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Motion to dismiss contractor’s appeal for lack of subject matter jurisdiction is denied. The CDA does not allow a contracting officer to settle a claim based on fraud, and the board does not have jurisdiction over a claim based on fraud. Extrapolating from these propositions, the agency asserted a novel legal theory: whenever a contracting officers suspects fraud in the contract, they can withdraw a final decision and unilaterally divest the board of jurisdiction. The board rejected this argument. The CDA language only applies to “a claim” based on fraud. It does not apply any contract based on fraud. Here, the agency suspected there had been fraud in the contract, but the claim itself was not based on fraud. Accordingly, regardless of the alleged fraud in the contract, the board had jurisdiction over the claim.

The Army Corps of Engineers awarded a contract to Mountain Movers/Ainsworth-Benning LLC (MM/AB) for repairs to the Fort Peck Dam in Montana. MM/AB was a joint venture. One member of the partnership, Ainsworth-Benning, had financial problems that made it difficult for the joint venture to obtain performance and payment bonds. Due to a failure to obtain bonds the government terminated the contract for default.

Following the termination, MM/AB’s President and the contracting officer exchanged several communications. As a result of these communications, the contracting agency issued a cure notice and rescinded the termination for default. MM/AB ended up performing the contract.

After performing, MM/AB submitted a claim to the contracting officer. The contracting officer issued a decision finding partial merit to MM/AB’s claim. MM/AB appealed the decision to the ASBCA.

While the appeal was pending, the contracting officer rescinded the decision on ASBCA’s claim, arguing that they had reason to believe that MM/AB had a made a fraudulent misrepresentation to the government in connection with the contract. Specifically, the government claimed that during the communications concerning the termination, MM/AB President made a misrepresentation about the identity of Ainsworth-Benning entity that was part of the MM/AB joint venture. The Corps rescinded its final decision on MM/AB’s claim then moved to dismiss the appeal for lack of jurisdiction.

The Contract Disputes Act (CDA) does not authorize an agency to settle, compromise, or adjust any claim involving fraud. If a claim is based on fraud, the ASBCA does not have jurisdiction to hear an appeal from a denial of that claim.

Extrapolating from these principles, the Corps argued a novel legal theory: an agency may unilaterally remove litigation from a board whenever it suspects fraud. The Corps argued that Congress never intended for the government to defend claims involving fraud before a board where it has no ability to avail itself of the various defenses counterclaims that would be available in federal court. The Corps claimed that if the board were to retain jurisdiction over this claim, it would provide a safe forum for contractors to perpetrate while avoiding liability for their fraudulent behavior.

The board rejected this argument for a number of reasons. First, the plain language of the CDA applies to “any claim involving fraud” not to “any contract.” Thus, the alleged fraud must relate to the claim itself and not just to a belief that there was fraud somewhere in the contract. Moreover, even when a contracting officer issues a final decision on claim involving fraud, the board possess jurisdiction to review the decision if the decision asserts a basis other than fraud.

In this case, the board noted that the Corps did not assert that the claim itself was based on fraud. The decision did not even mention fraud. Indeed, the final decision could not have been based on fraud because the contracting officer contended he was unaware of the fraud when he issued a final decision. The Corps’ argument was wrong as a matter of law.

What’s more, the board found the justifications for the Corps’ argument suspect. The Corps alleged that in cases involving fraud, the board may not have jurisdiction but the contractor would still have a remedy with the Court of Federal Claims. The board, however, noted that if the Corps’ interpretation of the CDA divested the board of jurisdiction, then it should also divest the COFC because jurisdiction for both tribunals originates with a contracting officer’s final decision.

As noted, the Corps also alleged that in a case before the board, the government did not have the same defenses and counterclaims to fraud as it did in court. The board found that this argument ignored board’s ability to consider a defense of prior material breach, the board’s ability to find a contract void ab initio due to fraud, and the government’s ability to bring suit under the False Claims Act.

The Corps also argued that once the contracting officer rescinded the decision there was no longer a valid decision over which the board could assert jurisdiction. But the board found the rescission of the agency decision has no effect on the board’s jurisdiction. The board was vested with jurisdiction when AB/MM filed its appeal. Once the board is vested with jurisdiction, the contracting officer cannot divest the board of jurisdiction through unilateral action.

MM/AB is represented by Timothy A. Furin of Ward & Barry, PLLC. The government is represented by Michael P. Goodman and William G. Latka of the Army Corps of Engineers