On June 17, 2010, the United States Court of Appeals for the Federal Circuit issued a decision that is likely to add uncertainty to the law regarding when a contractor can present defenses to a government claim or must submit a contractor claim and obtain a Contracting Officer Final Decision pursuant to the Contract Disputes Act (CDA), 41 U.S.C. § 601 et seq. in order to raise possible defenses to the government claim.

In M. Maropakis Carpentry, Inc. v. United States, No. 2009-5024, Maropakis entered into a contract with the Department of the Navy to replace the roof and windows of a warehouse building. The contract, as modified, required completion by February 4, 2000, and included liquidated damages for each day of delay beyond the completion date. Maropakis completed the project on May 17, 2001, 467 days after the completion date as modified.

In August 2001, Maropakis sent a letter to the Contracting Officer requesting an extension of the contract completion date as a result of various delays in its performance. Later that month, the Contracting Officer rejected the request, stating that Maropakis had not provided sufficient information. The Contracting Officer invited Maropakis to submit additional information and emphasized that his letter was not a Contracting Officer Final Decision.

Several months later, in June 2002, the Navy sent Maropakis a letter noting that it had not submitted additional information to the Contracting Officer nor requested a final decision and, therefore, the Navy would assess liquidated damages for each of the 467 days of delay, a total of slightly over $300,000. As payments were outstanding on the contract, the Navy applied the liquidated damages to the remaining payments and informed Maropakis that it owed $59,514. Maropakis responded to the letter in July 2002, again requesting a schedule extension for at least some of the delay days and asserting that it was not responsible for at least a portion of the delays and would "dispute" the liquidated damages.

In December 2002, the Contracting Officer issued a Final Decision regarding the Navy's demand for liquidated damages. Nearly a year later, with no further correspondence between the parties, Maropakis filed a complaint with the Court of Federal Claims alleging breach of contract on two grounds: (1) government delay and (2) breach of contract for the assessment of liquidated damages. It sought a schedule extension and full remission of the liquidated damages amount. The Navy counterclaimed for the unpaid $59,514 in liquidated damages. Upon the Navy's motion, the Court of Federal Claims dismissed the government delay count for lack of jurisdiction because Maropakis had not filed a "claim," within the meaning of the CDA and FAR, with the Contracting Officer. It granted summary judgment on the Navy's counterclaim, finding that Maropakis failed to establish a material issue whether the Navy's assessment of liquidated damages was a penalty. Maropakis appealed both decisions, arguing that its prior letters were sufficient to constitute a CDA claim and that it was not required to submit a claim to assert its right to a time extension as a defense to the Navy's assessment of liquidated damages.

Over Judge Newman's dissent, the Federal Circuit panel affirmed both holdings. With respect to Maropakis's allegation that its correspondence was sufficient to constitute a CDA claim, the court held that Maropakis's July 2002 letter was not a valid claim because it did not adequately inform the Contracting Officer of the number of days of schedule extension requested, did not state a sum certain, did not request a final decision, and was not certified. Slip Op. at 10. In addition, because the CDA reflects a waiver of sovereign immunity, the court noted that its requirements must be rigorously observed.

Regarding the assessment of liquidated damages, the Federal Circuit rejected Maropakis's argument that it should be able to assert its allegations that the Navy caused at least some of the delays as a defense to the assessment of liquidated damages. First, the court rejected Maropakis's reliance on Placeway Construction Corp. v. United States, 920 F.2d 903 (Fed. Cir. 1990), for the proposition that a contractor claim is not required prior to raising a defense of excusable delay to a government claim. The court reasoned that Placeway addressed only whether the court had jurisdiction over a government claim where the Contracting Officer had effectively, but not expressly, issued a final decision, but it did not address jurisdiction over any contractor defenses. Second, the court stated that several Court of Federal Claims decisions have "directly addressed the issue and have all concluded that even when used as a defense to a government claim, a contractor's claim for contract modification must adhere to the jurisdictional requirements of the CDA." Slip Op. at 13. The court concluded:

Maropakis does not point to any authority that provides an exception to the CDA claim requirements when a contractor's claim for contract modification is made in defense to a government claim . . . Thus, we hold that a contractor seeking an adjustment of contract terms must meet the jurisdictional requirements and procedural prerequisites of the CDA, whether asserting the claim against the government as an affirmative claim or as a defense to a government action.

Id. at 15.

Judge Newman wrote a vigorous dissent. Noting that at least some of the delay was indisputably caused by the Navy, Judge Newman emphasized that when a claim is within a tribunal's jurisdiction, as the Navy's claim unquestionably was, the tribunal routinely has jurisdiction to consider defenses to that claim. Dissent at 3. As Judge Newman reasoned, "Maropakis is simply raising an objection to the merits of the government's claim for delay damages, defending on the ground that the government had contributed to the delay." Id. at 2. Judge Newman further reasoned that "[n]o rule or precedent holds that a contractor forfeits its right of defense if it does not file its own claim." Id. at 6. Judge Newman closed with the following:

The right to defend against an adverse claim is not a matter of "jurisdiction," nor of grace; it is a matter of right. The denial of that right, argued by the government on a theory of "jurisdiction" that was supported by the Court of Federal Claims and is now supported by this court, is contrary to the purposes of the CDA, contrary to precedent, and an affront to the principles upon which these courts were founded.

Id. at 7 (footnote omitted).

The decision in Maropakis arguably conflicts with the long-standing "Fulford Doctrine," which originated in a 1955 Armed Services Board of Contracts Appeals case and allows a contractor to challenge a default termination as part of a timely appeal from the assessment of excess reprocurement costs, even if the appeal is filed more than a year after the termination. Although admittedly based on other FAR provisions, the Fulford Doctrine promotes judicial economy by not forcing a contractor to challenge its default termination simply to be able to reserve its defenses in the event of a possible future government claim.

By contrast, Maropakis appears to mean that a contractor that receives an unfavorable decision on a government claim and wishes to assert defenses that might require a modification to the contract must submit (or possibly already have submitted) its own claim (certified if it meets the CDA threshold for certification) and obtain a Contracting Officer's Final Decision to raise such defenses to the government claim. The decision adds to the complexity of evaluating government claims and possible defenses, and several in the government contracting community have criticized it. See "Federal Circuit Says Valid CDA Jurisdiction Needed for Jurisdiction to Defend Government Claim," 93 Fed. Contract Reports 44.

Although the full impact of the decision remains to be seen, one foreseeable impact may be to impair contractors' ability to appeal final decisions on government claims to the Boards of Contract Appeals. Because the appeal period for the Boards is only 90 days (as opposed to one year at the Court of Federal Claims), and a Contracting Officer has at least 60 days to issue a final decision on a contractor claim, contractors may find that they must bring their own claims in advance of any government claim to preserve their ability to appeal in that forum. Along with its other cautionary tales, Maropakis also counsels contractors against waiting to submit claims that might become defenses against government claims in the future.