[00:00:02] Speaker 04: Good morning. [00:00:02] Speaker 04: We have four argued cases this morning. [00:00:04] Speaker 04: The first of these is numbers 14-1813, the R. R. Gregory Corporation versus the Army, Mr. Cohen. [00:00:25] Speaker 02: Good morning. [00:00:27] Speaker 02: May it please the court. [00:00:31] Speaker 02: The board committed fundamental legal error below in these proceedings by holding that the government had a common law right of set off and that therefore it properly exercised that right of set off in withholding... Why wouldn't it have a common law right of set off? [00:00:51] Speaker 02: Well, in the absence of the Contract Disputes Act and the Raytheon decisions, [00:00:57] Speaker 02: as well as Sikorsky, it would have a common law right of set-off. [00:01:01] Speaker 02: In fact, in Johnson, which the board relied on, the common law right of set-off prevailed over it. [00:01:09] Speaker 02: In that case, there was a conflict between the common law right of set-off and the retainage clause. [00:01:15] Speaker 02: And this court held in 2003 that the retainage clause... Yeah, but why wouldn't there be a common law right of set-off? [00:01:23] Speaker 04: I mean, there's Supreme Court cases going back to the earliest days [00:01:26] Speaker 04: of the Republic, holding that the government has a common law right of set off. [00:01:30] Speaker 04: I don't see that the CDA eliminated the government's common law right of set off. [00:01:36] Speaker 04: Your argument has to be that the government didn't exercise its common law right of set off until some date that was within the statute of limitations period. [00:01:47] Speaker 02: Well, Your Honor, we do respect the right beyond decision. [00:01:51] Speaker 04: But it's a court of federal clients decision. [00:01:54] Speaker 02: And this court affirmed that decision on April 4, 2014, holding that it is a bedrock principle of government contract law, that all claims, whether asserted by a contractor or by the government, must be the subject of a contracting officer's final decision. [00:02:12] Speaker 02: Set off is accomplished, as it was in the Johnson case, by writing a letter. [00:02:17] Speaker 02: All that's required there, [00:02:19] Speaker 02: None of the requirements that apply to a contracting officer's final decision, which are the protections that that act is supposed to afford, apply to a set-off. [00:02:28] Speaker 04: Do you lose if we hold that there's a common law right of set-off? [00:02:34] Speaker 04: The common law right of set-off... Please don't talk in the courtroom. [00:02:40] Speaker 02: I'm sorry. [00:02:45] Speaker 02: That would be a major issue, but I think that the [00:02:50] Speaker 02: the Court of Federal Claims decision, as affirmed and raised beyond by this court, dictate that the proposition that the common law right is set off, that the government has a common law right to set off. [00:03:04] Speaker 04: But what's the answer to the question? [00:03:05] Speaker 04: If there is a common law right to set off, do you lose? [00:03:09] Speaker 02: I think that's quite probably so, Your Honor. [00:03:11] Speaker 05: But I thought your argument was that the Contract Disputes Act, which was enacted after this common law right, [00:03:19] Speaker 05: could potentially abridge that common law right of set-off. [00:03:25] Speaker 05: And if this is a government claim, as claim is understood under Contracts Scutes Act, therefore the government, just like the contractor, would have to go through all the statutory mechanisms to perfect that claim, which would thereby overcome the otherwise default common law set-off right. [00:03:48] Speaker 02: Absolutely correct, Your Honor, and I think the case law... I'm trying to figure out whether you were too quick to concede... Well, if the... I don't believe that under these circumstances where the Contract Disputes Act clearly applies, it's a government contract, I do not believe that the government has a common law right to set off and that, as you've just explained it, Your Honor, those protections and those requirements in the Contract Disputes Act restrict, as the court said in Raytheon, or abrogate, [00:04:18] Speaker 02: the common law right of set off and the basic law. [00:04:21] Speaker 04: But what in the history of the CDA indicates that the common law right of set off was being abrogated? [00:04:29] Speaker 04: Was it abrogated by the Tucker Act also so that if the contractor elected to go to the court of federal claims that there'd be a right of set off but not if it was pursuant to the CDA? [00:04:41] Speaker 02: I think it's the way the case law, I don't know the specific legislative history. [00:04:46] Speaker 04: But are you saying that the right is set off depends on whether the contractor goes to the court of federal claims or to the boards of contract appeal? [00:04:54] Speaker 02: No, your honor. [00:04:55] Speaker 02: I think in either for all the contract disputes act restricts or aggregates or renders ineffectual. [00:05:03] Speaker 02: the common law right of set off. [00:05:05] Speaker 04: Well, what indication is there in the governing statutes that that was the intent? [00:05:15] Speaker 02: Because there are explicit provisions that have requirements that are far above and completely different than what's required for a set off, which, as I said before, is virtually nothing. [00:05:26] Speaker 02: There are the protections of a contracting officer's final decision, which would be in conflict [00:05:31] Speaker 02: was set off and includes the right to know what the areas of agreement and disagreement are, what the rationale of the contracting officer is, and most importantly, providing appeal rights. [00:05:43] Speaker 02: That's a very important part of the requirements of the CDA. [00:05:46] Speaker 01: All of these requirements... Well, what do we make out of the contract, the statute, which says, actually expressly allows for [00:05:58] Speaker 01: Failure by a contracting officer to issue a decision on a claim within the required time period is deemed to be a decision by the contracting officer denying the claim. [00:06:10] Speaker 01: So, obviously, Congress contemplated that there would be times when a contracting officer didn't actually formally issue a final decision. [00:06:21] Speaker 01: And there's a time period here for any claim more than $100,000, which this is, [00:06:26] Speaker 01: A contracting officer shall within 60 days issue a decision. [00:06:32] Speaker 01: And so right under that, in the same statute, it then says failure to issue the decision within the required time period is a deemed decision denying. [00:06:42] Speaker 01: Well, it seems that Congress has contemplated a decision denying being deemed. [00:06:48] Speaker 01: A deemed decision doesn't provide notice of appeal rights, right? [00:06:51] Speaker 01: And how could it? [00:06:52] Speaker 01: It's a deemed denial. [00:06:53] Speaker 01: There isn't actually a piece of paper. [00:06:55] Speaker 01: And yet Congress expressly said this deemed denial would start the clock authorizing an appeal or action on the claim as otherwise provided in this chapter. [00:07:05] Speaker 01: What do we make of that? [00:07:06] Speaker 01: Congress obviously contemplated a set of circumstances in which there would not be a final decision with all of that detailed indicia that is present in FAR number 33. [00:07:17] Speaker 02: Two things, Your Honor. [00:07:20] Speaker 02: Number one, in a deemed denial situation, [00:07:24] Speaker 02: While it authorizes an appeal, the case law is clear, Pathman and Decker. [00:07:29] Speaker 02: It does not trigger the start of the appeal period. [00:07:33] Speaker 02: And secondly, the deemed denial is really not applicable here, because that's only with regard to the assertion of a contractor claim. [00:07:42] Speaker 02: That deemed denial statute and those arguments [00:07:47] Speaker 02: do not apply here with respect where the government claims. [00:07:51] Speaker 01: There's nothing that says that. [00:07:52] Speaker 01: The claims are for either government claims or contractor claims. [00:07:55] Speaker 01: In all of these provisions, I don't see anything that limits it to contractor claims. [00:08:02] Speaker 01: Why are you saying the statute is limited to contractor claims? [00:08:07] Speaker 02: It is my understanding, Your Honor. [00:08:09] Speaker 02: I would have to find something to be specific. [00:08:12] Speaker 02: that, and I've had a number of these cases, it's when a contractor submits a claim, let's say a certified claim over $100,000, let's say under $100,000 like you were saying, and the decision is not issued, the contracting officer's decision is not issued within 60 days. [00:08:31] Speaker 02: That's a deemed denial. [00:08:32] Speaker 02: But here where we're talking about what a number of cases say is a government claim, the assessment of liquidated damages, [00:08:42] Speaker 02: The deemed denial is not an issue. [00:08:45] Speaker 02: The requirement under 7103A4A and FAR 33.206B and the disputes clause is for the contracting officer to issue a valid contracting officer's decision within six years of the accrual of that claim. [00:09:02] Speaker 02: And with respect, I don't believe the deemed denial portions would apply to that. [00:09:09] Speaker 02: Coming back to my earlier question, what is it? [00:09:11] Speaker 04: in the history of the CDA that indicates that it was designed to eliminate the government's common law right of set off? [00:09:20] Speaker 02: Well, I think I said I was not aware of anything specific in the legislative history. [00:09:25] Speaker 02: The case law as it has developed, especially in the last five to ten years, is consistent with that rule of law that the Contract Disputes Act [00:09:38] Speaker 02: represents, and the law, of course, is that the common law right of set-off... But we have not held that the CDA eliminates the common law right of set-off, correct? [00:09:50] Speaker 02: Your Honor, I would read this Court's opinion in Raytheon, affirming the Court of Federal Claims opinion in Raytheon. [00:09:59] Speaker 02: First of all, it was an affirmance. [00:10:01] Speaker 02: Second of all, it stated that it is a bedrock principle that all claims, whether certified or contrary to our government, [00:10:07] Speaker 02: must be the subject of a contracting officer's decision. [00:10:10] Speaker 02: And I would be that decision as... Our decision does not specifically address the set-off question, right? [00:10:18] Speaker 04: There is language in the Court of Federal Claims' opinion, which may be helpful to you, but not in our opinion, is there? [00:10:25] Speaker 02: There is no expressed, in fact, the word set-off, I do not believe, appears in this Court's decision. [00:10:33] Speaker 02: but it was affirmed and those bedrock principles were stated. [00:10:37] Speaker 01: Is it your view, I just want to understand how you reconcile Johnson and its discussion of set-offs with the CDA. [00:10:46] Speaker 01: So let me see if I can state something and see if you agree with it. [00:10:50] Speaker 01: Would it be your position that Johnson allows the government to retain or reach out and take liquidated damages money [00:11:01] Speaker 01: in advance of a final decision, but it does not. [00:11:05] Speaker 01: To the extent that it's a set off, they're allowing the government to take it as against the final payment, but it doesn't obviate the government's need to otherwise comply with the requirements of the CDA to effectuate that claim properly. [00:11:18] Speaker 01: Would that be right? [00:11:19] Speaker 01: Is that what you would say? [00:11:20] Speaker 01: Because Johnson clearly allows them to take the money from the last payment. [00:11:25] Speaker 01: That much is true. [00:11:26] Speaker 01: But would you say it doesn't obviate the need of the government to have to comply with the rest of the CDA, including the final decision requirement? [00:11:33] Speaker 02: Yes. [00:11:34] Speaker 02: In Johnson, there was no requirement to comply with the CDA. [00:11:38] Speaker 02: The set-off in and of itself, with those minimal requirements of notice and corroboration and writing, were sufficient. [00:11:46] Speaker 02: And that was considered, in that case, to be a sufficient set-off that the government was entitled to do. [00:11:52] Speaker 02: You're exactly right. [00:11:54] Speaker 02: And what happened in this case is a similar withholding was made. [00:11:58] Speaker 02: A payment was not made at $143,000, but what you just said that I would agree with. [00:12:05] Speaker 02: The government, as the government claimed, was obligated to comply with the requirements of the CDA. [00:12:13] Speaker 02: and to issue a proper contracting officer's decision within six years of the approval that she did not do. [00:12:19] Speaker 05: I thought in Johnson there was a statement in the court's opinion that made it clear that there was no contracting officer final decision required in that case. [00:12:29] Speaker 02: In Johnson, that's correct. [00:12:31] Speaker 02: Because Johnson didn't deal with the CDA, he dealt with the retainage clause versus common law registration. [00:12:37] Speaker 05: Is the CDA always in play in every government contract case? [00:12:42] Speaker 02: Well, virtually every single one that I'm aware of. [00:12:48] Speaker 05: Under your theory of the CDA, wasn't Johnson wrongly decided? [00:12:54] Speaker 02: No, because first of all, the contract in Johnson was awarded before these more recent provisions were added to the CDA. [00:13:05] Speaker 02: If the facts of Johnson were today? [00:13:10] Speaker 02: Yes. [00:13:11] Speaker 05: Are you saying that the outcome would have to be the opposite of what we held in Johnson? [00:13:16] Speaker 02: I would say that case arising today should be resolved against the government because the government did a set off and it's my position as reflected in the cases that I mentioned that the CDA restricts or abrogates the common law right to set off. [00:13:34] Speaker 04: What date were these amendments that you're rolling on? [00:13:38] Speaker 02: I believe they applied to contracts awarded after, and I may get the month wrong, I apologize, I want to say September 1995 and the contract in Johnson, whatever the exact date is, the contract in Johnson was a few months prior to that. [00:13:56] Speaker 04: Okay, so how does the amendment, what did the amendments in 1995 say and how do they help you? [00:14:03] Speaker 02: they establish the requirement for the government to, the obligation of the government to issue a final decision within six years of the accrual of a, in this case of a government claim. [00:14:17] Speaker 05: Is there any other fact pattern that you're aware of that's like yours in the sense that you want us to believe that there's essentially a total 12 years statute of limitations operating where first the government had six years [00:14:33] Speaker 05: to seek the payment of the money. [00:14:35] Speaker 05: And then if they don't pursue that claim, then you, the contractor, get six years after that than to go after the money. [00:14:46] Speaker 05: I've never seen that before. [00:14:47] Speaker 05: Is there a page that looks like that? [00:14:54] Speaker 02: I think I said in my brief, I cited cases where the CO decision was issued more than six years after the accrual date. [00:15:03] Speaker 02: that those claims were a novelty or a time mark. [00:15:07] Speaker 02: And I believe this assertion, this argument is a logical extension of those cases. [00:15:15] Speaker 02: The only difference here being that the government, in our view, never issued a contracting officer's final decision and yet has retained these funds without ever complying with even one requirement in the Contract Disputes Act. [00:15:32] Speaker 04: All right, Mr. Crown, we're out of time. [00:15:34] Speaker 04: We'll give you two minutes for rebuttal. [00:15:49] Speaker 04: Thank you. [00:15:49] Speaker 03: Good morning, and may it cease of course. [00:15:54] Speaker 03: The Board of Contract Appeals correctly found that R.R. [00:15:56] Speaker 03: Gregory's claim was untimely. [00:15:58] Speaker 03: The claim accrued no later than August 4, 2004. [00:16:01] Speaker 03: They didn't submit a claim until approximately eight years later, beyond the six-year statute limitations. [00:16:09] Speaker 01: Was the government's claim, it wasn't a claim, was the government's holding of [00:16:16] Speaker 01: The liquidated damages money from the final payment, $129,000? [00:16:20] Speaker 01: I don't know if I'm getting the amount. [00:16:23] Speaker 01: $143,000. [00:16:24] Speaker 01: $143,000. [00:16:24] Speaker 01: Was that a claim by the government? [00:16:27] Speaker 03: No, it was not a government claim. [00:16:28] Speaker 03: The claim is defined in the contract in the federal acquisition regulation as when a party is seeking payment as a matter of right, we weren't seeking any payment. [00:16:36] Speaker 03: We had already withheld the money. [00:16:37] Speaker 03: looking for a change to the contract. [00:16:39] Speaker 03: The contract as written was fine. [00:16:41] Speaker 03: The contract dates that the government was relying on were settled in the modifications. [00:16:45] Speaker 03: Obviously there's no challenge to the terms of liquidation agreement or the liquidating damages part of the agreement. [00:16:51] Speaker 03: And then there was no other relief that the government was looking for. [00:16:53] Speaker 03: The government was actually looking to maintain the status quo, not looking for any kind of relief. [00:16:57] Speaker 03: And so there wasn't a government claim here and the government did not assert it. [00:17:00] Speaker 05: There's no FAR provision though that says that the government can do this in terms of just withholding the money. [00:17:07] Speaker 05: I mean, it believes it has a right to have certain money or the right to refuse to pay certain money. [00:17:15] Speaker 05: I don't see that there's a FAR provision that specifically says when there's a liquidated damages provision in a contract, the government can exercise its right to withhold payment of money and then force the contractor to chase after it. [00:17:34] Speaker 03: The Federal Acquisition Regulation of 52211-12, which is the liquidated damages provision, says exactly what the government did. [00:17:42] Speaker 03: It says if the contractor fails to complete the work within the time specified, the contractor shall pay to the government the liquidated damages and the way that played out. [00:17:51] Speaker 03: Right. [00:17:52] Speaker 05: So that's what I'm trying to figure out what that means, shall pay to the government. [00:17:57] Speaker 05: That sounds arguably a little different than the government just unilaterally choosing to withhold money. [00:18:04] Speaker 03: Well, the process is a give and take during the course of the contract, and the way it happens under this contract in most federal government construction projects is that the government on a periodic basis usually monthly issues a pay estimate, and that pay estimate describes the contract balance, what's been paid to date, all the various pluses and minuses, and then in this case, because it's a pay estimate. [00:18:28] Speaker 03: Payment provision actually uses the same language as the liquidated damages clause in those terms. [00:18:34] Speaker 03: It includes a calculation of the liquidated damages and says, okay, we're paying you X amount for your work under the contract. [00:18:39] Speaker 03: You're paying us X amount for the liquidated damages today. [00:18:42] Speaker 03: And that gets a total balance. [00:18:44] Speaker 03: And then the government settles up that balance at the end of the month by a payment or not, depending on. [00:18:49] Speaker 03: And that's exactly what happened here beginning in early 2003. [00:18:54] Speaker 03: The government began in the pay estimates [00:18:55] Speaker 03: explaining exactly that, here's the contract balance, here's what's been performed today, paid today, and so forth. [00:19:01] Speaker 05: Do you understand, and I guess maybe my overly simplistic view, that there could arguably be a distinction between someone paying you money, someone handing over money to you, versus you withholding money that you are [00:19:17] Speaker 05: obligated to pay to the contractor. [00:19:21] Speaker 03: I see the distinction you're trying to make. [00:19:23] Speaker 03: It wouldn't really work in a contracting circumstance where [00:19:28] Speaker 03: you know, payments have to be settled up on a monthly basis. [00:19:31] Speaker 03: It wouldn't make sense for the government to overpay and then for the government to say or the contract the same day to write a check and hand it right back. [00:19:38] Speaker 03: You wouldn't do that in any other type of transaction. [00:19:41] Speaker 03: There's no need to do it here. [00:19:42] Speaker 03: And I don't think the contract contemplates that. [00:19:45] Speaker 03: And I say that because as I mentioned, the language in the liquidated damages provision uses the same payment language that the payment provision uses. [00:19:54] Speaker 03: And so the way to settle that up would not be [00:19:57] Speaker 03: to do cross payments but to do it in a single pay estimate and then make the payment if there's a payment in one direction or the other to make the payment just one time by one party. [00:20:07] Speaker 05: So your view that the withholding of money here was not a government claim, claim is used in the CDA, right? [00:20:16] Speaker 05: That's right. [00:20:17] Speaker 05: Is it the government's view that any time for any reason should the government withhold money during the performance of a contract [00:20:27] Speaker 05: that that also is never a government claim? [00:20:31] Speaker 03: Oh, no, no. [00:20:32] Speaker 03: This is confined to these particular facts and all the contract is sort of a generic for a contractor's contract. [00:20:39] Speaker 03: And as, for instance, Raytheon is a good example of a circumstance where the government would have to make a claim. [00:20:45] Speaker 03: That is, it's looking for some type of affirmative recovery. [00:20:48] Speaker 03: But in that case, it's looking in particular for a change to the contract. [00:20:51] Speaker 03: And that's what drove the Raytheon decision. [00:20:54] Speaker 03: Because under the contract as written, [00:20:56] Speaker 03: the, going back to the beginning of that case, the reason why there was a government set off or a claim that was sought was because the change in the cost-accounting standards made them improperly calculate pension costs. [00:21:08] Speaker 03: And because the government's assertion of a recovery in that basis was not just a regular old contract set off or a limited damages provision that fell down and calculated the contract, the FAR required, specifically required the government in that case to assert a claim for an equitable adjustment. [00:21:24] Speaker 03: The government never did that. [00:21:25] Speaker 03: And because the government never saw an equitable adjustment, it never had a basis in the first place to withhold the money. [00:21:31] Speaker 03: There was no contractual basis. [00:21:32] Speaker 03: Here you have that contractual basis. [00:21:35] Speaker 01: The other place where you... I don't understand. [00:21:37] Speaker 01: Liquidated damages are a form of damages. [00:21:41] Speaker 01: Damages for breach of contract. [00:21:44] Speaker 01: This contract had a completion date in it. [00:21:47] Speaker 01: All liquidated damages clause does is [00:21:50] Speaker 01: actually take away the need to ascertain by fact-finding the amount of damages because the parties have agreed on what the amount of damages for breach of completion date would be. [00:22:02] Speaker 01: But I don't see how it could possibly not be a claim. [00:22:06] Speaker 01: Your claim is you didn't comply with the contract and complete on time. [00:22:11] Speaker 01: It's just that the contract [00:22:14] Speaker 01: great, specifies the exact amount that will be at issue. [00:22:17] Speaker 01: But I don't see how you could call liquidated damages not damages for breach of contract. [00:22:23] Speaker 03: Yeah, let me draw a little bit of distinction in the question. [00:22:26] Speaker 03: What didn't happen here, it was a breach of contract. [00:22:30] Speaker 03: The beauty of federal government contracts is that the FAR captures most things that goes wrong, terminations and so forth, and says, OK, these are not going to be breached of contract. [00:22:38] Speaker 03: We'll deal with them within the scope of the contract. [00:22:40] Speaker 03: This is another one of those circumstances. [00:22:42] Speaker 03: Here you're correct that the contractor did not complete on time and the date on which it should have completed on time and the date on which it actually completed on time are not in dispute in this case. [00:22:52] Speaker 03: The dollars and the time is all settled and the government worked within the contract to withhold those liquidated damages and that's why it was able to do that without seeking a change to the contract or seeking an affirmative payment. [00:23:02] Speaker 01: It worked within the contract. [00:23:04] Speaker 01: No, the contract simply specified the amount per day. [00:23:08] Speaker 01: Are you saying [00:23:09] Speaker 01: that there is no breach of contract here when they were late in completion. [00:23:16] Speaker 01: Did that or did that not amount to a breach of contract? [00:23:18] Speaker 03: It's not necessarily a breach of contract. [00:23:21] Speaker 03: It's all happening within the contract. [00:23:23] Speaker 03: I mean, it clearly wasn't in compliance with the dates within the contract, but the contract says that [00:23:28] Speaker 03: But the way you resolve that is by withholding liquidated damages for terminating the contractor if necessary. [00:23:33] Speaker 03: But it's not necessary to say that the contracts breached and we're going to walk away from the contract. [00:23:38] Speaker 03: We're still operating within the scope of the contract at that point. [00:23:42] Speaker 03: And the liquidated damages in this case in government contracts allows you to stay within that realm. [00:23:48] Speaker 04: I would have thought that the set off right historically, which isn't in the FAR because it's a common law right to set off. [00:23:55] Speaker 04: would give the government the right to withhold money and say, you sue us if you think you owe us, you're entitled to money under the contract, and we're setting off the progress payments that we would otherwise owe you to take account of Dave's damages. [00:24:12] Speaker 04: The government asserts a claim only when it's seeking some affirmative recovery over and above the amount of the retainage. [00:24:19] Speaker 03: Is that correct? [00:24:20] Speaker 03: Well, I think that's, that's, that's right. [00:24:22] Speaker 03: And that the decision that we're talking about, or you're talking about the council earlier, uh, place way is, is that context. [00:24:29] Speaker 04: And I think what the court is an affirmative recovery sought over and above the retaining. [00:24:34] Speaker 03: Well, right. [00:24:35] Speaker 03: That was saying with that question in that case, does the, the, the clause allowing retainage limit the government's ability to set off to that amount? [00:24:43] Speaker 03: And the answer was no, the common law right itself still exists even with the FAR and even with the contract. [00:24:48] Speaker 03: That doesn't change. [00:24:49] Speaker 03: And so, yes, that's another way of looking at this case is that, okay, yes. [00:24:53] Speaker 01: Wait, so are you, I want to be clear, are you saying the government withheld the liquidated damages money under a common law right of set off or are you saying the government withheld it under its rights pursuant to contract and FAR via liquidated damages? [00:25:08] Speaker 01: Because those seem to be two different things. [00:25:10] Speaker 01: There could be a common law claim or there could be a contractual claim. [00:25:14] Speaker 01: Under which of those two is the government proffering its case today? [00:25:17] Speaker 03: The government doesn't have a claim, so it has no need to invoke the right to set off. [00:25:20] Speaker 03: But if the court were to construe this as a government claim, then the right to set off could be invoked. [00:25:25] Speaker 03: But here, because the government has no claim, it was working entirely within the contract. [00:25:29] Speaker 03: And so you don't even need to get to the question. [00:25:33] Speaker 04: I thought you were asserting that the government exercised its common law right of settlement here. [00:25:38] Speaker 03: No? [00:25:38] Speaker 03: No, that was our alternative argument in the brief, which was that if, in fact, this is a government claim, which we believe it is not, there's nothing for the government to claim in this case, then you could assert... I don't understand how the government can keep the money if it's not exercising its common law right of settlement. [00:25:57] Speaker 03: Well, it's keeping the [00:26:00] Speaker 03: It's keeping the money within the terms of the contract. [00:26:03] Speaker 03: And to the extent it became, if it had become a claim, that is if we had to... But the terms of the contract don't say that the government can keep the money. [00:26:11] Speaker 04: It says that the government is entitled to liquidated damages. [00:26:14] Speaker 04: It doesn't deal with the right of set-off or anything like that, does it? [00:26:19] Speaker 03: Well, the contract does deal with the right of set-off. [00:26:21] Speaker 03: The right of set-off is... How does it deal with that? [00:26:23] Speaker 03: It's because it incorporates the FAR and the right of set-off has been built into the FAR. [00:26:27] Speaker 03: There's no express and according in a place where it said that there's no need to have an express right of set-off in the contract. [00:26:34] Speaker 03: But the FAR does recognize the right of set-off in 52-232-5 and 52-232-17 in the way it deals with overpayments and return payments. [00:26:45] Speaker 03: But there's no express right of, there's nothing that spells out that [00:26:49] Speaker 03: right of set-off in the FAR or in this contract and this court-in-place way said that that would just be an extra to it. [00:26:57] Speaker 04: Are those FAR provisions incorporated into this contract? [00:26:59] Speaker 03: Yes, both of those FAR provisions are incorporated into the contract. [00:27:02] Speaker 03: 52-232-5 I believe was spelled out, was incorporated not by reference but by state. [00:27:08] Speaker 04: So is what you're saying that you don't need to get to the common law right of set-off because you can rely on the FAR provisions? [00:27:16] Speaker 03: But we could rely on the terms of the contract. [00:27:18] Speaker 03: It says the contract is set off. [00:27:20] Speaker 04: No, no, wait, wait. [00:27:22] Speaker 04: Apart from the FAR provisions, which you just mentioned, there isn't any, the illiterate damages provision in this contract doesn't say anything about set off, right? [00:27:31] Speaker 03: It doesn't use the term set off. [00:27:33] Speaker 03: It says the contractor shall pay is what it says. [00:27:35] Speaker 04: Right, but that seems to me not recognizing a right of set off. [00:27:39] Speaker 04: So the right of set off either has to come [00:27:41] Speaker 04: from those FAR provisions that you mentioned, or from the common law right now? [00:27:45] Speaker 03: It comes from the common law, yes. [00:27:48] Speaker 04: OK. [00:27:48] Speaker 04: I thought you were saying the opposite earlier. [00:27:50] Speaker 03: No, no. [00:27:51] Speaker 03: The FAR allows that common law right to not be infringed upon. [00:27:55] Speaker 03: The FAR is written consistent with placeway. [00:27:57] Speaker 03: That is, there's nothing in the FAR that says there's no common law right to set off, or that we're somehow abrogating the common law right to set off. [00:28:03] Speaker 03: And the two provisions that I mentioned are examples of clauses that allow the common law right to set off to work [00:28:10] Speaker 03: alongside of the bar of provisions as they were promulgating. [00:28:15] Speaker 05: What if hypothetically we were to see what's going on here as really being a government claim? [00:28:22] Speaker 05: And then under the Contracts and Fees Act, the government would have to follow up certain statutory procedures to that effect, right? [00:28:30] Speaker 03: If, for instance, in the Maripaca situation where the government was looking for affirmative rights... Well, before we go off, before you send me off into other fact patterns, [00:28:38] Speaker 05: Right. [00:28:40] Speaker 05: If we were to conclude that this is a government claim, then the government would have to comply with the contract decision. [00:28:47] Speaker 05: Is that right? [00:28:49] Speaker 03: I'm having a hard time finding where the government claim is. [00:28:52] Speaker 03: But yes, when the government has a affirmative claim, it wouldn't matter in this case. [00:28:56] Speaker 03: But yes. [00:28:57] Speaker 05: OK, because I'm just trying to explore to what extent, assuming there always has been this common law set off right. [00:29:08] Speaker 05: But if we think that what happened here is a government claim, then under these circumstances, the CDA would control over the common law right. [00:29:22] Speaker 05: Would you say that's an accurate assessment? [00:29:25] Speaker 03: I wouldn't say it would control over the common law right, but it could be construed as a step that would also have to be followed. [00:29:32] Speaker 03: be more or less the Raytheon path. [00:29:35] Speaker 03: That is, if the FAR says you have to seek an equitable adjustment, you have to make a claim government in order to get around the problem of not having a contract that says what you needed to say, then in order to get that contract modification, and if it wasn't reached by parties, the government may have a claim and then [00:29:54] Speaker 03: If I'm following the question, we'd need to follow the CDA requirements for bringing that claim. [00:30:02] Speaker 05: I'm just trying to ask a basic question, or common law backdrop rights abridged by the Contract Assuits Act. [00:30:11] Speaker 05: To the extent there is anything that looks like a conflict between the two. [00:30:19] Speaker 03: I don't know of any conflict, but no, a bridge is probably not the right way to say it. [00:30:26] Speaker 03: The common law set up exists and only exists unabridged. [00:30:30] Speaker 05: The CDA, because if you had an affirmative claim... Are you saying that the CDA or any congressional act can't abridge a common law right? [00:30:40] Speaker 03: Oh, Congress could. [00:30:42] Speaker 03: do whatever they want with the common law. [00:30:44] Speaker 03: That's not the issue. [00:30:45] Speaker 03: I don't think that they've done that here. [00:30:46] Speaker 03: I don't know of anything that suggests that the common law right of set up has been curtailed or abridged in any way. [00:30:52] Speaker 04: Well, what about the 1995 amendments that Mr. Cohen was referring to? [00:30:56] Speaker 04: What do those do? [00:30:57] Speaker 03: The 1995 amendments were essentially the... I'm not sure what it was in those amendments that he would suggest that... There was CDA existed before 1995, right? [00:31:11] Speaker 03: 1978, yes. [00:31:13] Speaker 03: So what happened in 1995? [00:31:16] Speaker 03: In 1995, I don't think I can convey accurately to the court what happened in 1995 that might bear on this circumstance. [00:31:27] Speaker 01: Well, if we disagree with you and if we view the government's retention of liquidated damages as a claim. [00:31:36] Speaker 03: OK. [00:31:38] Speaker 01: So then what happens? [00:31:40] Speaker 03: Well, we get to the same result because the problem here is not whether the government, I mean that's sort of the premise under this whole thing is that there needed to be a government claim. [00:31:48] Speaker 03: The reason why we're here is because our Gregory is seeking an affirmative payment of its own in the amount of $140,000. [00:31:56] Speaker 03: $143,000. [00:31:57] Speaker 03: That is, they have a claim that they have to assert. [00:32:00] Speaker 03: They did assert the claim in a timely manner, so that doesn't get them into the door of the Board of Contract Appeals. [00:32:07] Speaker 01: If there were a government claim, isn't the government obligated to issue a final decision which contains, among other things, notice of appeal rights, for example? [00:32:16] Speaker 03: Well, the notice of appeal rights are not an absolute requirement, but yes. [00:32:20] Speaker 01: Why not? [00:32:21] Speaker 01: We have cases that say so. [00:32:23] Speaker 03: Well, the case is looking to whether there's prejudice. [00:32:26] Speaker 03: In this case, there's no assertion that there was any prejudice for lack of issuing any kind of notice. [00:32:32] Speaker 01: I didn't see the cases looking into prejudice. [00:32:35] Speaker 01: Which ones looked into prejudice? [00:32:37] Speaker 01: I understood them to say the statute of limitations doesn't start ticking. [00:32:41] Speaker 01: And in fact, the statute itself says it has to be subject of a decision, a written decision, and it has to explain all the rights under this title. [00:32:52] Speaker 01: and the rights under this title include the appeal rights. [00:32:58] Speaker 01: So it's not just FAR 33 that the statute expressly requires a final decision to contain notice of appeal rights. [00:33:08] Speaker 03: the claim was made, and I see I'm well over time, but regardless of whether the claim was made, it wouldn't change anything here because the question is how do you get into the door of the Board of Contract Appeals? [00:33:19] Speaker 03: And our area has no way of doing that. [00:33:21] Speaker 03: That is, if this is a government claim, no claim was ever asserted, and so you can't get into the Board of Contract Appeals that way. [00:33:30] Speaker 01: Knowing if there's a government claim, no claim was ever asserted, that doesn't make sense. [00:33:33] Speaker 01: If we view the government's retention of the liquidated damages [00:33:37] Speaker 01: as a statement of a government claim, then isn't the government obligated to follow through and issue a final decision on that claim? [00:33:47] Speaker 03: I suppose you run headlong into whether it could be a claim, but I suppose yes. [00:33:54] Speaker 01: And what happens when the government never issues a final decision? [00:34:00] Speaker 03: Well, then the status quo is maintained. [00:34:03] Speaker 03: I mean, if the government doesn't issue a final decision, then there's a deemed denial of the claim, but there was no claim by the contractor here to be deemed denied. [00:34:15] Speaker 01: Not a claim by the contractor, a claim by the government. [00:34:20] Speaker 03: That's right, but there's nothing here. [00:34:23] Speaker 03: If the government doesn't issue a final decision, [00:34:25] Speaker 03: then there's no next step. [00:34:27] Speaker 03: The contractor has to step up and say, we want the money. [00:34:30] Speaker 01: We want to get paid. [00:34:33] Speaker 01: If the government has issued a claim, the liquidated damages, isn't that claim deemed denied if there is no decision after 60 days? [00:34:45] Speaker 01: The statute says it's deemed denied. [00:34:47] Speaker 01: I don't know what I'm missing. [00:34:49] Speaker 03: Right. [00:34:50] Speaker 03: I guess the government's own claim would be denied. [00:34:53] Speaker 01: Right, and then their six year clock started sixty days after you took the money, right? [00:34:58] Speaker 01: And it's now expired by the statute of limitations. [00:35:00] Speaker 01: Oh, that's right, the time is still on the spot. [00:35:03] Speaker 01: So you're winning the way. [00:35:04] Speaker 01: You're winning the way. [00:35:04] Speaker 01: Right, right. [00:35:05] Speaker 01: I see your brain working. [00:35:06] Speaker 01: It's like the hamster's running on the wheel as I'm saying it, because you're trying to figure out, wait, is this paper or not paper? [00:35:12] Speaker 03: Well, that's right. [00:35:14] Speaker 03: And that's at the core of all this is that regardless the time was, and R. Gregory makes this point in their brief that the claim approved more than six years regardless of whose claim it was. [00:35:25] Speaker 03: And so we never get to that point because the time expired regardless of whose claim it was. [00:35:31] Speaker 05: If your claim was denied, deemed denied, then isn't it up to you to pursue that? [00:35:37] Speaker 03: Well, that's why it makes no sense for us to appeal our own decision. [00:35:43] Speaker 03: That's why this couldn't be a claim and that's why the definition of claim is written the way it is. [00:35:48] Speaker 04: What you're saying is that you're holding the money and if they want to get it from you, they've got to ask for it in court within the six year statute of limitations. [00:35:58] Speaker 03: Well, no, they have not in court, but they have to form a new claim within six years. [00:36:03] Speaker 03: Well, not even to the BCA. [00:36:04] Speaker 03: They have six years to present the claim to the contracting office, and that they never did. [00:36:08] Speaker 03: Here's another question. [00:36:09] Speaker 05: There were some other bases for withholding money in some of those pay estimates, right? [00:36:16] Speaker 05: I believe so, yes. [00:36:18] Speaker 05: And so what I'm trying to understand is does the government believe that those withholdings are also not government claims? [00:36:26] Speaker 03: Those are, well, no, because typically the way those things resolve in a contract, for instance, if the contractor provides something different than what the government wanted, that's the basis for the withholding, that would be brought up with the contractor, the parties would negotiate a contract mod, and then the government would or wouldn't pay it based on what the parties had agreed to. [00:36:44] Speaker 03: So it would never rise to the level of claim. [00:36:46] Speaker 06: Well, what if it did? [00:36:47] Speaker 06: What if the parties couldn't arrive at an agreement? [00:36:53] Speaker 06: Well, then whose claim would it be? [00:36:55] Speaker 03: If the government doesn't pay a contractor for something the contractor feels it's owed money for, work that it believes it did that the government doesn't believe it did, then that's a claim that the contractor has to assert within six years of approval. [00:37:07] Speaker 05: So then, once again, going back to an earlier question I had, any and every time the government withholds money in one of those pay estimates for whatever basis the government believes is legitimate for withholding money, it's [00:37:22] Speaker 05: The government's view that those are never government claims, those are always contractor claims, and so therefore it's the obligation of the contractor to file some kind of appeal within six years of that withholding? [00:37:37] Speaker 03: Under the circumstances we've talked about so far that's correct, but typically the FAR would deal with it a little bit differently in that it is a process for modifying the contract, for presenting those issues along the way that would bring that [00:37:50] Speaker 03: not just the government says something and then six years later they're out of luck. [00:37:54] Speaker 03: It would be there's more interim steps that go along with the pay estimate. [00:37:58] Speaker 05: There's a kind of negotiation process. [00:38:01] Speaker 05: I understand that. [00:38:02] Speaker 03: But if the negotiation doesn't work out... The claim would have approved when the contractor do everything that it should have known to bring to make that claim available. [00:38:10] Speaker 03: Or if the government needed to call back the money, then it would be the government's problem to assert that claim. [00:38:17] Speaker 01: Can I just ask one general question? [00:38:19] Speaker 01: Yes. [00:38:19] Speaker 01: So these contracts, like it incorporated a bunch of the FAR provisions, but only the ones really 52 dot whatever, did that mean the rest of the FAR provisions don't apply? [00:38:30] Speaker 01: I mean, I'm just curious, in general matter, [00:38:32] Speaker 01: Why incorporate some? [00:38:34] Speaker 01: I mean, don't all the regs apply to everything? [00:38:36] Speaker 03: No, the regs don't all apply. [00:38:38] Speaker 03: And the short answer, there's two parts to it. [00:38:40] Speaker 03: One is that there's a FAR matrix, which doesn't get published in the books that you probably have on your desk with the FAR. [00:38:44] Speaker 03: It might be in the library. [00:38:45] Speaker 01: Wait, you think I have a book with a FAR on my desk? [00:38:47] Speaker 03: Oh, I don't know. [00:38:49] Speaker 03: I may be the only person that does. [00:38:52] Speaker 03: But in your library, you've got the CFR. [00:38:54] Speaker 03: The FAR matrix is not there. [00:38:55] Speaker 03: But it's printed by GSA. [00:38:57] Speaker 03: And you can get it online. [00:38:58] Speaker 03: It has a chart of each different contract type. [00:39:01] Speaker 03: and which clauses are required, which are optional, and so forth. [00:39:05] Speaker 03: Okay, so then that's the starting point where the government is putting together a contract. [00:39:09] Speaker 03: And then when we get to here, however, it's the Christian document that applies. [00:39:13] Speaker 03: That is, certain contract clauses are incorporated, whether they're expressly written in or not. [00:39:18] Speaker 03: And I believe it was [00:39:21] Speaker 03: termination for convenience clause that the Christian doctrine dealt with, but certain clauses are going to be written into government contracts regardless of whether the person putting pen to paper remembers to put them in or not. [00:39:33] Speaker 03: Okay, thank you. [00:39:35] Speaker 03: Thank you. [00:39:49] Speaker 02: I just want to address one or two points. [00:39:51] Speaker 02: There was a lot of discussion about whether the assessment of liquidated damages is a government claim. [00:39:58] Speaker 02: In the briefing, there was a reference to FAR 2.101, which defines claim, is the definition of claim in the FAR. [00:40:07] Speaker 02: And there are three categories. [00:40:09] Speaker 02: The assessment of liquidated damages at a minimum falls into two of those categories and therefore is a claim and is a government claim. [00:40:17] Speaker 02: One category is adjustment or interpretation of contract terms. [00:40:22] Speaker 02: There are two board cases that I cited that says that a liquidated damages claim arises under the default clause and a liquidated damages clause. [00:40:31] Speaker 02: So that assessment of liquidated damages is a cause under an adjustment or interpretation. [00:40:38] Speaker 02: The third of a contract clause, the third [00:40:42] Speaker 02: category is the relating to category which this court addressed in Todd's construction and discussing relating to said that that in and of itself, just that one item was a term of substantial breadth and it included anything that had some relationship to the terms or performance of a government contract. [00:41:06] Speaker 02: I would say argued in the brief and I'll repeat here that [00:41:10] Speaker 02: whether a contract was performed timely, whether it was an excusable or inexcusable delay, whether LDS could be assessed, certainly relates to the terms and performance of a government contract. [00:41:21] Speaker 02: And in my opinion, it is a claim. [00:41:23] Speaker 02: And if it is a government claim, those requirements of the CDA apply, including the issuance of a proper contracting officer's file. [00:41:34] Speaker 04: What the government is saying is it's not a claim unless they're seeking affirmative recovery. [00:41:38] Speaker 02: Well, I would say, if you look at the board's decision, they tried to make that, the board tried to make that argument, I believe, completely incorrectly. [00:41:47] Speaker 02: It's cited Maropecas, and both in the government's brief and in the board's decision, they insinuate that the reason why there was a CO decision there was because there was affirmative recovery of $59,000 because the government was only holding 244. [00:42:07] Speaker 02: But if you look at Mara Paytas very closely, including the Court of Federal Claims decision, which I didn't cite, so I won't mention, it is very clear, and the IRCA board decision, which I cited in my brief, that the demand in the liquidated damages in the contracting officer's final decision was for $303,000, not $59,000. [00:42:31] Speaker 02: So whether these are expended or unexpended funds is irrelevant. [00:42:37] Speaker 02: And if we carry that sort of argument to its logical conclusion, it would produce an absurd result. [00:42:44] Speaker 02: For example, government has claimed sometimes for latent defects or warranties. [00:42:51] Speaker 02: Those almost invariably occur at the end of the contract when there's, let's say, assume very little money left in the contract. [00:42:58] Speaker 02: Does that mean for those kinds of government claims there would be a requirement for contracting officer's decision? [00:43:04] Speaker 02: But if it occurred earlier, say a defective work claim, when there was, say, a million dollars in the contract, it hadn't been spent, but the claim was $50,000, there would be no requirement for a contracting officer's decision. [00:43:18] Speaker 02: It's illogical, and it would create a two-tiered system for the assertion of government claims that I think the court should reject. [00:43:29] Speaker 02: OK. [00:43:30] Speaker 02: Thank you, Mr. Conklin. [00:43:31] Speaker 02: Thank you. [00:43:31] Speaker 02: I thank both counsels for the cases submitted.