Despite the plain language of the FAR definition of claim and an overwhelming amount of case law, many contracting practitioners falsely believe that claims and requests for equitable adjustment (REA) under a contract clause are categorically different, that a contractor must submit an REA before it can submit a claim, and that there can’t be a claim until the parties have reached an impasse or are in dispute. Those beliefs are untrue. My objective in this blog entry is to explain why.
What Is a "claim"?
The Contract Disputes Act, 41 U.S.C. 7101 – 7109, does not define claim. The only official definition is in FAR 2.101, which defines "claim" as follows:
Reading that definition closely, we see that there are four sentences. The first sentence defines claim as: (1) a written demand or assertion, (2) by the prime contractor or the government, (3) seeking "relief" to which the contractor or the government believes it is entitled pursuant to the terms of a contract clause or due to breach of contract by the other party. (See Note 1.) In order to be a claim a contractor's request for contractual relief must have all of the elements stated in the first sentence.
The second sentence requires certification of claims for more than $100,000. (See Note 2.) A contractor request for more than $100,000 that is not certified is not a claim.
The third sentence says that routine requests for payment must be in dispute when submitted in order to be a claim. Thus, a request for payment upon completion of performance and acceptance of the work or a request for a progress payment is not a claim unless it was in dispute when submitted.
The fourth sentence says that a routine request for payment may be converted to a claim under certain circumstances.
We need to dig still deeper. First, the words "assertion" and "demand" in the first sentence are legal terms of art for requests for what one believes he or she is entitled to. See Blacks Law Dictionary 9th (2009). They should not be understood to mean that a contractor’s request must be strident, angry, or vehement, or be the product of strife or dispute.
Second, "sum certain" means a specific amount. There can be no equivocation using language such as “approximately,” “at least,” “in excess of,” “well over,” or “no less than.” However, the sum certain requirement can be met through the use of a formula that permits the amount to be determined mathematically. (See Note 3.)
Third, although the FAR definition does not say so, the CDA and the boards and courts require that in order to be a claim a contractor's request for relief must ask the CO for a decision on the matter. See 41 U.S.C. Sec. 7103( a ). The request need not be explicit, but may be implied from the context of the assertion or demand. See James M. Ellett Construction Co. v. United States, 93 F.3d 1537, 1543 (Fed. Cir. 1996); BLR Group of America, Inc. v. United States, 96 Fed. Cl. 9, 13 (2010).
Fourth, although the second sentence in the definition says that contractors must certify claims “seeking payment of money” in excess of $100,000, the CDA requires certification of any monetary claim in excess of $100,000, whether for immediate payment or price adjustment. See 41 U.S.C. 7103( b ).
Contracting practitioners must be able to recognize a claim when they see one.
The submission and receipt of a claim have four important legal consequences:
1. Interest begins to accrue when the CO receives a claim, but not when he receives a non-claim request for contractual relief. See FAR 33.208. (But see also Note 4.)
2. COs must make final decisions on claims within statutory deadlines, see FAR 33.211( c ), but they face no deadline for responding to non-claim requests for contractual relief.
3. Contractors cannot recover the costs of claim preparation and prosecution, but they can recover the costs of the preparation of non-claim requests for contractual relief. See FAR 31.205-33( b ) and 31.205-47( f )(1).
4. The jurisdiction of the boards of contract appeals and the U.S. Court of Federal Claims to adjudicate a contractor's appeal under the CDA is predicated upon ( a ) the submission of a CDA "claim" and ( b ) issuance of a CO final decision. See Reflectone, Inc. v. Dalton, Secretary of the Navy, 60 F.3d 1572, 1575 (Fed, Cir. 1995), and James M. Ellett Construction Co. Inc. v. United States, 93 F.3d 1537, 1541 - 42 (Fed. Cir. 1996). Unless a contractor has submitted a claim and the CO has issued a final decision, the boards and the Court of Federal Claims have no jurisdiction under the CDA. They have no jurisdiction under the CDA over non-claim submissions, not even if the CO mistakenly issued a final decision when none was required. See Agility Defense & Government Services, Inc. v. United States, 103 Fed. Cl. 366 (2012). In that case the contractor submitted a document that did not possess the required elements of a claim as defined in FAR 2.101. Nevertheless, the CO issued a "final decision." The contractor appealed the decision, but the court dismissed the appeal for lack of subject matter jurisdiction, because the contractor's submission did not have all of the elements of a claim as defined in FAR 2.101. The court said:
Thus, acquisition practitioners must know when they are submitting or when they have received a claim. Claims are not always easy to recognize, however.
A claim need not be in any particular format or use any particular language.
The definition of claim specifies no format for a claim and does not require the use of specific words of terms, except for the claim certification. The courts and boards have consistently held over the course of many years that a claim need not be in any particular format or stated in any particular language. A claim need not be labeled "Claim." See Contract Cleaning Maintenance, Inc. v. United States, 811 Fed. 2d 586, 592 (Fed. Cir. 1987):
See also SITCO General Trading and Contracting Co. v. United States, 87 Fed. Cl. 506, 508 (2009).
A submission need not include a cost breakdown or other supporting cost data in order to be a claim. See H.L. Smith, Inc. v. Dalton, Secretary of the Navy, 49 F.3d 1563, 1564 (Fed. Cir. 1995):
Thus, a claim could be a simple letter. See Transamerica Insurance Corp. v. United States, 973 F.2d 1572, 1576 (Fed.Cir.1992):
A simple claim under $100,000 might be stated in a single sentence. See Cibinic, Nash & Nagle, Administration of Government Contracts 1264 (4th ed., 2006):
Thus, a request for relief without supporting data might be a claim, but without the supporting data it might not be sufficient to prove the contractor's entitlement to the relief sought.
In pointing these things out I am not suggesting that contractors submit undocumented claims. My only purpose is to show that a contractor's submission need not be thoroughly documented in order be a claim and thus trigger the legal consequences of submitting a claim. Best practice is, of course, to prepare claims carefully and document them as thoroughly as possible.
The content is what matters, not what you call it.
The determination of whether a contractor’s submission to a CO is or is not a claim does not depend on what the parties call it. The mere fact that a contractor calls its submission a claim will not make it a claim if it lacks any necessary element of a claim. And calling a submission an REA does not mean that it is not a claim if it possesses all of the necessary elements of a claim. Claims and REAs are not categorically different things. It is the content of a submission, not what the parties label it or call it, that determines whether it is a claim.
In Zafer Taahhut Insaat ve Ticaret A.S., ASBCA 56770, 11-2 BCA ¶ 34841 (2011), the government argued that a contractor’s REA was not a claim because the contractor used the word “request” instead of claim in its claim certification. The board rejected that argument:
Request for reconsideration denied, Zafer Taahhut Insaat ve Ticaret A.S., ASBCA 56770, 12-1 BCA ¶ 34951 (2012). See also Saco Defense, Inc., ASBCA 44792, 93-3 BCA ¶ 26029:
What is an REA?
The CDA does not mention REAs. Although the term REA appears in 31 places in the FAR System -- ten places in the FAR itself, the rest in seven agency FAR supplements -- the FAR does not define REA.
"Request for equitable adjustment" is a term of art for just what the name indicates: (a ) a request ( b ) for an equitable adjustment to one or more contract terms. REAs are grounded on contract clauses that provide for such relief, such as the "Changes" clauses, FAR 52.243-1 through - 5; the "Differing Site Conditions" clause, FAR 52.236-2; and the "Government Property" clause, FAR 52.245-1.
Contractors doing business with the Department of Defense that submit non-claim REAs valued at more than the simplified acquisition threshold must certify them as required by DFARS 243.204-71 and 252.243-7002. The certification reads as follows:
An REA valued at more than the simplified acquisition threshold that includes the REA certification, but not the claim certification, is an REA that is not a claim, because it lacks one of the necessary elements of a claim. If the same REA is certified as a claim, and has the other necessary elements of a claim, then it is an REA that is a claim.
What if a contractor includes both the REA certification and the claim certification? Assuming that the REA has all of the other necessary elements of a claim, it is an REA that is a claim, notwithstanding the inclusion of the REA certification. However, the dual certification might indicate some confusion on the part of the contractor and make its intentions unclear.
Bottom line: An REA is a claim if it has the required elements of a claim as defined in FAR 2.101. An REA that lacks any required element of a claim is not a claim.
An impasse or dispute is not necessary for an REA to be a claim.
Many contracting practitioners think that there must be an impasse in negotiations or that the parties must be in dispute before REAs can be claims. That is not true, as determined in the landmark decision Relectone, Inc. v. Dalton, Secretary of the Navy, 60 F.3d 1572, 1577 (Fed. Cir, 1995):
Reflectone is must reading for all practitioners. (At the time of that decision the definition of claim was in FAR 33.201. It has since been moved to FAR 2.101.)
See also Systems Development Corp. v. McHugh, Secretary of the Army, 658 F.3d 1341, 1346 - 47 (Fed. Cir. 2011):
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An REA is not a "routine request for payment."
According to the definition of claim in FAR 2.101, the only thing that has to be in dispute in order to be a claim is a “[a] voucher, invoice, or other routine request for payment,” and REAs are not routine requests for payment. That was settled by the Federal Circuit 17 years ago, in the landmark decision Reflectone, Inc. v. Dalton, 60 F.2d 1572, 1577 (Fed. Cir. 1995):
Some contracting practitioners think that REAs are routine because "they happen all the time." Indeed, they are common in some contracting offices. However, the boards and courts do not interpret "routine" on the basis of frequency, but on the basis of the nature of the cause. See Parsons Global Services, Inc., ex rel. Odell International, Inc. v. McHugh, Secretary of the Army, 677 F.3d 1166, 1170 (Fed. Cir. 2012):
So why the persistent belief in the need for a dispute? It may due to the fact that claims are addressed in FAR clause 52.233-1, "Disputes." The reasoning goes that since claims are discussed in the Disputes clause if follows that there has to be a dispute in order for there to be a claim. Not so. The Disputes clause prescribes the procedure for submitting and processing claims and issuing CO final decisions. The clause does not state that a dispute must precede the submission of a claim, nor does anything in the CDA or in FAR Subpart 33.2, "Disputes."
FAR 33.204, "Policy," might be another reason for the mistaken belief in the need for a dispute. It states, in pertinent part, “Reasonable efforts should be made to resolve controversies prior to the submission of a claim.”
That’s the government’s policy, and it makes good sense from the government's perspective. It is designed to avoid the accrual of interest by encouraging settlement before the contractor submits a claim, on which interest accrues. However, the government’s policy in no way restricts what contractors can do. It does not require that contractors submit non-claim REAs before they submit claims. The CDA requires only that contractors believe they have a right to what they want in order to submit claims. Contractors do not have to first submit a non-claim REA and then wait while the government takes its own sweet time to evaluate the submission and to make repeated requests for more information before getting down to business.
To avoid confusion about claims and REAs, read the definition of claim.
Some of my students express shock and disbelief when I tell them that an REA can be a claim. "Are you saying that all of those REAs we get are claims and have to be treated like claims?" No, I'm not saying that. Here is what I'm saying:
First, when COs receive contractor requests for relief they should use the FAR 2.101 definition of claim as a checklist. No matter what the contractor calls it, a contractor’s request should be treated as a claim if it has all of the elements of a claim as defined in FAR 2.101. If it lacks any element of a claim it need not be treated as a claim.
Second, some inexperienced contractors may not understand that "claim" is an officially defined term with legal implications. If for any reason a CO is not sure about a contractor’s intention the CO should ask the contractor. If the contractor says that it meant to submit a claim, and if the submission lacks any element of a claim, then the CO should tell the contractor so it can correct its submission. The CO should explain the implications with respect to preparation costs if the contractor says it intended to submit a claim. If an REA has the elements of a claim, but the contractor says that it did not intend to submit a claim, the CO should ask for confirmation in writing.
Finally, contractors should check the definition of claim when submitting REAs and make sure that they understand what they are submitting -- either an REA that is not a claim or an REA that is a claim -- and the consequences of submitting it. They should make their intentions clear to COs. A warning: If your intention as a contractor is to submit a claim, then make sure that you get it right. Prepare the claim document well and document it fully. That improves the chances of a successful settlement. The government will not hesitate to challenge board or court jurisdiction over the slightest flaw in your submittal. If they succeed it will result in a significant loss of time and money. If your claim is significant, hire an attorney who knows the rules to assist in its preparation.
Every year we see board and court decisions in which one of the parties disputed the tribunal's jurisdiction on the ground that an REA was not a claim. The government does so to force the parties back to the negotiating table and avoid interest. Contractors do so to retain their entitlement to submission preparation costs. Such litigation is a needless and avoidable waste of money and time.
Knowledge, clear communication, good faith, and good will can prevent misunderstandings and needless jurisdictional litigation. But knowledge must come first.
Note 1: Relief, as used in the context of the CDA, is a legal term of art that means "The redress or benefit, esp., equitable in nature, ... that a party seeks in court." Black's Law Dictionary, 9th ed. (2009). According to FAR 33.213( a ), a claim for relief` "arising under a contract" is a claim that can be resolved under a contract clause other than the Disputes clause, FAR 52.233-1. A claim for relief "relating to a contract" is a claim for which no contract clause except for the Disputes clause provides for the relief sought. It is a breach of contract claim.
The certification for claims in excess of $100,000 is stated in FAR 33.207 as follows:
The dollar value of a claim for certification purposes is the absolute value of increases and decreases. See FAR 33.207( d ).
Note 3: Professor Ralph C. Nash, Jr. discusses the sum certain requirement in the August 2012 edition of The Nash & Cibinic Report: “Contract Disputes Act claims: the 'sum certain' requirement." 26 N&CR para. 41.
Note 4: FAR 33.208(a) says that interest begins to accrue when the CO receives the claim or when payment otherwise would be due, whichever is later. The FAR is wrong. The U.S. Court of Appeals for the Federal Circuit has thrice ruled that there is a single “red letter date” for the accrual of interest, and that is the date that the CO receives the claim. Furthermore, interest on a claim can accrue even before the contractor incurs any cost. See Richlin Security Service Co. v. United States, 437 F.3d 1296 (Fed. Cir. 2006) (rehearing and rehearing en banc denied); Caldera v. J.S. Alberici Construction Co., 153 F.3d 1381 (Fed. Cir. 1998); and Servidone Construction Corp. v. United States, 931 F.2d 860 (Fed. Cir. 1991).]