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Small Business Tips for Surviving the Federal Shutdown from Set-Aside Alert

Bethesda, MD – December 30, 2018

     Hold on to your seat!

     If you, like us, hold a federal contract, we are in a difficult time! It looks like it will at least be Thursday before a resolution, and maybe longer. What's that mean to you?

  • A stop-work order from your CO?
  • Inability to reach your CO?
  • Outstanding invoices not being paid?
  • Barred from accessing your customer's facility?
  • Loss of billable hours/expenses?
  • Cancelled deliveries of products?
  • Necessity for you to furlough key employees, even those not doing federal contract work?

     The last significant federal shutdown, in October 2013, lasted 13 days. Are you prepared to survive that kind of loss of revenue?

     Not all agencies are affected. Contracts with DoD agencies, HHS and some of the other big spenders should not be affected.

     Contracts with DHS, Justice, Transportation, State and Commerce are somewhat affected.

     But USDA, Treasury, Interior, EPA, HUD and others, including many smaller regulatory agencies, are at serious risk. Close to 400,000 federal civilian workers could be locked out of their worksites - almost 25% of civilian employees.

     Right after the 2013 shutdown, we published the following advice to contractors:

      "A major looming issue for contractors is whether they are owed money by the government in the form of equitable adjustments. The government may authorize such adjustments to contracts to compensate for contractor expenses that occurred due to the actions of the government.

      "Contractors have 30 days from the resumption of work to request an equitable adjustment.

      "Robert Burton, partner with Venable LLP law firm [ed. note: now with Crowell & Moring], said contractors first must determine if the costs they incurred, as a result of a Stop-Work Order, are eligible for equitable adjustments.

      “The costs of stop work are generally reimbursable under firm-fixed price and cost-type contracts, Burton told Set-Aside Alert.

      "On the other hand, the costs of stop-work may not be reimbursable under an indefinite delivery, indefinite quantity contract where the government has already purchased the minimum quantity required, or under a requirements contract, where the failure of requirements to materialize is a risk the contractor accepted, he said.

      "Even if the costs are presumed to be reimbursable, another key issue is whether the contractor will be able to prove damages, Burton added.

      “'Contractors that received Stop-Work Orders should definitely file for equitable adjustments,' Burton told Set-Aside Alert. 'Contractors that did not receive Stop-Work Orders also should file for equitable adjustments if they incurred costs because of the shutdown. But, these costs may not be reimbursable depending on the terms of the individual contracts at issue and the ability of the contractors to show a direct relationship between the costs incurred and the Stop-Work Orders.'

      The late Tom Petruska, president of Contracts Unlimited Inc., "also recommended that if the contractor received a Stop-Work Order, he or she should file a Request for Equitable Adjustment (REA) for verified costs incurred during the shutdown, including a reasonable profit.

      “'I would assume that the government will be deluged with REAs to recover the costs incurred, particularly for personnel on stand-by awaiting the resumption of work,' Petruska told Set-Aside Alert.

      "Even if the contractor did not receive a Stop-Work Order, Petruska advises filing an REA.

      “'As a general rule, if a contractor did not receive a Stop-Work·Order but nonetheless incurred costs during the shutdown, I recommend that they also file an REA to recover their costs under the constructive-suspension-of work theory, where the government but not the contractor is responsible for the work stoppage... These contractors probably have a reasonable chance of obtaining relief as an adjustment to their contract,' Petruska said. But, he cautioned, voluntary work stoppage would not be compensated."

      Mary Pivec and Anthony Anikeeff, attorneys of the Williams Mullen law firm, offered additional guidance on equitable adjustments in an Oct. 16, 2013 story.

      “'Under a Stop-Work Order, a contractor is required to ‘take all reasonable steps to minimize the incurrence of costs allocable to the work covered by the order during the period of work stoppage.'' Pivec and Anikeeff wrote.

      “'Upon the end of a Stop-Work Order, if contract work resumes, the contracting officer is required to make an equitable adjustment in the delivery schedule or contract price, or both, if the Stop-Work Order results in an increase in the time required for, or in the contractor’s cost properly allocable to, the performance of any part of this contract,' the attorneys added.

      "The total amount to be recovered, if any, will vary from contract-to-contract, and will depend on individual circumstances and the type of contract involved.

      “'Within reason, one might prepare to claim a number of expenses that could not be avoided if they are allowable expenses and allocable to your contract, although you must be prepared that some of which ultimately may be denied by the government. If denied, that sets up a potential claim situation,' Pivec and Anikeeff added.

      "Keeping good records of expenses is critical; insufficient records are one of the major reasons that claims of this nature are denied. [emphasis added]

      "When the Stop-Work Order ends, contractors are expected to make a request for adjustment within 30 days after resumption of work." [emphasis added]

     Further guidance comes from a column in our October 25, 2013, issue regarding filing claims:

     Bryan King, associate, General Counsel PC, provided "10 Things to Know About Filing a Claim Against the Government". Here are his points:

      "In an ideal world, government contractors will perform exactly as expected under a government contract, and receive prompt, full payment from the government. Unfortunately, things do not always go that smoothly, and contractors may find themselves in a dispute with the government over the amount of money owed under a contract. In these cases, it is important for contractors to understand the claims process. Claims against the government are covered by the Contracts Disputes Act (CDA), which has specific procedures that must be followed for a claim to be legitimate. 41 U.S.C. § 601 et seq.

      "Below are 10 key things to know about the process of filing a claim against the government.

     "1. The Beginning, It’s a Good Place to Start
      "Every claim has to start somewhere, and that is typically with the submission of some request for payment from the government. This can be something as simple as an invoice, or something more substantial such as a Request for Equitable Adjustment. If the government agrees to pay the full amount of the request, then all is well and a claim will likely not be necessary. However, if the government declines to make the full payment, or delays the payment, the contractor can seek redress by filing a claim.

     "2. You Haven’t Been Paid—Now What?
      "The requirements for what must be submitted, and to whom, in order to constitute a 'claim' under the CDA has been refined through the years by federal statutes, regulations, and case law. Failure to submit a claim according to the very specific requirements can have significant consequences, costing the claimant both time and money. The claimant loses time because it will need to begin the process over, which may be an issue if the statute of limitations on the claim has lapsed. The claimant may also lose money, as interest on the claimed amount does not begin to run until a proper claim is filed. A proper CDA claim has to be: a.) A demand for payment; b.) That is in writing; c.) Submitted to the Contracting Officer; d.) Seeking as a matter of right; e.) The payment of money in a sum certain; f.) And requesting a final decision. In addition to the procedural formalities listed above, a claim to the government must also include sufficient detail to allow the contracting officer to know what is being claimed and why.

     "3. Certification of Claims over $100,000
      "The CDA also requires that claimants certify any claim demanding payment in excess of $100,000. The claimant must certify that the claim is submitted in good faith and there is sufficient data in support. Failure to provide a proper certification can lead to the dismissal of a claim.

     "4. How Much Time Do You Have To File a Claim?
      "Contractors have six years from when they knew, or should have known, of the government’s liability.

     "5. Negotiated Settlements are Possible
      "Contracting Officers are generally encouraged to avoid litigating disputes with contractors. The claims process can be time-consuming and costly, for both the claimant and the government. Thus, when possible, it may be beneficial for the claimant to attempt to negotiate a settlement with the contracting officer. This can be done at virtually any point in the claims process, even before the claim is filed at all.

     "6. The Decision
      "Contracting officers are required by statute to issue a final decision on every CDA claim he or she receives. For claims of $100,000 or less, the Contracting Officer’s Final Decision (COFD) must be issued within 60 days of the contracting officer’s receipt of the claim. For claims over $100,000, the contracting officer must, within 60 days, either issue a COFD or inform the claimant of the time frame in which the COFD will be issued. The COFD must be issued within a reasonable amount of time.

     "7. The Indecision
      "While there are statutory deadlines set for the issuance of a COFD, it is not uncommon for deadlines to pass with no word from the contracting officer. Claimants do have the option to file a request with either the United States Court of Federal Claims or one of the boards of contract appeals, to direct the contracting officer to issue a COFD within a specified period of time. However, when the COFD is not issued by the required deadline, the claim is 'deemed denied,' and can be appealed by the claimant.

     "8. Denial Does Not Mean Final
      "If the contracting officer denies the claim, in full or in part, or i the claim was 'deemed denied,' the claimant can appeal the COFD in either the Court of Federal Claims or one of the boards of contract appeals (Typically, the Civilian Board for civilian agencies or the Armed Services Board for defense agencies). The choice of forum is an important decision, as once the appeal is filed in one forum, it generally cannot be filed later in a different forum. Both forums follow general litigation procedures (pleadings, discovery, hearing, etc.), however the boards have accelerated and smalls claims procedures for low valued claims.

     "9. How Long Do You Have To File an Appeal?
      "To appeal the COFD to one of the boards of contract appeals, the claimant must file within 90 days of receiving the COFD. To file an appeal with the Court of Federal Claims, the claimant must file within 1 year of receipt of the COFD.

     "10. Appealing the Appeal Decision
      "If the appeal is denied, the contractor still has appeal rights. The United States Federal Circuit has jurisdiction to hear appeals of decisions by the boards of contract appeals that are filed within 120 days of the board’s decision. The Federal Circuit can also hear an appeal of a Court of Federal Claims decision, as long as the appeal is filed within 60 days of the Court’s decision."

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