A SAD STORY
On February 19, the Armed Services Board of Contact Appeals issued its decision in the matter of Bernard Cap Co., Inc., ASBCA Nos. 56679, 56703, 56705, and 56716, 10-1 BCA ? 34387, in which the board dismissed the contractor?s appeals from the deemed denial of four claims for payment. The contractor had won four indefinite-delivery indefinite-quantity contracts with Defense Supply Center Philadelphia for men?s garrison caps⎯in 1996, 1997, 1999, and 2000. The government issued several delivery orders under each of the four contracts over a span of years from 1996 to 2005. The contractor delivered and submitted DD Forms 250, Material Inspection and Receiving Report, for payment. The contracts contained the clause at FAR 52.232-25, Prompt Payment (MAR 1994). The contracts were administered by the Defense Contract Management Command⎯Orlando. The paying office was the Defense Finance and Accounting Service, presumably also in Orlando.
Under each of the contracts, DFAS paid some of the invoices, but not others. The contractor repeatedly inquired. DFAS would then make late payment of some of the invoices, but not others.
According to the board?s decision, the contractor wrote to the contracting officer about one of the four contracts in December 1999, pleading for help:
We have been trying to collect past due money from DFAS through our ACO and DCMC Orlando for the past year? We are talking about $600,000 of accounts receivable that are PAST DUE⎯some going back years and most past due over 90 days.
The contractor wrote to DCMC Orlando in January 2000:
You will note that the vast majority of these are very, very past due. Promises from DFAS have not been kept and we are not getting enough oxygen to keep breathing.
The contractor met with DFAS in 2001 and 2002, after which meetings many invoices were paid, but not all.
In 2003, the contractor wrote to DFAS:
[We] have been government contactors since the 1930?s and with all the technology that has been added to the accounting area at DFAS we cannot understand why we still have to wait, wait, and wait some more⎯all the time sending repeated evidence of shipment. HELP!!!!
In 2006, the contractor wrote to DFAS to express its ?extreme frustration? at not getting paid.
[P]lease know that from 1996-1999 we are owed $32,630 and from 2000-2005 we have $409,008 that is unpaid.
The contractor asked its congressional representative for help. DFAS then made some payments, but the contractor said it was still owed about $200,000.
This went on for years. Then, in March 2008, DFAS wrote to the contractor:
The old contracts have been reconciled to the best of our ability and the documents to include payment histories are being shipped to you. At this time, we cannot pay anything additional on the old contracts.
Finally, in October and November 2008, the contractor submitted four separate claims, ranging from a low of $13,804.66 to a high of $111,465.57 and totaling $205,078.04. The contracting officer issued no final decisions, and the contractor appealed to the ASBCA based on denial through inaction. The government did not contest any of the claims, but moved for dismissal of each on grounds that the contractor had not submitted the claims within six years of their accrual. The board held that a claim for each unpaid invoice accrued 30 days after submittal of a proper invoice, saying of one of the contracts:
By appellant?s own account ? which the government does not dispute for purposes of the motion to dismiss ? appellant made shipments and tendered proper invoices for accepted goods under this contract on or about 30 December 1996; 24 September 1997; 18 March 1998; 24 September 1998; 3 December 1998; 17 December 1998; 28 January 1999 and 29 December 1999 (SOF ?? 3-10), for which the government failed to pay in full within 30 days as required by the contract (SOF ? 2). Hence, appellant?s claims for these unpaid invoices accrued, respectively, on or about 30 January 1997; 24 October 1997; 18 April 1998; 24 October 1998; 3 January 1999; 17 January 1999; 28 February 1999; and 29 January 2000. At that point, all events fixing liability for these unpaid invoices were or should have been known, FAR 33.201. See also Oceanic Steamship Co. v. United States, 165 Ct. Cl. 217, 225 (1964) (claim against the United States, based upon a contract obligation to pay, accrues on the date when payment becomes due and is wrongfully withheld). Clearly, appellant?s claim letter to the CO for these unpaid amounts, dated 14 November 2008, was submitted more than six years from the date of the accrual of these claims. We believe they are all time barred under the [Contract Disputes Act].
The board rejected the contractor?s arguments for equitable estoppel and equitable tolling:
Appellant suggests that DFAS? general assurances that it would review and/or seek to reconcile the payment records served to equitably toll the running of the limitations period, or equitably estopped the government from relying upon the same. We do not agree. For appellant to prove equitable estoppel against the government, it must adduce facts showing some affirmative government misconduct. Frazer v. United States, 288 F.3d 1347, 1354 (Fed. Cir. 2002); Zacharin v. United States, 213 F.3d 1366, 1371 (Fed. Cir. 2000). Appellant asserts no such facts here.
As for equitable tolling, federal courts have extended such dispensation only sparingly and under limited circumstances. Irwin v. Dep?t of Veterans Affairs, 498 U.S. 89, 96 (1990) (e.g., claimant filed timely defective pleading; claimant induced or tricked by adversary, allowing deadline to pass). Former Employees of Sunoco Products Co. v. Chao, 372 F.3d 1291, 1299 (Fed. Cir. 2004); Frazer, 288 F.3d at 1354 (lateness attributable, in part, to some misleading government action). Appellant presents no such equitable basis to support the tolling of the limitation period of the statute. Rather, the record shows a claimant that failed to exercise due diligence in preserving and protecting its legal rights under the contract. As stated by the Federal Circuit in Esso Standard Oil Co. (PR) v. United States, 559 F.3d 1297, 1305 (Fed. Cir. 2009):
"The Supreme Court has warned that '[o]ne who fails to act diligently cannot invoke equitable principles to excuse that lack of diligence,' Baldwin County Welcome Ctr. v. Brown, 466 U.S. 147, 151, 104 S.Ct. 1723, 80 L.Ed.2d 196 (1984), and 'the principles of equitable tolling...do not extend to what is at best a garden variety claim of excusable neglect,' Irwin v. Dep?t of Veterans Affairs, 498 U.S. 89, 96, 111 S.Ct. 453, 112 L.Ed.2d 435 (1990)."
We have reviewed the cases cited by appellant but they are factually and legally distinguishable.
The board granted the government?s motions for dismissal.
The contractor should have submitted a claim on each invoice when the government did not pay within 30 days and did not respond promptly and definitely to inquiries. It is likely that each claim would have been less than $100,000, and the contractor thus could have demanded a decision on each within 60 days from the date that the contracting officer received each claim. Why didn?t it do so? Maybe, despite its many years as a government contractor, it did not know the rules. Maybe it was one of those contractors who are reluctant to submit claims because the contracting officer will get mad. Contractors are often intimidated by contracting officers and reluctant to demand their rights. Maybe it didn?t want its claims preparation costs to be unallowable pursuant to FAR 31.205-47, although that seems unlikely.
CLUELESS WOULD-BE CONTRACTORS
Many small to medium sized companies go into government contracting without any idea of what they are getting themselves into. That might be okay with very small sales, but, otherwise, contracting with the U.S. government is the most complex business in the world. It?s right up there with trading derivatives. There are countless rules and contract clauses, many of which are exceedingly hard to understand. Moreover, ?the Government? is not a unified organization. The contractor in this case was supplying a simple item, yet it had to deal with a PCO in Philadelphia, an ACO in a DCMC office in Orlando, and a DFAS office (presumably, also in Orlando). Appeals for help (including the pathetic plea, ?HELP!!!!?) did not resolve the payment problems, and, in the end, the government told the contractor to get lost because it could not find or make sense of its own records.
I do not know who was to blame for the payment problems. In my opinion, the ACO was responsible for sorting things out in a timely fashion, and I don?t know why he/she didn?t. Maybe it was all the contractor?s fault. Maybe it did something wrong, although the government apparently did not reject any deliveries and it does not appear that any deliveries were late. But the contractor, and only the contractor, was to blame for failing to submit claims demanding a final decision as soon as it became apparent that the government wasn?t going to fulfill its payment obligations.
I often see questions at the Wifcon discussions board from People Without A Clue (PWACs) about government contracting. And I am always of two minds about such questions: the good Vern wants to help, but the bad Vern is possessed by the spirit of John Galt (Ayn Rand?s fictional hero in Atlas Shrugged) and wants to say, ?If you can?t play with the big boys you should have stayed off the field. Too bad for you.?
Here are 14 tips for the Truly Clueless Would-Be Government Contractors who think that winning a government contract is the yellow brick road to riches:
1. If you are thinking of competing for a government contract, hire good professional help to negotiate and manage the contract, and listen to them.
2. Your technical and marketing employees are the ones who are going to get you into trouble on a government contract. Keep them on a leash.
3. Buy first-rate training for all of the people who will be involved with government contracts. If you will not invest in training you have no business doing business with the government.
4. Don?t compete for a government contract if you are not sure that you can do the job to the government?s satisfaction. Make sure that you know what it will take to satisfy the government before you submit a bid or proposal.
5. Don?t assume that the government?s representatives know what they?re talking about when they explain rules, specifications, and the contract clauses. In my experience, most of them don?t.
6. READ THE SOLICITATION. THE WHOLE THING.
7. If you win the contract, take a firm, formal, arm?s-length, businesslike approach to all aspects of the deal. Comply strictly with all contract terms and insist that the government do the same. Know all of your contractual deadlines and meet them. Know all of the government?s contractual deadlines and notify them in writing the moment that they are late. The very moment. Neither ask for nor grant exceptions except through formal processes, such as engineering change proposals, formal waivers, and change orders. Know your obligations and fulfill them. Know your rights and insist upon them. When you truly believe that the government owes you something, ask for it in writing. If you don't get favorable action within a reasonable period of time, submit a claim in accordance with the contract Disputes clause and FAR Subpart 33.2. If the contracting officer does not make a decision within the deadlines set by the Disputes clause, hire an attorney and appeal to a board of contract appeals or to the Court of Federal Claims, unless you are willing to let the government keep what you think is yours.
8. Never yield to threats from a contracting officer or a contracting officer's representative. If you do, things will only get worse. When you insist upon your rights and the contracting officer?s representative says: That cuts both ways, just say: Yes, and we can live with that.
9. Don?t rely on personal relationships with government personnel. Good personal relations are important and desirable; but, in the end, it?s a dog-eat-dog world. Never consider a government representative to be your ?friend.? Remember that government personnel are not business persons. They are government officials with limited authority, limited knowledge, a heavy workload, and lots of people looking over their shoulders. They will not (and should not) stick their necks out for you. If they do they are either stupid or dishonest and cannot be trusted. Some will make an extra effort for you, which is okay, but many will not. Assume from day one that you are on your own.
10. Keep good records. Document every telephone call and meeting. EACH AND EVERY ONE. Write down who, what, when, where, why, and how, and make your people do it as well. Check to see that they do. File every email and letter. EACH AND EVERY ONE. He or she who does not document or who skimps on documentation is a fool.
11. Promptly follow up on oral understandings and agreements in writing. Send crucially important communications by certified mail, return receipt requested, including confirmation of emailed and oral understandings and agreements.
12. It's business, not personal. When speaking with and corresponding with government personnel, always be calm and polite, no matter how badly they have behaved or how angry about it you are, but always be determined and firm.
13. Remember the 999/1,000 rule: You can do things wrongly 999 times out of 1,000 and nothing bad will happen. It?s the 1,000th time that will do you in.
14. Make sure that you have the telephone number, email address, and street address of a good government contracts attorney and a good government contracts accountant. If you can't afford that kind of help, stay away from government contracts.
Now, I know that many readers will consider some of the above to be impractical. Business people are risk takers, and many will consider what I suggest to be too formal and stern. In their experience, business doesn?t work well when there is too much formality and insistence upon strict contractual compliance. So be it. I bow and yield to your superior wisdom. I have to admit that as a government contractor I have not always followed all of my own advice. So if you don't follow my advice and things go badly for you, the good Vern will not say I told you so, but the bad Vern will laugh.