Due Diligence is Key in Contractual Disputes

Be timely in making claims. If you have problems getting paid for your contractual work, don’t be lulled into a sense that you can sort it out with your government contacts. The courts have consistently held that contractors must exercise due diligence in making claims.

And that means knowing who to make the claim to and when to make it. Otherwise you could be left standing out in the cold.

Under Federal Acquisition Regulation (FAR) Part 2, a claim is a written demand for relief for an injury related to a contract such as past due payments or adjustments or interpretations of terms of a contract. By making a claim, your business is invoking the disputes clause of your contract. Vouchers, invoices or other routine requests for payment do not qualify claims.

When a dispute does arise, the government’s stated policy is to try to resolve a claim by mutual agreement. Before you file an official claim, however, you should try to make every reasonable effort to resolve the dispute.

If you reach an impasse in those efforts, you may have to resort to seeking a remedy under the disputes clause. Here is where you must be certain of what you are doing. Only the contracting officer, not a representative or any other individual related to your contractual work, has the authority to work out mutual agreements to resolve disputes. And that official cannot perform that function until you have submitted a written notice that constitutes a claim.

The federal Contract Disputes Act requires that written claims for a decision be filed within six years after accrual of a claim unless the contracting parties agree to a shorter time. The accrual of claim is the date when all events that fix alleged liability were known or should have been known. For a liability to be fixed, there must be some injury, although not necessarily monetary damages.

Do not misinterpret the effect of your own efforts to resolve the contractual issue with an agency or administration of the government entity to constitute an official claim. The importance of performing due diligence and becoming aware of amounts due and dates due, particularly on multi-year contracts, is blatantly clear by the following decision in a dispute before the Armed Services Board of Contract Appeals.

In the case, a defense supplier filled task orders over five years under a multi-year indefinite delivery/indefinite quantity contract. During the third and fourth years, the contractor began following up with the paying office on some past due amounts. For several years, the contractor, paying office and contract administration office worked to try to reach a mutual agreement to resolve the problem.

The contractor collected some payments and continued discussions for more but eventually the six year deadline from the claim accrual passed. The claim had accrued when the contractor determined the company was due money and injury had occurred. That was when the contractor made the claim to the paying office that included a summary of past due amounts with supporting documents.

A critical element here is that the claim was made to the paying office rather than the contracting officer. Once the deadline for making a claim to the contracting officer passed as the contractor and others continued their negotiations, the company was out of luck. And it wasn’t until after that expiration date that the contractor submitted a claim to the contracting officer.

The court dismissed the contractor’s appeal as time-barred because the claim was submitted to the contracting officer more than six years after its accrual.

The decision was partly based on precedent, indicating that the government has a history of reinforcing the necessity of making claims with contracting officers.

Tips:

  • Include the contracting officer on all communications regarding issues that have the potential for contractual dispute.
  • Always be aware of the date when a claim will accrue.
  • Be sure to submit your claim to the contracting officer (not a representative) and request verification that it has been received.

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