In the April edition of the American University Law Review, Wiley Rein attorneys Daniel Graham, Jon Burd, Tracye Winfrey Howard, Brian Walsh and Barron Avery will publish a review of the precedential opinions issued by the United States Court of Appeals for the Federal Circuit in 2009 in the field of Government Contracts. Below is a summary of the highlights.
Four aspects of the Federal Circuit's 2009 decisions reflect significant developments in the court's government contracts jurisprudence: First, the Federal Circuit issued seven protest decisions last year, which substantially exceeds the law generated in this area in any of the previous five years. More important, the court's decisions in each of these appeals favored the Government and emphasized the need for judicial restraint and deference to procuring officials. In four appeals, the Federal Circuit reversed (at least in part) a trial court's decision in favor of the protester, and in three of these reversals, the court expressed concern that the trial court had exceeded the scope of its review:
In Weeks Marine, Inc. v. United States, 575 F.3d 1352, 1371 (Fed. Cir. 2009), the Federal Circuit reversed the COFC's judgment in favor of the protester, concluding that, if it were to find that the agency lacked a rational basis for its decision, it "would be second-guessing the Corps's action. That is something we are not permitted to do."
Similarly, in Alabama Aircraft Indus. v. United States, Nos. 2009-5021, -5022, and -5033, 2009 WL 3818528 (Fed. Cir. Nov. 17, 2009), the Federal Circuit reversed the COFC's judgment against the Government, concluding that the COFC's ruling effectively "introduce[d] new requirements outside the scope of the RFP" and exceeded the scope of the trial court's review.
Finally, and perhaps most important, the Federal Circuit in Axiom Resource Management, Inc. v. United States, 564 F.3d 1374, 1380 (Fed. Cir. 2009), reiterated that the COFC's review of bid protests under the Tucker Act is limited to the administrative record and admonished that
"supplementation of the record should be limited to cases in which the omission of extra-record evidence precludes effective judicial review."
Axiom, in particular, will lead to further litigation over what constitutes "effective judicial review," what sort of extra-record evidence may be "necessary" to provide such review if the record is inadequate, and how much discretion the COFC has to decide these issues. Nevertheless, the unmistakable theme of the Federal Circuit's 2009 bid protest decisions is the court's focus on the limits of judicial review of Federal procurement decisions.
Second, the Federal Circuit upheld one of the largest judgments ever reported against a contractor under the anti-fraud provision of the CDA in Daewoo Engineering and Construction Co. v. United States, 557 F. 3d 1332 (Fed. Cir. 2009). The decision in Daewoo is important, not only for the size of the judgment levied against the contractor for submitting a fraudulent claim, but also because the line drawn between the amount of the claim that was fraudulent and the amount that was not fraudulent continues to raise more questions than it answers. Given the ever-increasing focus on allegations of contractor fraud in the media, Congress and the Executive Branch, Daewoo underscores the stakes involved in such allegations and deserves an especially close reading by all members of the government contracts bar.
Third, the Federal Circuit continued to decide questions of contract interpretation according to its view of the "plain meaning" of the contract language at issue, in some cases concluding that this plain meaning had eluded the lower tribunal. The most significant of these decisions is Bell BCI Co. v. United States, 570 F.3d 1337, 1341 (Fed. Cir. 2009), in which a divided panel of the court ruled that boilerplate release language in a bilateral modification barred a contractor's claims for the cumulative and disruptive impact of multiple change orders. Over a vigorous dissent, the panel majority held that the release language unambiguously discharged claims for cumulative impact and disruption, notwithstanding the absence of any reference to "cumulative impact" or "disruption" in the modification and the Government's failure to introduce any evidence that the parties intended to release such claims. Id. at 1339; id. at 1344 (Newman, J., dissenting).
Finally, the Federal Circuit issued two significant decisions addressing cost accounting issues in 2009, both of which were adverse to contractors asserting claims against the government. In Geren, Secretary of the Army v. Tecom, Inc., 566 F.3d 1037 (Fed. Cir. 2009), the court established a two-part analysis to determine if defense and settlement costs associated with third-party, sexual harassment litigation are allowable charges on a government contract. First, the COFC or board of contract appeals must examine whether damages or penalties resulting from an adverse judgment would be allowable under the contract. If not, the costs of settlement of such an action are also unallowable "unless the contractor can establish that the private Title VII plaintiff had very little likelihood of success on the merits." And in Gates, Secretary of Defense v. Raytheon Co., 584 F.3d 1062 (Fed. Cir. 2009), the court held that under Cost Accounting Standard 413-50, contractors must make an adjustment during the current accounting period for the sale, discontinued operations or other closure of a business segment. Moreover, interest on the repayment amount will be compounded daily.