By Phil Seckman, Partner, McKenna Long & Aldridge LLP The Federal Circuit’s recent decision in Sharp Electronics Corporation addresses a quandary familiar to federal supply schedule contractors regarding the proper contracting officer (CO) to whom the contractor must direct its contract claims to ensure jurisdiction. Sharp Corporation v. McHugh, 2013 WL 646330 (Fed. Cir. 2013). The Federal Circuit’s decision relates to a 2002 change to the Federal Acquisition Regulation (FAR) and seeks to provide contractors with certainty by announcing a so-called bright-line rule for interpreting the meaning of the disputes provision for schedule contracts. Despite the Federal Circuit’s intentions, ambiguities remain. Prior to the 2002 FAR change, the FAR provided that “[t]he ordering office shall refer all unresolved disputes under orders to the schedule contracting officer for action under the Disputes clause of the contract.” 48 C.F.R. § 8.405-7 (2000). Because only the GSA CO had authority under the Disputes clause, it was clear before the FAR change that any contractor claim relating to an order placed under a schedule contract must be submitted to the GSA CO to ensure jurisdiction under the Contract Disputes Act (CDA). The FAR also made it clear that the ordering office was to refer any unresolved contractor claims to the GSA CO. Then, on June 27, 2002, the FAR was amended to incorporate new policies for disputes in schedule contracts. 67 Fed. Reg. 43,514 (the final rule was effective on July 29, 2002). As the FAR councils noted when publishing the proposed rule, the change was being made to “permit the ordering office contracting officer to issue a final decision regarding disputes pertaining solely to performance of schedule orders.” 65 Fed. Reg. 79,702 (Dec. 19, 2000). The revised regulation provides: (a) Disputes pertaining to the performance of orders under a schedule contract. (1) Under the Disputes clause of the schedule contract, the ordering activity contracting officer may — (i) Issue final decisions on disputes arising from performance of the order (but see paragraph (b) of this section); or (ii) Refer the dispute to the schedule contracting officer. (2) The ordering activity contracting officer shall notify the schedule contracting officer promptly of any final decision. (b) Disputes pertaining to the terms and conditions of schedule contracts. The ordering activity contracting officer shall refer all disputes that relate to the contract terms and conditions to the schedule contracting officer for resolution under the Disputes clause of the contract and notify the schedule contractor of the referral. (c) Appeals. Contractors may appeal final decisions to either the Board of Contract Appeals servicing the agency that issued the final decision or the U.S. Court of Federal Claims…. 48 C.F.R. § 8.406-6 (2004) (the text from the 2002 FAR amendment was renumbered in 2004). The plain language of this regulation establishes that when a contractor submits a claim to an ordering activity CO, it is that CO’s responsibility to determine whether a dispute relates solely to the performance of an order or, instead, pertains to the terms and conditions of the schedule contract. Thus, one might have read the regulation to mean that a contractor could submit a claim to either the ordering activity CO or the GSA CO. Then, the government would determine which CO possessed authority to issue a final decision. While such an interpretation is certainly logical and reasonable, it is wrong. The Federal Circuit’s decision makes it clear that it is the schedule contractor, and not the CO, that is responsible for determining to whom its claims must be submitted. Failure to identify the correct CO may result in the dismissal of an appeal for lack of CDA jurisdiction. Choosing the appropriate CO is made all the more critical where a schedule contractor is nearing the CDA six-year statute of limitations. The Sharp Electronics case involved a contractor’s certified claim requesting fees under the termination provisions of an Army order placed against a schedule contract. The contractor submitted its claim to the Army CO. Critically, the Army CO disregarded the clear responsibility under FAR 8.406-6 and ignored the claim. Thus, the 60-day CDA decision period elapsed and — in the contractor’s view — resulted in a “deemed denial.” The contractor then appealed to the Armed Services Board of Contract Appeals (ASBCA). Sharp Elecs. Corp., ASBCA No. 57583, 12-1 B.C.A. 34,903. Both the contractor and the government believed that their dispute should be decided by the ordering agency CO. Both parties believed the dispute was based on the order contract performance and not the terms of the schedule contract. In fact, neither party raised the jurisdictional issue. The ASBCA raised the issue on its own. The ASBCA then held that it lacked jurisdiction over the appeal because the dispute did require the interpretation of the schedule contract and, therefore, only could have been decided by the GSA CO. The contractor’s decision to submit the claim to the Army CO, combined with that CO’s failure to forward the claim, meant there had been no properly submitted claim under the CDA and, therefore, no “deemed denial” from which to appeal. Id. The fact that the regulation clearly places the responsibility upon the ordering activity CO to make a determination regarding his/her own authority to resolve the dispute and then to forward claims to the GSA schedule CO when the dispute pertains to the terms and conditions of the schedule contract did not alter the outcome. In a split decision, the Federal Circuit affirmed the ASBCA decision finding that under FAR 8.406-6 the ordering agency CO did not have the authority to make a determination regarding the contractor’s claim because the dispute involved, at least in part, interpretation of the terms of the schedule contract. The Federal Circuit’s decision announces a so-called bright-line rule that “all disputes requiring interpretation of the schedule contract go to the [GSA] schedule CO, even if those disputes also require interpretation of the order, or involve issues of performance under the order.” See Sharp Elec., supra at *6 The Federal Circuit, in highlighting the bright-line, attempts to address the jurisdictional uncertainty under FAR 8.406-6 created by the 2002 rulemaking. As noted by the dissent, however, the Court has succeeded in, effectively, reinstituting the prior rule that all disputes relating to schedule contracts should be submitted to the GSA CO. In other words, when in doubt, contractors must submit claims to the GSA CO. Perhaps being defensive regarding the dissent’s objections, the Court noted that under a schedule contract an ordering agency CO remains authorized to make final determinations regarding performance, the terms of an order or its modifications “as long as the dispute does not involve interpretation of the schedule contract.” The Court also states that an ordering agency CO may resolve a dispute by “applying the relevant provisions of the schedule contract “as long as their meaning is undisputed.” Despite these statements, however, the actual effect of this holding, as the dissent properly points out, will be that most contract disputes under schedule contracts will be submitted to the GSA CO and not the ordering agency CO. Indeed, many disputes can be characterized as requiring interpretation of the schedule contract. Thus, contractors that submit claims to ordering activity COs who are inclined to disregard the claim, as did the Army CO in the Sharp case, run the risk that what seems to be a “deemed denial” is, in reality, a nullity under the CDA. For these reasons, prudent schedule contractors will submit claims to GSA COs. GSA COs, however, typically have very little, if any, knowledge regarding the facts of a dispute that primarily relates to performance under an order and only tangentially requires the interpretation of the schedule contract. This could lead to increased denials or deemed denials of contractor claims. Nevertheless, after this decision, if a dispute may pertain to interpretation of a schedule contract terms and provisions, a schedule contractor, particularly one with a potential statute of limitations issue, will be wise to submit its certified claim to the GSA CO or risk a similar outcome.
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