in dispute” when the claim, complying with the

CDA requirements, was filed.11 Such an unreal examination 9 930 F.2d 872 (Fed. Cir. 1991). 10 Dawco, Constr., Inc. v. United States, 930 F.2d 872, 878 (Fed. Cir. 1991)(stating that “A contractor and the governm ent contracting agency must already be in dispute over the amount requested…. [t]he [CDA] and its implementing regulat ion require that a ‘claim’ arise from a request for payment that is ‘in dispute.’”) (emphasis in original).Dawco, Const r., Inc., 930 F.2d at 878 (stating that “A contractor and t he government contracting agency must already be in dispute over the amount requested…. [t]he [CDA] and its implementin g regulation require that a ‘claim’ arise from a request fo r payment that is ‘in dispute.’”) (emphasis in original). 11 See e.g., Reflectone, Inc., ASBCA No. 43081, 93-3 BCA ¶ 25 966 at 129,134-35 (dismissing the contractor’s claim withou t prejudice after finding that the amount was not previousl y in “dispute” as required by Dawco); Saco Defense, Inc., A SBCA No. 44792, 93-3 BCA ¶ 26029 at 129,385-86 (dismissing one of two contractor claims because the dismissed claim wa s not in “dispute” as required by Dawco); Sun Eagle Corp. v. United States, 23 Cl. Ct. 465, 470 (1991) (stating that t he Dawco decision “added an analytical element to the analy

8 lent itself to gaming by either party, but principally by the Government seeking to stave off CDA claims, by asserting that it was considering the claim or had not yet determined that it would oppose it.12 Opposition quickly arose to the layering of this new and somewhat bizarre requirement, which in its extreme would permit government officials to defer access to the disputes process almost indefinitely.13

The Circuit’s legislated “dispute” requirement led the boards and the COFC to dismiss or limit otherwise CDA- compliant claims for reasons drawn from the mental states of the litigants. For example, in Essex Electro Engineers,

Inc. v. United States, the Claims Court14 granted the sis of whether a particular writing constitutes a claim”).S ee e.g., Reflectone, Inc., ASBCA No. 43081, 93-3 BCA ¶ 2596 6 at 129,134 (dismissing the contractor’s claim without pre judice after finding that the amount was not previously in “dispute” as required by Dawco); Saco Defense, Inc., ASBCA No. 44792, 93-3 BCA ¶ 26029 at 129,385-86 (dismissing one o f two contractor claims because the dismissed claim was not in “dispute” as required by Dawco); Sun Eagle Corp. v. Unit ed States, 23 Cl. Ct. 465, 470-71 (1991) (stating that the Dawco decision “added an analytical element to the analysis of whether a particular writing constitutes a claim”). 12 See, e.g., Essex Electro Engineers, Inc. v. United States, 22 Cl. Ct. 757, 765 (1991). 13 See, e.g., JOHN CIBINIC, JR., ET AL ., TO CLAIM OR NOT TO CLAIM: L EGISLATORS AND REGULATORS ARE BEING FORCED TO FIX COURT-INITIATED PROBLEMS , 8 Nash & Cibinic Report No. 11 ¶ 63 , 168-69 (1994).See, e. g., To Claim or Not to Claim: Legislators and Regulators ar e Being Forced to Fix Court-Initiated Problems, 8 No. 11 N ash & Cibinic Report ¶ 63 (November 1994). 14 Predecessor to the Court of Federal Claims. See Pub. L. 97–164, 96 Stat. 25, 29 (1982).

9 Government’s motion to dismiss a contractor’s claim for interest on sums paid to the contractor as the result of an administrative settlement on the grounds that no actual

“dispute” existed in the minds of the parties at the time the contractor filed its CDA claim.15 To satisfy the

“dispute” requirement, the contractor and the Government:

[M]ust have reached something approaching impasse on some of the elements of the contractor's demand before a claim can arise . . . Pursuant to Dawco, the letters of April 13 and April 15, 1987 were not claims. Although there was nothing tentative about the assertion of rights, although the CDA was invoked, and although there was no question that a change order had taken place, it was not clear at that time that there would be a dispute as to the amount of compensation . . . the only indication that a dispute developed at any time is that Essex ultimately got less than the amounts demanded in the April letters. There is no evidence in the record that the parties were ‘discontinuing negotiations,’ or that a point was reached at which the ‘amount claimed was definitely in dispute.’”16

Despite finding that the contractor had complied with all of the other CDA requirements for asserting a claim, the

Court dismissed the contractor’s interest claim for failure to show that the underlying claims were in “dispute” when the claims were submitted.17

Boards of Contract Appeals cases applying Dawco reflected similar oddities, where claims that otherwise 15 22 Cl. Ct. 757, 765 (1991).22 Cl. Ct. 757 (1991). 16 Essex Electro, 22 Cl. Ct. at 765 (emphasis added).Essex E lectro, 22 Cl. Ct. at 765 (emphasis added). 17 Id. at 767.Id.

10 fully complied with the CDA were found lacking because the appellant could not adduce sufficient proof of a

“dispute.”18 For example, in dismissing the claim in DBA

Systems, Inc., the ASBCA noted that the contractor (DBA) had submitted a “claim” to the contracting officer and requested a final decision but that:

. . . DBA also stressed its willingness ‘to commence good faith settlement negotiations promptly and to diligently work toward accomplishing a settlement in a reasonable period of time.’ Viewed in this context, DBA's submission was merely a preliminary step in the negotiation process rather than the signification of a dispute.19

Other board cases followed, dismissing properly filed claims because the contractor could not provide evidence of a “dispute” state of mind as of the date of the CDA filing.20

18 See, e.g., DBA Systems, Inc., ASBCA No. 43591, 95-1 BCA ¶ 27370 at 136, 378, 382. 19 DBA Systems, Inc., ASBCA No. 43591, 95-1 BCA ¶ 27370 at 13 6, 378, 382.Id. 20 See, e.g., Heyl & Patterson, Inc., ASBCA No. 42589, 91-3 B CA ¶ 24233 at 121,196 (stating “[i]f the appellant's letter s were not claims in dispute, the window dressing surroundi ng the appeals does not auger for a different result . . . Appellant's submission of a certification, even one proper in form and execution, ‘does not transform the . . . letter into anything more than a cost proposal’) (citations omitte d).See, e.g., Heyl & Patterson, Inc., ASBCA No. 42589, 91-3 BCA ¶ 24233 at 121,196 (stating “[i]f the appellant's lette rs were not claims in dispute, the window dressing surround ing the appeals does not auger for a different result…Appel lant's submission of a certification, even one proper in fo rm and execution, ‘does not transform the . . . letter into anything more than a cost proposal’) (citations omitted).

11 In the wake of this wreckage the Federal Circuit backtracked. Four years later in Reflectone, Inc. v.

Dalton, the Circuit reversed itself, announcing that

“neither the CDA, its legislative history, nor the FAR, nor its history, suggests that a dispute must pre-date the contractor's submission of the claim to the CO when the claim is in the form of a non-routine demand as of right.”21

In a face-saving gesture, the Circuit deflected part of the blame for its own fumbling onto the drafters of the FAR for not making their intentions clear:

. . . [T]he FAR 33.201 definition of ‘claim’ does not require a pre-existing dispute unless the submission is a ‘routine request for payment’ . . . it does not appear that the drafters of FAR 33.201 intended to include a comprehensive pre- existing dispute requirement . . . … If OFPP intended the current regulation to require that a non-routine payment demand be in dispute when submitted in order to be a ‘claim,’ the agency could have easily written the regulation to incorporate such a requirement. . . 22

Dawco exemplified an ill-considered advance of the

Circuit into the arena of legislation.23 Here it plunged doggedly into legislative thickets until, finally, the unrealistic nature of its “legislation” became all too painfully obvious.24 21 Reflectone, Inc. v. Dalton, 60 F.3d 1572, 1576 (1995) (reh earing en banc). 22 Id. at 1579-80 (emphasis added). 23 Dawco 24 The Federal Circuit acknowledged what the government contr acts bar knew from the outset. A party could use a “disput

12 But then, on April 20, 2012, in Parsons Global

Services, Inc. v. McHugh, the Circuit backed away from the corrective fresh air of Reflectone and, like the

“resurrection men” of London, disinterred the corpse of

Dawco for further use.25

Parsons presented a cost contract payment claim on behalf of a subcontractor.26 This was not a routine bi- weekly payment request under the Allowable Cost and Payment clause, but rather a catch-up invoice based on a DCAA after-the-fact determination that the subcontractor had under-billed its indirect costs during performance.27

Parsons first presented the request to its termination contracting officer (TCO),28 who declined to entertain it.29 e requirement” to “continually, indeed endlessly, seek info rmation and prolong negotiations without issuing an appeala ble decision merely by refusing to acknowledge a dispute, t hereby probably delaying rather than accelerating any possi ble settlement.” Reflectone, 60 F.3d at 1582. 25 677 F.3d 1166 No. 2011-120, 2012 WL 1372149 (Fed. Cir. Ap ril 20, 2012). 26 Parsons Global Services, Inc. v. McHughId. at 1168. 27 FAR 52.216-7(a). 28 A portion of the contract had been terminated for convenie nce in the meantime. Parsons Global Services, Inc., 677 F.3d at 1169. 29 Id. According to the court’s statement of facts—not alway s comprehensible—the TCO declined the request on the ground s that “it would not settle directly with [the subcontracto r] . . . because it was not in the best interest of the gov ernment.” Id. Of course, payment of the amount in questio n to the prime for the benefit of the subcontractor is not “settling directly” with a subcontractor. More likely is t he possibility that the TCO viewed the invoice as part of t he unterminated portion of the contract and thus outside hi s jurisdiction.

13 Parsons then submitted the costs as a certified CDA claim to the procuring contracting officer, who issued a final decision denying it.30 Affirming the ASBCA, the court ruled the request to have been “routine” in origin and, thus, that it had to become the subject of a “dispute” before

Parsons could submit it as a CDA claim, and that such a dispute did not yet exist, “If the request for payment is

‘routine,’ a pre-existing dispute is necessary for it to constitute a claim under the CDA.”31

The court further opined that a non-routine request for payment requires “the presence of some unexpected or unforeseen action on the government’s part that ties it to the demanded costs.”32 The court variously describes this fresh criterion as “unforeseen circumstances,” “additional or unforeseen work at the government’s behest,” and

“intervening unforeseen circumstances.”33 This requirement would, if applied, render claims under the Changes,

Suspension, Changed Conditions or other compensatory clauses of a contract “routine” by any normal dictionary definition, because the very existence of the clauses confirms that requests for payment under them do not relate to “unexpected or unforeseen action” but, quite the 30 Id. Parsons Global 31 Id. at 1170*3. 32 Id. at 1171. 33 Id. at *4.

14 contrary, to actions that are entirely expected and normal in government contract performance.34

The result in this case is that Parsons must now go back and submit a “routine” request for payment to the same procuring contracting officer who previously denied it with all the majesty of a CDA final decision.35 Parsons must then wait a reasonable time or until a “dispute” comes into existence.36 The court does not explain, however, how this will occur, and it must be left to subsequent decisions to provide the answer.37 As the cogent dissent of Judge Newman 34 In footnote 6 the court attempted to counter this suggesti on by stating that “nothing in this opinion alters our prev ious holding that the presence of contract clauses that set forth procedures for requesting costs in unforeseen circums tances, such as differing site conditions or termination fo r convenience, alters the nature of an otherwise non-routin e request.” Id. at 1172*4, fn. 6. The court thus opines t hat events and circumstances that are explicitly foreseen t o the extent that they cause the parties to include remedia l clauses in contracts are nonetheless “non-routine,” and u nforeseen, leaving us somewhat in the dark as to how the co urt defines “unforeseen” in the context of its new routine payment rule. 35 Parsons Global Services, Inc. v. McHughId. 36 Id. at 1172-73. 37 FAR 2.101 states that the “submission [of a routine paymen t request] may be converted to a claim, by written notice t o the contracting officer as provided in 33.206(a), if it i s disputed either as to liability or amount or is not acted upon in a reasonable time.” (emphasis added). FAR 33.206 (a), of course, is nothing more than the procedure for subm itting a CDA claim, something the contractor had already do ne here. It would seem that the contracting officer’s COFD denying the claim must already have satisfied the requireme nt that the payment request be “disputed.” Nevertheless, t he Government will likely argue that Parsons still has to w ait for a “reasonable time,” before it can submit the reque st as a certified CDA claim for the second time.

15 in Parsons Global concluded, “this lengthy litigation of a conceded governmental obligation is an embarrassment.”38

III. LEGISLATING A NEW ESTOPPEL RULE SHELTERING THE GOVERNM ENT AS CONTRACTING PARTY FROM ACCEPTED RISKS OF THE CO MMERCIAL MARKETPLACE

The Supreme Court has repeatedly made clear that when the Government ventures into the marketplace to purchase goods or services, it is in the main subject to the same commercial rules and practices as any private entity.39 The exceptions, until recently, have been few, most notably inapplicability of the apparent authority rule.40 However, the Federal Circuit has now, in its self-appointed legislative role, significantly broadened the exceptions to normal commercial rules and practices applicable to the

Government as contractor.

Until two recent decisions, the Federal Circuit along with the Court of Federal Claims and the ASBCA applied estoppel against the Government when a contractor

38 Parsons Global Services, Inc., 677 F.3d at 1174Parsons, 20 12 WL 1372149 at *6 (J. Newman dissenting). 39 See Mobil Oil Exploration & Producing Se., Inc. v. United States, 530 U.S. 604, 607-08 (2000) (“When the United State s enters into contract relations, its rights and duties the rein are governed generally by the law applicable to contra cts between private individuals.” (quoting United States v. Winstar Corp., 518 U.S. 839, 895 (1996))); see also Lynch v. United States, 292 U.S. 571, 579 (1934). 40 See, e.g., Office of Pers. Mgmt. v. Richmond, 496 U.S. 414, 419-20 (1990); see also Brunner v. United States, 70 Fed. Cl. 623, 627 (2006); Schism v. United States, 316 F.3d 1259, 1284 (Fed. Cir. 2002).

16 detrimentally relied on the conduct or assertions of officers or agents of the United States acting within the scope of their authority.41 To make a prima facie case, the contractor had to establish the four accepted elements of estoppel: (1) the Government knew the true facts; (2) the

Government intend that its conduct would be acted upon or so acted that the contractor has a right to believe it was so intended; (3) the contractor was ignorant of the true facts; and (4) the contractor relied on the Government's conduct to its detriment.42 These four elements, though difficult to establish, allowed the contractor to defend itself when the government led it astray.

By way of two notable decisions, the Court has now sua sponte added a fifth element.43 In Rumsfeld v. United

Technologies Corp., remanding to the ASBCA for ruling on the issue of estoppel, the Court borrowed estoppel 41 See, e.g., Burnside-Ott Aviation Training Ctr., Inc. v. Un ited States, 985 F.2d 1574, 1581 (Fed. Cir. 1993); see also USA Petroleum Corp. v. United States, 821 F.2d 622, 628 (Fe d. Cir. 1987); Breed Corp. v. U.S.nited States, 223 Ct. Cl. 702, 650 F.2d 286 (1980); Am.erican Elec.tronic Labs.orator ies, Inc. v. United States.S., 774 F.2d 1110, 1113 (Fed. Ci r. 1985). 42 See Am.erican Elec.tronic Labs.oratories, Inc. v. United S tates, 774 F.2d 1110, 1113 (Fed. Cir. 1985). See also Adva nced Materials v. Perry, 108 F.3d 307, 311-312 (Fed. Cir. 1 997); United States v. Georgia-Pacific Co., 421 F.2d 92, 96 (9th Cir. 1970), Emeco Indus.tries, Inc. v. United States, 485 F.2d 652, 657, 202 (Ct. Cl. 1006 (1973). 43 See United Pacific Ins. Co. v. Roche, 401 F.3d 1362, 1366 (Fed. Cir. 2005); Rumsfeld v. United Technologies Corp., 31 5 F.3d 1361, 1377 (Fed. Cir. 2003).

17 precedent from non-contractual cases and applied it where it was never intended to apply:

Adjudication of the estoppel issue must proceed under the “well settled [rule] that the Government may not be estopped on the same terms as any other litigant.”44 Beyond a mere showing of acts giving rise to an estoppel, [the contractor] must show ‘affirmative misconduct [as] a prerequisite for invoking equitable estoppel against the government.’45

Then, in United Pacific Insurance Co. v. Roche, the

Court held that the Government was not estopped when it misstated the balance due to a defaulted contractor in a takeover agreement entered into with the surety, stating:

Although the application of equitable estoppel against the government is not entirely foreclosed, the Supreme Court has qualified that ‘the Government may not be estopped on the same terms as any other litigant.’ Heckler v. Cmty. Health Servs., 467 U.S. 51, 60, 104 S. Ct. 2218, 81 L. Ed. 2d 42 (1984). Our own precedent dictates ‘that if equitable estoppel is available at all against the government some form of affirmative misconduct must be shown in addition to the traditional requirements of estoppel.’ Zacharin v. United States, 213 F.3d 1366, 1371 44 Rumsfeld v. United Technologies Corp., 315 F.3d 1361 (Fed. Cir. 2003)(quoting Heckler v. Cmty. Health Servs. of Crawfo rd County, Inc. 467 U.S. 51, 60, 104 S. Ct. 2218, 81 L. Ed. 2d 42 (1984)) 45 Rumsfeld (quoting Zacharin v. United States, 213 F.3d 1366, 1371, 55 USPQ2d 1047, 1051 (Fed. Cir. 2000) (emphasis adde d)). The Heckler and Zacharin cases did not involve a gove rnment contract dispute. In Heckler the Court examined a h ealthcare provider’s reliance on Government assertions when accounting for Medicare payments and in Zacharin, the Court examined a patent infringement suit against United States. Unlike disputes involving government contracts, these cases did not involve the Government stepping into the commercial marketplace.

18 (Fed. Cir. 2000). The evidence is undisputed that the incorrect recital in the ‘Whereas’ clause [of the takeover agreement] was the result of unintentional mathematical errors, not affirmative misconduct.46

Shortly after the Circuit acted, a devastatingly accurate article highlighted the fact that utterly no basis exists for application of the Heckler rule to the arena of government contracts, and nothing could be added here that would make that conclusion any more obvious.47 Here, as in the other examples addressed in this article, the court has simply projected itself as a sort of super legislature into an area that functioned efficiently and well, and required no judicial intervention. Whether the court acted out of a protective instinct towards inept government officials or from pure ignorance can perhaps never be known. What can be known is that in legislating this new rule, the court has measurably increased the uncertainty and risk of government contracting. The result – far from protecting the Government from itself – will inevitably be increased costs of goods and services in the uncertain and precarious government market. 46 United Pacific Insurance Co. v. Roche, 401 F.3d 1362 (Fed. Cir. 2005) (internal citations omitted). The Court once ag ain relies on Heckler and Zacharin which are non-contractua l cases. See Note 22. 47 Karen L. Manos, Estoppel Against the Government: What Doe s ‘Affirmative Misconduct’ Have To Do With It?, GOVERNMENT CONT RACT COSTS, PRICING & ACCOUNTING REPORT, Vol. 1, No. 1, ¶ 1 (July 2 006).

19 IV. LEGISLATING A NEW RULE FOR ALLOCATION OF STATE TAX REF UNDS

Determining the Government’s share of state tax refunds is a complex issue that has generated significant comment.48 The correct allocation depends on a complicated analysis involving the type of contract that paid the taxes in the first place, whether the taxes related to direct or indirect cost, the applicable clauses, certain Cost

Accounting Standards (“CAS”),49 and Board and judicial precedent.50 In Hercules Inc. v. United States51 the CAFC took on this issue with a minimum of understanding and a maximum of impatience with the complexities, leaving in the aftermath of its decision the shattered remains of CAS

406.52

48 E.g., Johnson, “Price Adjustment Clauses for State and Lo cal Taxes in Federal Government Contracts: Aerospace and Ta xes Charged to Contracts Through Overhead,” 26 PUB. CON. L. J. 599 (1997); Johnson and Buie, “Taxes, Refunds, Credit and Cash: Handling the Government’s Share of Sales and Use Taxe s Refunded under Aerospace Corp. v. State Board of Equaliza tion,” 28 PUB. CON. L. J. 449 (1999); Johnson, “Cash versus Credit: The Application of Federal Appropriations Law to Re funds and Rebates in Contractor Overhead,” 30 PUB. CON. L. J. 9 (2000); Johnson and Karsman, “Strayhorn v. Raytheon E-Sys tems: Determining the Government’s Share of Texas Sales and Use Tax Refunds to Federal Contractors,” 36 PUB. CONT. L. J. 59 (2006). 49 CAS is codified at 48 C.F.R. Part 99. 50 Johnson and Karsman, supra, 36 PUB. CONT. L. J. at 61, 67. 51 Hercules, Inc. v. United States, 292 F.3d 1378 (Fed. Cir. 2002). 52 For a more extensive discussion of Hercules, see Stephen D. Knight, “Federal Circuit Cost Decisions Bode Ill for Contr actors,” 39 PROCUREMENT LAWYER No. 2 (Winter 2004).

20 CAS 406 is an allocation regulation that requires contractors to adhere to their selected cost accounting periods, including “any types of adjustment to expense

(including prior period adjustments.)”53 Hercules made a selection in its Disclosure Statement that did not require it to take such adjustments back to the accounting period in which the corresponding cost had been incurred.54 As a result, refunds or credits may not exactly match the costs to which they relate and the Government will realize either more or less of a benefit, depending on the contract mix during the cost accounting period to which the refund or credit is allocated. Hercules received a state tax refund that related to a cost it had incurred in a prior period in overhead, and proposed to credit the refund to the indirect cost accounting period specified in its Disclosure

Statement.55 The Federal Circuit, however, directed

Hercules in effect to violate CAS 406 and to credit the

53 48 C.F.R. § 9804.406-40(b). CAS 406.40(b). Contractors ha ve latitude to select the accounting period to which prior period indirect cost adjustments are made. Such adjustment s may typically be made in the indirect cost year in which the related cost was incurred (if still open), the next ope n year, or the current year. 54 The trial court recognized that the refund related to a co st in overhead and that Hercules had a CAS 406 practice wit h respect to prior period adjustments. Hercules, Inc. v. U nited States, 49 Fed. Cl. 80, 92 (2001). It was unclear fr om the decision whether that accounting period to which the refund related was open or closed. 55 Hercules, 292 F.3d at 1380.

21 refund “to the government using the same apportionment factors that were used to determine the amount of the previously reimbursed cost.”56

The Circuit primarily based its decision on a cost principle, FAR 31. 205-41(d) which provides that “[a]ny taxes . . . that were allowed as contract costs and are refunded . . . shall be credited or paid to the Government in the manner it directs.” There were four errors in the court’s reliance on this provision. First, the history of the cost principle makes clear that it was intended to apply only to refunds and credits allocable to direct costs.57 Second, it applies only to refunds or credits allocable to cost type contracts, leaving refunds allocable to other types of contracts untouched.58 Third, the cost principle itself makes no allocability decision – leaving the allocation “in the manner it [the Government] directs,”

56 HerculesId. at, 292 F.3d at 1381-82. 57 See Johnson and Buie, “Taxes, Refunds, Credit and Cash: H andling the Government’s Share of Sales and Use Taxes Refun ded under Aerospace Corp. v. State Board of Equalization,” 28 PUB. CON T. L. J. 449 (1999). 58 Thus, Hercules would have to determine how much of its ref und related to taxes paid under cost type contracts, and wo uld have to follow the Circuit’s instruction with respect t o that amount—overriding CAS 406. Conversely, it was requi red to follow CAS 406 in allocating the balance of the refu nd. Thus, the court’s holding does not even produce the re sult the court desired – allocation of the entire refund ba ck to the contracts that paid the related cost. .See Hercul es, 292 F.3d at 1382.

22 which by definition is CAS 406.59 And fourth, of course, the decision violates CAS 406 and contradicts the Circuit’s own holding in United States v. Boeing Co.Boeing, which held that CAS trumps the FAR in matters of allocability.60

The Circuit decision in Hercules is lamentable in glossing over complex allocability rules. It appears to be based on a legislative judgment that every penny of a tax refund should accrue to the Government, to the extent that the Government reimbursed in contract cost the tax to which the refund pertains.61 That might be one rational solution, but only one, that a legislative body could make. But the selection of prudent policy judgments among competing alternatives is not the business of the court. The problem, which the court appears yet to comprehend, is that its role is limited to review of agency decisions under specified standards, not to fashion new rules that it believes are needed to regulate the world of government contracts. The court has neither the expertise nor the authority to do so.

V. LEGISLATING A NEW RULE ON THE USE OF EXPERTS IN GOVERNME NT CONTRACT CASES

59 The manner the Government directs is set forth in CAS 406. 48 C.F.R. § 9904.406-40(b).. 60 United States v. Boeing Co., 802 F.2d 1390, 1395 (Fed. Cir. 1986). 61 Hercules, 292 F.3d at 1380.

23 In Rumsfeld v. United Technologies Corp.62 the Federal

Circuit abandoned years of precedent accepting the use of expert testimony as an aid in the interpretation of complex technical and accounting provisions in government contracts, and legislated a new exclusionary rule.63

United Technologies (UT) utilized “collaboration agreements” to procure aircraft parts from overseas suppliers who were admitted into a quasi partnership for the production of aircraft engines.64 UT accounted for the collaboration agreements as if they were joint ventures under CAS, and treated payments to the supplier partners as distributions rather than subcontract or material costs, omitting those amounts from its indirect cost allocation bases.65 The Government alleged that this practice violated

CAS 410, 418, and 420.66 After hearing extensive expert 62 315 F.3d 1361 (Fed. Cir. 2003), cert. denied, 124 S.Ct. 53 2 (2003). 63 See, e.g., Boeing Co. v. United States, 680 F.2d. 132, 137 (Ct. Cl. 1982) (the Court cited to expert testimony admitte d by the ASBCA to assess the meaning of CAS 403); Gen.eral Elec. Co. v. United States, 21 Cl. Ct. 72, 78 (1990), aff’d, 929 F.2d 679, 682 (Fed. Cir. 1991) (the lower court relied on “illuminating” expert testimony to help it determine whe ther a regulation conflicted with CAS). 64 See Rumsfeld v. United Tech. Corp., 315 F.3d 1361, 1364 (Fed. Cir. 2003). The agreements provided for risk sharing between the contractor and its foreign suppliers. The supp liers paid an upfront entry fee, related to their share of the program and received a correspondingly proportional sha re of the revenues following payment from the contractor’s commercial customers. 65 See Rumsfeld 315 F.3d at 1364. 66 See Rumsfeld 315 F.3d at 1366.

24 testimony from both parties the ASBCA upheld UT’s practice.67 The Federal Circuit reversed, criticizing the

ASBCA for admitting expert testimony on the CAS interpretation issue, and resorting for its own interpretation of CAS to a variety of published dictionaries. With respect to experts, the court stated; :

[T]he interpretation of CAS -- is an issue of law, not an issue of fact, as we have made clear in our prior decisions…The views of the self- proclaimed CAS experts68, including professors of economics and accounting, a former employee of the CAS Board, and a government contracts accounting consultant, as to the proper interpretation of those regulations is simply irrelevant to our interpretive task; such evidence should not be received, much less considered, by the Board on the interpretive issue.69

Rejecting the testimony of qualified experts to assist it in interpreting CAS, the Circuit decided to resolve the cost accounting issue by examining the regulatory language with the guidance of Webster’s Third New International

67 See Rumsfeld 315 F.3d at 1368. 68 The court’s reference to “self-proclaimed experts” was ina ccurate, uncalled for, and unfair. Experts before the ASBC A included eminent and respected authorities on government contract cost accounting, including William T. Keevan, form er head of the preeminent Arthur Andersen government contra cts accounting practice, and Stanford University Professor Charles Horngren. United Techs.nologies Corp., ASBCA No. 4 7416, 01-2 BCA ¶ 31592 at 156, 124 (Mr. Horngren), 156,126- 27 (Mr. Keevan).. 69 See Rumsfeld v. United Tech. Corp., 315 F.3d 1361, 1369 (F ed. Cir. 2003). Rumsfeld

25 Dictionary,70 and determining that the definitions of “cost” and “material cost” in CAS were “clear and unambiguous.”71

On this basis, the Circuit decided that the revenues Pratt paid to the supplier partners must be included in Pratt’s indirect allocation bases, because they were the “price”

Pratt paid for the parts.72 70 See Rumsfeld 315 F.3d at 1370. The Circuit decided to cite to the definition of “cost” in Webster’s because there was “no suggestion that the accounting source references use a materially different definition. Indeed, the parties befor e the Board agreed on a definition of ‘cost’ as ‘the sacrif ice incurred in economic activities that which is given up or forgone to consume, to save, to exchange, to produce.’” Rumsfeld, 315 F.3d at 1369-70, fn.10 (citing Webster’s Thir d New English Dictionary (1968), Random House Webster’s Una bridged Dictionary (1998), and the Oxford New English Dicti onary (2d ed. 1989)). 71 The terms at issue were only “clear” because the Circuit d eclined to examine the context in which the drafters of CAS used those terms. “Clarity” may derive as readily from ign orance as from knowledge and understanding. The Federal Ci rcuit has made a talisman of the “plain meaning” rule, usin g it and citing dictionary definitions to resolve complex c ontract disputes in a number of cases. See, e.g., Metro.po litan Area Transit, Inc. v. Nicholson, 46336 F.3d 1256, 125 9 (Fed. Cir. 2006) (citing Webster's Third New Internationa l Dictionary of the English Language Unabridged 93a (2002) for the definition of “handicapped”); Chattler v. United St ates, 632 F.3d 1324, 1331 (Fed. Cir. 2011) (citing Webster’ s Online Dictionary for the definition of “Will”); Nat’iona l Leased Housing Ass’n v. United States, 105 F.3d 1423, 143 5 (Fed. Cir. 1997) (applying plain meaning rule in a contra ct interpretation dispute and citing Webster’s Third New In ternational Dictionary 628 (1996) for the definition of “di fference”). 72 In his article Federal Circuit Cost Decisions Bode Ill fo r Contractors, 39 Procurement Lawyer 2 (Winter 2004), Step hen D. Knight notes that the fundamental flaw in the Circui t’s interpretation of CAS was that the Circuit’s decision r equired Pratt to “use sales revenues (that Pratt was obliga ted to ‘pass through’ to the collaborators) as an element o f Pratt’s indirect cost allocation bases. Yet, CAS long ag

26 In Rumsfeld the court undertook to legislate in the area of the Federal Rules of Evidence, essentially overturning Rule 702.73 Because its ruling appears to have arisen from a base of ignorance and not knowledge, it may have unforeseen consequences.74 Its holding conflicts as well with the decisions of other circuits,75 and with the o eliminated the use of sales revenues from allocation base s.” …According to the Court, Pratt must now use the collab orator’s revenue shares as the ‘cost’ for inclusion in its indirect allocation bases. s…Logically, then, Pratt should also use its own revenue shares for the same purpose. Both of these conclusions violate CAS.” Stephen D. Knight, Fede ral Circuit Cost Decisions Bode Ill for Contractors, 39 PROCU REMENT LAWYER No. 2, 21 (Winter 2004).Id. at 21. 73 Federal Rule of Evidence (“FRE”) 702 provides that a witne ss qualified as an expert “by knowledge, skill, experience, training, or education, may testify thereto in the form of opinion or otherwise.” The rule gives discretion to admit expert testimony that “will help the trier of fact to under stand the evidence or to determine a fact in issue.” Fed. R. Evid. 702(a) FRE 702(a) (emphasis added). 74 See Rumsfeld v. United Tech. Corp., 315 F.3d 1361, 1369 (F ed. Cir. 2003). Technically, the ruling in Rumsfeld makes i nadmissible in evidence all DCAA audit reports and testimon y, which consist of the expert opinions of DCAA auditors on government contract coat accounting and CAS matters. 75 See Nucor Corp. v. Nebraska Pub.lic Power Dist.rict, 891 F. 2d 1343, 1350 (8th Cir. 1989) (upholding the admission of e xpert testimony regarding statutory terms incorporated into a contract for electric service); Ssee also United States v. Moore, 997 F.2d 55, 57 (5th Cir. 1993) (upholding the dist rict court’s admission of expert testimony on tax issues an d stating that “A district court's ruling on the admissibil ity of expert testimony is reviewed under the manifest erro r standard of review. We are required to sustain the cour t's decision unless it was manifestly erroneous..”); Crom C orp. v. Crom, 677 F.2d 48, 50 (9th Cir. 1982) (upholding th e district court’s admission of expert testimony on patent law issues and stating that the district court “found that the expression of such an expert opinion would be of assist ance to the trier of fact. That determination was well with in the discretion vested [to the court] by [FRE 702].”).

27 Federal Circuit’s own past precedent.76 Government contract practitioners on both sides of the divide can only hope that Rumsfeld either suffers a quiet death or is affirmatively snuffed out by a more discriminating court.

VI. LEGISLATING A NEW COST PRINCIPLE DISALLOWING THIRD PAR TY LITIGATION COSTS

In Geren v. Tecom, Inc., the Federal Circuit created what amounts to a new cost principle disallowing a broad swath of third party litigation costs unless the contracting officer determines that the litigation has

"very little likelihood of success."77 The announced disallowance extends to all third party actions that implicate a violation of government contract terms.78 Tecom arose out of the performance of a cost-reimbursement contract for military housing maintenance at Fort Hood,

Texas.79 A former employee who had performed work on the contract sued the company for sexual harassment under Title

VII.80 Tecom initially defended the lawsuit, incurring

$96,163.16 in legal fees.81 Tecom eventually settled with

76 See Milmark Services, Inc. v. United States, 731 F.2d 855, 860 (Fed. Cir. 1984) (stating that “Since the admissibility of expert testimony is within the discretion of the trial j udge, this action is to be sustained unless manifestly erro neous.”). 77 566 F.3d 1037, 1039 (Fed. Cir. 2009). 78 Id. 79 Id. 80 Tecom, 566 F.3d at 1039. 81 Id.

28 the plaintiff for $50,000 without admitting to wrongdoing,82 and then sought reimbursement from the government for its legal and settlement costs, claiming that while the allegations of the former employee were false, the cost of trying the case would have been $300,000.83 On appeal from a Board decision favorable to Tecom, the Federal Circuit reversed, applying the analysis in the 2002 decision of

Boeing North American, Inc. v. Roche84:

[E]ven though costs of professional services and costs of settling litigation are generally allowable, this is not always the case. Where the claimed costs are associated with a settlement agreement we conduct a two-step inquiry in addressing the allowability of such costs: (1) we ask whether, if an adverse judgment were reached, the damages, costs, and attorney's fees would be allowable; (2) if not, we ask whether the costs of settlement would be allowable.85

In Tecom, to answer the first question, the court turned to an early Court of Claims' decision, Dade Brothers, Inc. v.

United States,86 which the Circuit described as holding that

"costs resulting from breach of a contractual obligation are not allowable costs under the contract."87 However,

82 Id. 83 Id. at 1039-40. 84 Boeing North American, Inc. v. Roche, 298 F.3d 1274 (Fed. Cir. 2002). 85 Tecom 566 F.3d at 1041 (citing Boeing North Am. v. Roche, 298 F.3d at 1274, 1285-89 (Fed. Cir. 2002)). 86 163 Ct. Cl. 485 (1963). 87 Tecom, 566 F.3d at 1043 (citing Dade, 163 Ct. Cl. 485 (196 3).

29 that was not the holding of Dade.88 Dade's government contract required compliance with Dade's union agreement with warehouse employees.89 In 1952, Dade was sued by 54 employees under the union contract alleging two independent claims: (1) failure to pay "holiday, vacation, and Sunday pay or pay differentials," and (2) conspiracy between Dade and union officials to deny seniority rights to which the employees were entitled.90 Dade conceded that the employees were entitled to the increased pay claims in the first count, and partial summary judgment was entered in favor of the employees.91 A jury subsequently found Dade liable for conspiring with the union to deprive 43 of the defendants of their seniority rights.92 The Appellate Division of the

Superior Court of New Jersey affirmed the jury's decision, finding that "there was ample proof to warrant a finding by the jury that the employer and the union acted in concert in willfully and maliciously interfering with plaintiffs'

88 For a more detailed explanation of why Dade is inapposite, see Richard C. Johnson et. al, Geren v. Tecom, Inc.: The Fe deral Circuit Creates a New FAR Cost Principle, 4 CP&A Rept. ¶ 27 (2009). 89 Dade, 163 Ct. Cl. at 492. 90 IdDade, 163 Ct. Cl. at 493. at 493.. The only means of ob taining a full understanding of the facts in this case is t o consult the original Court of Claims publication, 163 Ct. Cl. 485, which includes findings of fact based upon the Tri al Comissioner's Report not available through online resear ch tools. 91 Id. at 494. Dade 92 Id..

30 right to employment under the collective bargaining agreement," and that Dade was "guilty of the tortious conduct complained of."93 The Supreme Court of New Jersey affirmed the judgments below.94

Dade applied for and received reimbursement from the

Government "for the amount of the judgment and other disbursements and for the major portion of the attorney's fees incurred in that phase of the litigation."95 All such reimbursements were made notwithstanding that Dade had acted in violation of a contract provision.96 However, the contracting officer denied Dade's claim for reimbursement of expenses incurred defending the claim relating to conspiracy to deprive employees of their seniority rights.97

The contracting officer explained that the verdict for punitive damages established that the defendant

"maliciously and wantonly agreed to perpetrate and to commit a tort," which "flauntingly violated" the terms of

93 Id. at 487, 498 at 498 (emphasis added). 94 Id. at 487. . 95 Id. at 494. 96 Id. 97 The Tecom court erroneously characterized the contract in Dade as stating that the cost of defending third party suit s was generally allowable. In fact, the contract vested th e contracting officer with discretion to designate such cos ts as allowable if "the best interests of the Government re quire that the Contractor initiate or defend litigation in connection with claims of third parties arising out of the performance of this contract…." Dade, 163 Ct. Cl. at 506 (internal quotations omitted)419.

31 the government contract and thus did not "aris[e] out of the faithful performance of [the [government] contract."98

It was not a simple case in Dade of disallowing costs that were incurred in the course of conduct violating a clause of the contract.99 Most of those costs were paid.100

Nevertheless, the court in Tecom seized on Dade to announce just such a general rule – in effect a new cost principle.101

In legislating this new cost principle, the Federal

Circuit also either misunderstood or misread an important element of regulatory history.102 The provision cited by the court as standing for the proposition that unallowable costs are defined by whether the costs are compliant with

“terms of the contract” has nothing to do with determining the allowability of third party litigation costs and provides no justification for the court’s announced rule.103 98 Dade, 163 Ct. Cl. at 506.Id. at 506. 99 Id. at 492.Dade 100 Id.Dade 101 Tecom, 566 F.3d at 1044-45. 102 See Richard C. Johnson et. al, supra note 88 at Geren v. Tecom, Inc.: The Federal Circuit Creates a New FAR Cost Pri nciple, 4 CP&A Rept. ¶ 27 (2009). 103 Tecom, 566 F.3d at 1040. The Tecom court stated that in 1958, government regulations were amended to incorporate wh at it viewed as the holding in Dade. However, the regulati on to which the Circuit cited was not a cost principle, but instead the "Allowable Cost, Fee, and Payment" clause found at ASPR 7.203-4 (1958). In 1959, the predecessor to the co st principle now found at FAR § 31.201-2 listed factors for defining cost allowability as including "(a) reasonableness, (b) allocability, (c) application of those generally accep ted accounting principles and practices appropriate to the particular circumstances, and (d) any limitations or exclus

32 The Federal Circuit was also seemingly unaware of, or unconcerned by, decades of ASBCA decisions holding that such costs were allowable.104 The Tecom court effectively overruled all of these decisions without comment.

The Circuit also improperly extended its questionable decision in Boeing105 to hold that settlement costs are unallowable "unless the contractor could prove that the private suit had very little likelihood of success on the merits."106 The Boeing decision relied upon an ions set forth in this sSubpart 1-15.2, or otherwise includ ed in the contract as to types or amounts of cost items." ASPR § 15-201.2 (196059) (emphasis added). While the wordi ng of subclause (d) was changed to "terms of the contract" in 1984 when the FAR was first published, regulatory histor y clearly demonstrates that "The fundamental purposes of th e FAR are to reduce proliferation of regulations; to elimin ate conflicts and redundancies; and to provide an acquisiti on regulation that is simple, clear, and understandable. T he intent is not to create new policy." 46 Fed. Reg. 40221 (Aug. 7, 1981) (emphasis added). 104 For example, in Hirsch Tyler Co., the ASBCA stated: [W]e conclude that an ordinarily prudent person i n the conduct of a competitive business is often obliged to defend lawsuits brought by third-parti es, some of which are frivolous and others of whi ch have merit. In either event, the restraints o r requirements imposed by generally-accepted soun d business practices dictate that, except under t he most extraordinary circumstances, a prudent bu sinessman would incur legal expenses to defend a litigation and that such expenses are of the type generally recognized as ordinary and necessary fo r the conduct of a competitive business. ASBCA No. 20962, 76-2 BCA ¶ 12,075, at 57,985-86; See also Ravenna Arsenal, Inc., ASBCA No. 17802, 74-2 BCA ¶ 10,937, at 52,067-68; Hayes Int'l Corp., ASBCA No. 18,447, 75-1 BCA ¶ 11,076, at 52,723-25. 105 298 F.3d 1274. (Fed. Cir. 2002). 106 Tecom, 566 F.3d at 1046.

33 interpretation of FAR 31.205-47, a cost provision specifically limited to fraud matters which is inapplicable to third-party actions that do not allege fraud-like behavior.107

In Tecom, the Federal Circuit overturned decades of

ASBCA case law, misconstrued regulatory history, and misapplied Court of Claims and Federal Circuit precedents.

The Circuit bypassed the well-established regulatory process to allow for public comment, discussion, and full consideration of a draft rule's implications before a new cost principle is adopted. Creation of a new cost principle by judicial fiat has not been a helpful step in the development of government contract jurisprudence. It adds to the uncertainty and unpredictability of government

107 As the ASBCA's Tecom decision explained: "The litigation in question did not involve a criminal prosecution; did not require a finding, absent a settlement, of contractor liabi lity based on fraud or similar misconduct or imposition of a monetary penalty where the proceeding did not involve an allegation of fraud or similar misconduct; or did not requi re a final decision by an appropriate official of an execut ive agency to disbar or suspend appellant, or to rescind or void the contract, or to terminate the contract for default by reason of the contractor's violation or failure to compl y with a law or regulation. Accordingly, we hold that FAR 31.205-47 does not present an allowability bar to appellan t's recovery of its legal costs, as part of its reimburseme nt of G&A, in defending the lawsuit filed by its former emp loyee." Tecom, Inc., ASBCA No. 53884, 07-2 BCA ¶ 33674 at 1 66,723, reversed by Geren v. Tecom, Inc., 566 F.3d 1037 (Fe d. Cir. 2009).

34 contracts and will contribute to increased costs of goods and services the Government purchases.

VII. LEGISLATING A NEW BAR ON CONTRACTOR DEFENSES AGAINST G OVERNMENT CLAIMS

In M. Maropakis Carpentry Inc. v. United States, the

Circuit legislated a new and potentially devastating limitation on a contractor’s ability to defend against government contract money claims.108 Specifically, the Court ruled that a contractor could not defend against an assessment of liquidated damages on grounds that it had been excusably delayed because it was entitled to an extension, unless it first brought an independent CDA claim to establish its right to time extensions.109 The facts and holding in Maropakis have been exhaustively examined and require no repetition here.110 The decision lacks any grounding in sound precedent, and violates countless prior decisions from the Supreme Court on down, to the effect that all defenses to government contract money claims are available to the defending contractor,111 and that in the 108 Maropakis Carpentry, Inc. v. United States, 609 F.3d 1323, 1330 (Fed. Cir. 2010).609 F.3d 1323 (Fed. Cir. 2010). 109 Id. 110 See Richard C. Johnson, et. al., Maropakis: The Federal C ircuit Imposes Forfeiture of Defenses to Government Claims When Contractor Fails to Certify Them as Contractor Claims, 94 FCR 112 (July, 27, 2010). 111 See e.g., Z.A.N. Co. v. United States, 6 Cl. Ct. 298, 3045 (1984) (stating that “the assertion of its right to collect liquidated damages by reason of the contractor's tardiness is clearly a claim by the government against the

35 case of liquidated damages specifically, it is part of the

Government’s own case to establish that none of the delay was its fault.112

What moved the panel to reach such a bizarre result cannot truly be known.113 One possible explanation, consistent with the court’s assumed role as guardian of the public fisc, is that the Court finds government damages clauses to be salutary and beneficial to the Government, that time-honored contractor defenses to such assessments should be strictly construed and, indeed, snipped off.

Another possible explanation is that the Court was simply uninformed of the enormity of its error.114 What can be contractor, and a CO's decision in this connection is final; this finality is not [sic] diminished by any absence of certification by the contractor when it seeks solely to defend against the government's assertion of its claim for liquidated damages.”); Sun Eagle Corp. v. United States, 23 Cl. Ct. 465, 482 (1991) (stating that “[a] contractor's challenge to a liquidated damages claim is in the nature of a defense to a counterclaim.”). 112 See e.g., W.G. Morris v. United States, 50 Ct. Cl. 154, 158 (1915) (stating that “[i]If the claimant's delay in performance was caused by the [Government], [it]he could not be charged with liquidated damages during the period of the delay so occasioned.”); District of Columbia v. Camden Iron Works, 181 U.S. 453, 461-62 (1901) (stating the “general principle of law that ‘If a party to a contract who is entitled to the benefit of a condition, upon the performance of which his responsibility is to arise, dispense with, or by any act of his own prevent, the performance, the opposite party is excused from proving a strict compliance with the condition.”). 113 The decision was two to one. Maropakis, 609 F.3d at 1332. 114 Id. at 1332-35. 114 Given Judge Newman’s cogent dissent, this suggestion stre tches credulity. See Maropakis, 609 F.3d at 1332-35.

36 stated with certainty is that Maropakis will spawn new mischief among the Boards of Contract Appeals and the Court of Federal Claims, as it has already begun to do in a manner reminiscent of the Dawco “in dispute” requirement.115

Only four cases applying Maropakis in any substantive way have been decided to date. The first is Sikorsky

Aircraft Corp. v. United States,116 and it amply illustrates the lamentable fact that Maropakis transports us back to the era of the tyranny of the writs in the English common law courts from the 13thth century forwards.117 Sikorsky filed a pre- Maropakis action in the Court of Federal

Claims in response to a contracting officer final decision alleging a CAS violation.118 It had three defenses – laches, accord and satisfaction and statute of limitations.119

During the pendency of its COFC action, the Federal Circuit decided Maropakis.120 In an abundance of caution, Sikorsky filed a non-monetary claim with the CO asserting its three defenses.121 The CO declined to decide the claim and

Sikorsky appealed the deemed denial to the COFC, which 115 Dawco, Constr., Inc. v. United States, 930 F.2d 872, 878 (Fed. Cir. 1991).Dawco 116 102 Fed. Cl. 38 (2011). 117 Arthur R. Hogue, “Origins of the Common Law,” Indiana University Press 1966, reprinted by the Liberty Fund 1986, pp. 12-15, 209-211. 118 SikorskySee Sikorsky, 102 Fed. Cl. at 40. 119 Id. at 44.Sikorsky 120 Id.Sikorsky 121 Id.Sikorsky

37 consolidated it with the earlier action.122 The Government then moved to dismiss the second appeal on the grounds that

Maropakis did not apply, because the defenses were “aspects of a claim already in litigation before” the court.123

The only actual decision the court reached was that if the defenses were separate “claims” under Maropakis, they were properly before the court via the deemed denial appeal, and if the defenses were an integral part of the first action and not subject to Maropakis, they were also properly before the court.124 However, in footnote 14 to the decision the court highlighted the pernicious nature of

Maropakis.125 It noted that the only excluded defenses under

Maropakis are those that are in the nature of

“counterclaims” or that seek “contract modification.”126 The problem in Maropakis was that the plaintiff there “sought an extension of time.”127 It thus follows that if Maropakis had pleaded “excusable delay,” – a traditional common law defense and one recognized by a standard government contract clause,e -- it would have sailed safely through

122 Id.Sikorsky 123 Id. at 47Sikorsky 124 Id. at 47-48.Sikorsky 125 Id. at 48.Sikorsky 126 Id.Sikorsky 127 This is a slight mis-reading of Maropakis. In that case, the contractor sought only remission of liquidated damages, not an extension of time. See Sikorsky, 102 Fed. Cl. At 48, fn.14.id.

38 the net cast by the Circuit.128 But, because Maropakis used the words “extension of time” in its pleading instead of

“excusable delay,” it was caught by the net and brought to ruin.129 This is the gift of Maropakis to the government contracting community.

A second decision was Structural Concepts, Inc. v.

United States, in which the plaintiff first filed a claim with the Air Force alleging compensation for delay and other government actions.130 The CO denied the claim and assessed liquidated damages.131 The contractor then filed in the COFC both for remission of liquidated damages and for delay and other damages.132 The parties filed cross motions for summary judgment on the liquidated damages issue, which the court stated it could not decide without a hearing since the parties contested both the contract due date and the date of substantial completion.133 In discussing this issue the court noted that “[l]iquidated damages may not be assessed for delays . . . that are attributable to the government or that are otherwise excusable.”134 In so 128 See FAR 52.249-8 (c) (APR 1984). 129 Maropakis Carpentry, Inc. v. United States, 609 F.3d 1323, 1326 (Fed. Cir. 2010).Maropakis 130 No. 04-41141C, 2012 WL 184034 (Fed. Cl. January 24, 2012). Structural Concepts, Inc. v. Unites States, 103 Fed. Cl. 84, 85 (2012). 131 Id.. 132 Id.d. 133 Id. at 85, 87.. 134 Id. at 86-87.

39 stating, the court seemed to underscore the difference between a defense of “entitlement to time extensions” vs. a defense of “excusable delay.”135 The court suggested that the “excusable delay” defense could be tried independently of any delay claim, as part of the defense against liquidated damages.136 In this case, however, because the contractor had properly filed delay claims with the CO, the issue was not squarely presented.137

The most salient fact about the next case, Simulation

Technology, LLC v. United States, is that it was not a liquidated damages case.138 In that case, the contractor was late in delivering the product.139 After performance, it filed a claim for the balance of the contract price, alleging that the Government had waived any right to consideration for delay and that it had similarly waived any issue with respect to delay by accepting delivery.140

The CO denied the claim, thus refusing to pay the contract balance, and in addition assessed a contract reduction of

$23,000.141 The contractor brought suit in the COFC alleging

135 Id. at 89. 136 Id. 137 Id. 138 Simulation Tech., LLC v. United States, 103 Fed. Cl. 105, 107 (2012).No. 11-408C, 2012 WL 234417 (Fed. Cl. January 25, 2012). 139 Id. 140 Id. 141 Id.

40 excusable delay as a defense to the assessment, and the

Government moved to dismiss under Maropakis.142 The court found that the excusable delay “claim” had not been presented to the CO and that the claim that the contractor did present was sufficiently dissimilar to the excusable delay “claim” that it failed to provide notice under the

Scott Timber line of decisions.143 Accordingly, the court determined that it lacked jurisdiction over the contractor’s defense and dismissed it on that basis.144 It is hard to accept that Simulation Technology will sound the death knell for the “excusable delay” defense in liquidated damages cases, but the Government will no doubt cite it for that purpose. We cite it here for a more important purpose, – to document the creeping growth of the insidious Maropakis doctrine.145

Finally, we have to applaud the common sense of the

Civilian Board of Contract Appeals in National Fruit

Product Co., Inc. v. Dept. Of Agriculture, which dealt with 142 See iId. 143 SimulationId. at *5-6.See id. at 110. 144 Id. 145 The plaintiff in Simulation Technology could now presumab ly return to the CO, file an excusable delay claim, obtain a denial, and re-file in the COFC. The Government would pr esumably argue that the one year CDA deadline for filing in the COFC had expired. However, because the dismissal was f or a defective filing and for lack of jurisdiction, the COF C might hold that the corrected filing relates back to the date of first filing. Id. at *5-6. At least, this is an o pen issue.

41 Maropakis essentially by re-interpreting (or misinterpreting) it in a more benign light.146 In National

Fruit, the Government issued a final decision assessing liquidated damages for failure to perform on time.147 The contractor appealed to the Board alleging excusable delay.148

The Government moved to dismiss for lack of jurisdiction because the excusable delay defense had not been presented to the contracting officer as a claim.149 The Board, sub silentio, distinguished Maropakis stating that “NFPC is disputing the USDA’s imposition of liquidated damages, not seeking a compensable change or a contract modification.

(emphasis added).150

At another point, the Board stated:

The USDA argues that the Board lacks jurisdiction because NFPC never filed a certified claim . . . . The Board concludes that it has jurisdiction over this appeal because NFPC appeals a government claim and NFPC did not have to file or certify any claim in defending against the government’s claim.151

146 CBCA No. 2445, sSlip oOp. (Mar.ch 26, 2012). 147 Id. slip op. at 7.. 148 Id. slip op. at 1. 149 Id. slip op. at 2. 150 Id. slip op. at 8Slip Op., p. 8. In Maropakis the contra ctor was seeking remission of liquidated damages, nothing m ore, no affirmative claim for anything. It fatal misstep wa s to use the words “extension of time” vice “excusable dela y.” 151 Id. slip op. at 2Slip Op., p. 2.

42 National Fruit at the very least keeps the excusable delay defense alive for the present.152

VIII. CONCLUSION

The CAFC decisions reviewed in this article make it apparent, to say the least, that the Circuit would benefit by the addition of judges with grounding in government contracts. Government contracts law consists of a body of detailed legislation, extensive and complex regulations,153 an impressive body of regulatory history, and a formidable compilation of cases decided in the various agency boards

(now consolidated as the Civilian Board of Contract Appeals and the Armed Services Board of Contract Appeals), the

Court of Claims and the Court of Federal Claims. It is impossible for a judge unversed in the area to make his or her way safely through the legal thickets, as some of the decisions discussed above attest.154 Government contracts is not a playground for even the most gifted of dilettantes.

152 Id. slip op. at 8.National Fruit 153 See FAR 1.000-1.001, 201.104 (2011). The January 2012 CC H edition of the FAR consists of 2,045 pages. The Defense Acquisition Regulation Supplement (DFARS) adds an additiona l 1408 pages. Other agencies have their own implementing r egulations. 154 For example, in Tecom, supra note 77 at 1046, the court m isunderstood and misapplied the regulatory history. In Her cules, supra, the court failed to understand the working of CAS 406 as well as the purpose of FAR 31.205-41(d).

43 It is, of course correct that to a major extent, the members of the Circuit’s bar are responsible for illuminating the legal complexities for the judges, and they could doubtless do a better job at that. The court for its part could study the briefs with somewhat greater concentration and should enlarge the time for oral argument in complex cases. Even where counsel are ready and eager to assist the court in understanding frequently complicated accounting, legal or technical issues, the allotted fifteen minutes for each side’s oral arguments is manifestly inadequate.

Congress can surely play a role in setting right the court’s more serious errors, such as the needless barring of defenses against government claims.155 And – if nothing else suffices – Congress could re-think the jurisdictional consolidations of 1982, which, it must now be acknowledged, have led to the anomalies discussed in this article, as well as to many others.

155 Professor Schooner has proposed a modest legislative chan ge to overturn Maropakis. See Steven L. Schooner & Pamela J. Kovacs, Affirmatively Inefficient Jurisprudence?: Confusing Contractor’s Rights to Raise Affirmative Defenses with Sovereign Immunity, 21 FED. CIR. B.J. 685, 723 (2012). S ee “Affirmatively Inefficient Jurisprudence?: Confusing Con tractors’ Rights to Raise Affirmative Defenses with Soverei gn Immunity,” [to be published].