In GaN Corporation, ASBCA No. 57834, 2012 WL 2997037, a contractor appealed a government claim alleging contracting overcharging on a contract for hours worked by salaried employees. The contractor billed for the work with knowledge that the corresponding payments by the government would not be paid to the salaried employees who had worked those hours. This scenario could easily develop into a claim by the government that the contractor had wrongfully over billed or committed a violation of the False Claims Act. The Armed Services Board of Contract Appeals (“ASBCA” or “board”), however, sustained the contractor’s appeal ruling that the contractor was entitled to the amount charged to the contract and withheld by the agency. The board ruled in favor of the contractor after interpreting the terms of the contract and finding that the two parties had agreed that all hours worked would be billed to and paid by the government.

Contract Background

GaN Corp. entered into a contract with the U.S. Army Engineering Support Center, Huntsville, Alabama, to provide interior design services. The contract was awarded on a sole source basis under the SBA’s 8(a) Business Development program. The contract called for task orders to be issued either under a labor hours basis or a firm fixed price basis. The contract also included rates for a list of labor categories. In addition, the contractor’s cost proposal to the agency clearly disclosed how its pay rates were calculated for salaried employees as well as hourly workers and that all hours worked by its employees would be billed to the contract. This proposal was accepted by the agency.

During performance of the contract, the government conducted an audit and objected to the contractor billing for hours that were worked by employees but for which those employees were not paid. The contractor responded stating that the workers were salaried employees; exempt from the Fair Labor Standards Act, but that the billing rates had been accepted by the government. The contracting officer asserted that the contractor had overcharged the government and stated that the amount overcharged would be deducted from the next invoice submitted by the contractor. After some discussion with the contractor, the contracting officer issued a final decision consistent with its claim of overcharges by the contractor. The contractor then appealed.

ASBCA Rejects the Government’s Position

The board ruled in favor of the contractor on the basis of its interpretation of the contract. Contract interpretation is not an exact science, nor can an interpretation of one contract necessarily be applied in other situations on other contracts. That said, the principles involved in interpretation are applied in all situations. The ASBCA in GaN Corp. addressed the fundamentals of contract interpretation. First, a court or board will consider the plain meaning of the terms of the contract to give “reasonable meaning to all parts of the contract.” In doing so, one basic question to be answered is whether the plain meaning is unambiguous and supports only one meaning. If the meaning is unambiguous, then the analysis is finished. The board found that the government’s arguments supporting its interpretation of the contract to be unpersuasive because it tried to argue that other parts of the clause at issue, the Payments clause, made all employees hourly workers. The board found this to be unreasonable. Furthermore, the government attempted to read out clauses and ignored portions of the Payments clause that called for all hours worked to be charged to the contract. The ASBCA found this to be legally indefensible. In the end, the board found the terms of the contract unambiguous and the contractor’s interpretation prevailed.

What can a contractor take away from a decision like GaN Corp? The rather unique contract clauses and type of contract make it unlikely that many contractors will routinely contract on similar terms. Certainly, on a federal government contract, involving a billing for labor hours worked, the contractor should clearly express the basis for its anticipated billing. If some of the personnel assigned to the project are salaried, that fact needs to be disclosed as well as the expectation of payment for the actual work performed. That said, the short opinion is an excellent illustration of the initial steps in the interpretation of a federal contract. A board of contract appeals or a court will initially review the terms for any ambiguity. If there is none, then it will interpret the terms according to their plain meaning. Only if an ambiguity is found, is it necessary to turn to other means of interpreting terms whether that is looking to the intent of the parties, trade practice or other methods.