• Claims Against “Integrated” Contractors Were Federally Preempted
• Government Owed Compounded Interest for CAS Violation
• Government Misinterpreted Contract's Compensation Scheme
• Government Misclassified Procurement on FedBizOpps

• GM GDLS Defense Group LLC, Joint Venture - $647 Million
• Oshkosh Corp. - $408 Million
• General Dynamics - $320 Million
• SOS International Ltd. - $136 Million
• aXseum Solutions, LLC - $119 Million

President Nominates New OFPP Head

President Barack Obama has announced his intent to nominate Daniel I. Gordon as Administrator for Federal Procurement Policy, Office of Management and Budget. The Office of Federal Procurement Policy plays a central role in shaping the policies and practices federal agencies use to acquire the goods and services they need to carry out their responsibilities.

Mr. Gordon has served as a career contracting professional at the Government Accountability Office since 1992. He has served as GAO Acting General Counsel since May, 2009. Before that, he worked as Deputy General Counsel, starting in 2006, and he led the Procurement Law Division from 2000 until 2006. He also has served since 2002 as an adjunct faculty member for the George Washington University Law School. Before joining government service, Mr. Gordon worked in private practice and also clerked for the United States Court of Appeals for the District of Columbia. Mr. Gordon received his J.D., cum laude, in 1986 from Harvard Law School. He earned a Master’s Degree in politics from Oxford University in 1974.

Claims Against “Integrated” Contractors Were Federally Preempted

State law tort claims against two defense contractors were federally preempted and consequently summarily dismissed by the Court of Appeals for the District of Columbia Circuit because the claims involved contractor activities that were integrated with combat functions under military command authority. The plaintiffs were Iraqi nationals who brought two suits against contractors that provided interrogation and interpretation services in support of military operations in Iraq. According to the plaintiffs, employees of the two contractors abused the plaintiffs during their detention and interrogation by the military at the Abu Ghraib prison.

The district court granted summary judgment in favor of one of the contractors on grounds the plaintiffs’ state tort claims were federally preempted. The court reasoned the contractor’s employees were fully integrated into military units, finding the employees were “under the direct command and exclusive operational control of the military chain of command.” The district court, however, denied summary judgment on those grounds for the other contractor, finding that contractor’s employees were subject to a “dual chain of command” because the contractor retained the power to give “advice and feedback” to its employees and interrogators were instructed to report abuses up both the company and military chains of command.

The appellate court agreed with the district court’s focus on the chain of command and degree of integration, but disagreed with the lower court’s legal test for “exclusive” operational control. In the court’s view, the contractor’s retention of authority to give advice and feedback to its employees did not detract meaningfully from the military’s operational control or the degree of integration of the contractor’s employees with the military mission.

The court then concluded the plaintiffs’ tort claims were preempted under the rationale in Boyle v. United Technologies Corp. (34 CCF ¶75,489), in which the Supreme Court looked to the exceptions to the sovereign immunity waiver in the Federal Tort Claims Act to determine whether a significant conflict existed between state and federal law. In the instant cases, the relevant exception to the FTCA’s waiver of sovereign immunity was the provision excepting “any claim arising out of the combatant activities of the military or armed forces ... during time of war” (28 USC 2680(j)). To determine whether a significant conflict existed between state tort law and federal interests, the court examined the reasons for the combat activities exception and concluded Congress exempted combatant activities because these activities “by their very nature should be free from the hindrance of a possible damage suit.”

According to the court, the policies underlying the combatant activities exception are equally implicated whether the alleged tortfeasor is a soldier or a contractor engaging in combatant activities under the military’s control. The court then concluded that the “exclusive operational control test” applied by the district court did not protect the full measure of the federal interest embodied in the combatant activities exception. The court formulated its own test to secure the implicated federal interests: “[d]uring wartime, where a private service contractor is integrated into combatant activities over which the military retains command authority, a tort claim arising out of the contractor’s engagement in such activities shall be preempted.”

The court concluded the Constitution's specific commitment of war powers to the federal government and the resulting absence of a state role in warfare were “cornerstones” of preemption that secured the “foundation” of its holding. The court, therefore, reversed the district court’s denial of summary judgment on preemption grounds. (Saleh, et al. v. Titan Corp., et al., CA-D of C, 53 CCF ¶79,169)

Government Owed Compounded Interest for CAS Violation

The denial of a government claim for excess pension contributions following a contractor's closing of business segments was reversed by the Court of Appeals for the Federal Circuit because the contractor violated Cost Accounting Standards 413.50(c)(12) by not making timely and proper segment closing adjustments, and the government's costs increased as a result. The government appealed from a reconsideration decision by the Armed Services Board of Contract Appeals (08-1 BCA ¶33,859), which held on summary judgment that the contractor’s potential violation of CAS 413 had not caused the government to pay increased costs and therefore did not require the contractor to pay interest on money it owed the government.

The ASBCA had previously held the contractor owed the government interest, compounded daily, in accordance with the CAS statute (41 USC 422(h)) and CAS clause (FAR 52.230-2) for the contractor's failure to make timely current period adjustments of pension costs as of the date of segment closing, as required by CAS 413.50 (c)(12) (07-2 BCA ¶33,655). The court disagreed with the ASBCA’s reconsideration decision. Undisputed facts in the record showed the contractor did not make the required segment closing adjustments for the two segments until several years after the segments closed. It was clear, therefore, that the contractor violated CAS 413 and the board was incorrect to conclude the record required development to decide the CAS-compliance issue.

The board also incorrectly concluded the contractor’s CAS violation did not cause the government to pay increased costs. While it was true the government’s overpayment of pension costs to the contractor occurred before the segment closings and therefore were not the result of a CAS violation, the government had open contracts with the contractor during the period in which the segments closed, and it made payments on those contracts that would have been lower had the contractor complied with CAS 413 by crediting those contracts.

The court reasoned that while CAS 413 looks to past contracts in measuring the amount of the required segment closing adjustment, the adjustment itself is implemented through contracts open during the period in which the segment is closed (see Allegheny Teledyne Inc., et al. v. U.S., 47 CCF ¶78,020). Thus, CAS 413.50 (c)(12) contemplates adjustment to all contracts that are open during the period of the segment closing. It was on these open contracts that the government paid increased costs.

The government’s adjustment for the contractor’s failure to comply with CAS 413 included compound interest because relevant statutes and case law, and the CAS contract clause provided for interest to be calculated in this manner. The contractor argued it owed only simple interest. However, 41 USC 422(h)(4) sets out the appropriate interest rate calculation for CAS violations by referencing 26 USC 6621, which requires interest owed the government to be compounded daily. The court’s precedent also required compounding interest from the date of the contractor’s violation.

The contractor further argued the Truth in Negotiations Act (PL 99-500) also refers to §6621, but the statute is implemented in the Federal Acquisition Regulation at FAR 52.215-10 as a simple interest requirement. The critical distinction, however, is that FAR 52.215-10(d) expressly refers to simple interest while the CAS clause at FAR 52.230-2(a)(5) makes no statement as to the type of interest. FAR 52.230-2(a)(5), which serves as the basis for the interest award, simply implements §422(h)(4), which in turn points to §6621. Also, FAR 52.230-2(a)(5) essentially mimics the statutory language, which indicates it was intended to create the same interest liability contemplated by the statute—interest with daily compounding. (Gates v. Raytheon, CA-FC, 53 CCF ¶79,168)

Government Misinterpreted Contract's Compensation Scheme

A contractor was entitled to additional payment under a moving services contract, according to the Armed Services Board of Contract Appeals, because the government misinterpreted the contract's compensation provisions and underpaid the contractor. In the appeal of the deemed denial of the contractor's claim, the parties disputed the compensation formula for overseas packing jobs under 500 pounds.

The contractor contended payment was governed by the Schedule of Compensation clause, which provided all charges would be payable on the basis of a 500-pound minimum weight. The government maintained the SOC clause merely instructed bidders how to enter prices for the work and invoicing and payment were governed by billing procedures in the Performance Work Statement that discussed pricing for overseas work by actual weight.

On cross-motions for partial summary judgment, the board found the government's interpretation would require the contractor to price the contract on a different basis than it would be paid, which was a “weird and whimsical result.” Under the SOC clause, the contractor would be “compensated” in accordance with the prices it listed in two schedules, and prices were to be stated in amounts per hundred pounds on gross or net weights, “[u]nless otherwise provided” in the solicitation. The solicitation “otherwise provided” for pricing of other services by the cubic foot, by the piece, by the shipment, and “per loaded mile.”

Therefore, the phrase “unless otherwise provided” was properly limited to the phrase in which it appeared, which did not refer to the PWS. Although there was an inconsistency between the SOC clause and PWS in the treatment of overseas work, the Order of precedence clause resolved the inconsistency against the PWS, which was a contract attachment. Since there was no unresolved contract ambiguity, there was no need to consider the government's extrinsic evidence of contract interpretation. (Gosselin World Wide Moving NV, ASBCA, ¶92,676)