Douglas L. Patin, Aron C. Beezley & Amandeep S. Kahlon | Buildsmart
On May 19, 2020, the Federal Circuit upheld summary judgment against a government contractor for failure to file a claim timely within the six-year time limit prescribed by the Contract Disputes Act (CDA). In Electric Boat Corp. v. Secretary of the Navy, the Federal Circuit determined that the claim from the contractor, Electric Boat, accrued no later than August 15, 2005, the date when it first became entitled to a cost adjustment under its contract with the Navy. By certifying its claim more than seven years later, Electric Boat’s claim and appeal were untimely.
In 2003, Electric Boat signed a contract with the Navy to construct up to six submarines. The contract included a change of law provision providing for a price adjustment if compliance with a change in federal law increased or decreased Electric Boat’s costs. For the first two years of the contract, no cost adjustment was allowed under that provision, but, after August 15, 2005, for cost increases in excess of $125,000, Electric Boat could qualify for an adjustment under the clause. The clause required that Electric Boat provide the Navy prompt notice of any change of law and submit a request for equitable adjustment for any cost increase.
In September 2004, OSHA issued a new regulation requiring Electric Boat to post a “fire watch” if certain conditions were present during “hot work” at its shipyard. Five months later, Electric Boat submitted a notice of change to the Navy stating that Electric Boat anticipated a cost increase from the new regulation in excess of $125,000. Electric Boat submitted a cost proposal to the Navy in 2007, and the Navy formally denied the proposal in May 2011.
After certifying its claim in December 2012 and receiving a Final Contracting Officer’s Decision from the Navy denying the claim, Electric Boat filed an appeal with the Armed Services Board of Contract Appeals (ASBCA). The Navy moved for summary judgment, arguing that Electric Boat did not file its claim within the six-year limitations period provided under the CDA. The ASBCA agreed, finding that Electric Boat knew of its claim no later than February 2005 and suffered injury no later than August 15, 2005. Because Electric Boat did not certify its claim until December 2012, some seven years later, the claim was untimely.
Electric Boat appealed the ASBCA’s decision to the Federal Circuit. Affirming the ASBCA’s decision, the Federal Circuit noted that claims under the CDA must be submitted within six years of “accrual.” Per the Federal Circuit, claim accrual is set as “the date when all events, that fix the alleged liability of either the Government or the contractor and permit assertion of the claim, were known or should have been known,” and, while monetary damages need not have been incurred, “for liability to be fixed, some injury must have occurred.”
Per the Federal Circuit, the Navy’s liability became fixed for purposes of claim accrual on August 15, 2005, when Electric Boat became eligible for costs associated with the new OSHA regulation under the change of law clause. The Federal Circuit rejected Electric Boat’s argument that its claim did not accrue until formal denial of its cost proposal in May 2011. The Federal Circuit found that, in the absence of any “mandatory pre-claim procedures” that prevented certification of Electric Boat’s claims, the date for claim accrual should not be linked with the May 2011 denial. The contract did not require Electric Boat to await a unilateral price adjustment or denial from the Navy prior to filing a claim, so the formal denial by the Navy did not excuse Electric Boat’s failure to timely file its claim in accordance with the CDA six-year limitations period.
The Federal Circuit’s decision in Electric Boat is an important reminder for government contractors to be conservative when calculating the time for filing any certified claims against the government. Government review of potential changes and requests for equitable adjustment can lag substantially during a project and even extend well-beyond project completion. However, the government’s delay in reviewing and assessing requests for equitable adjustment will not toll the running of the statute of limitations under the CDA for filing a certified clam. When you first anticipate a claim might require appeal to the U.S. Court of Federal Claims, the ASBCA or the Civilian Board of Contract Appeals, it is a good idea to calendar a date six years from the earliest date when your claim may have accrued regardless of whether you have received a response to a request for an equitable adjustment. Being mindful of the limitations period will help you avoid Electric Boat’s unfortunate fate.