CBCA Grants Appeal, Finds Contractor Is Entitled to Recover Start-Up Costs; WageWorks, Inc. v. Office of Personnel Management, CBCA 6027


Contractor’s appeal seeking costs incurred in preparing to take over the contract is granted. The contract was for administration of an employee benefits plan. The government argued that the contractor was not entitled to payment until it actually began administering the plan. The board, however, found that the plain language of the contract indicated that the contractor was entitled to recover preparation costs. The contract required the contractor to develop systems to administer the plan during a three to six-month transition period. If the agency had intended that the contractor not be paid for this start-up period, it should have provided that these start-up services would be provided at no additional cost.

The Office of Personnel Management (OPM) awarded WageWorks, Inc. a contract to administer a flexible spending benefit program offered to federal employees. OPM awarded the contract in March 2016, but WageWorks did not actually begin administering the benefit program until September 1, 2016. Nevertheless, the contract required WageWorks to develop parts of the benefits system before September 2016.

In February 2017, WageWorks submitted an invoice to OPM for the period of March through December 31, 2016. OPM rejected the invoice because it sought amounts from March to August 31, 2016 that were not actually for administration of the benefits system. OPM submitted a claim for payment of the services rendered from March to August 2016, but OPM denied it. WageWorks appealed to the CBCA. Both parties cross-moved for summary judgment.

The issue on appeal was whether WageWorks was entitled to receive payment for the start-up work it performed before actually taking over administration of the plan. The board found that the plain language of the contract indicated that WageWorks was entitled to be paid for the start-up period.

First, OPM contracted with WageWorks for administrative services that were to begin in March 2016. Those services included the development of all necessary elements of a system that would be ready to administer account by September 1. The board could not read the March start date out of the contract. Indeed, the contract’s transition requirements stated that WageWorks was supposed to spend at least three and no more than six months preparing to take over administration of the program. Finding that WageWorks was entitle to be paid for its preparation activities reconciled the March start date and transition language of the contract.

Second, the activities listed in the CLIN at issue included the requirement to develop or establish several systems that had to be brought online before WageWorks took over responsibility for the program. These activities were not limited to only those that were necessary to actually administer the benefits program.

Third, the contract made it clear that WageWorks had to be ready to transition no later than September 1, and WageWorks had to undertake significant efforts to accomplish this transition. If OPM had intended that WageWorks not bill for these costs, then the agency should have made it clear, like it did with other aspects of the contract, that these start-efforts were to be provided at no additional cost.

OPM argued that WageWorks was not entitled to start-up costs because it was only to be paid based on participants in the program. Thus, WageWorks was only entitled to be paid for the actual administration of the program. But the board found that this language did not mean that WageWorks was only to be paid for administering the program. Rather, it was just the way OPM chose to structure payment for the contract.

OPM further contended that the solicitation advised that the successful contractor would have to fund start-up costs before any administrative fees had been received. The board, however, reasoned that this provision did not somehow mean that WageWorks had to shoulder all start-up costs.

OPM alleged that the contract did not allow WageWorks to administer accounts until received authority to operate a computer system, which indicated that WageWorks was not entitled to start-up costs. The board rejected this argument, reasoning that the requirement to obtain approval for a computer system was not tied to any payment provision of the contract.

Lastly, OPM contended that WageWorks had breached the convent of good faith and fair dealing by failing to inform OPM that it had a different interpretation of the contract regarding start-up costs. The board noted that in light of its determination that WageWorks’ interpretation was, in fact, the correct interpretation, the actions took WageWorks to advance its own interpretation of the contract did not amount to breach of the covenant of good faith and fair dealing.

WageWorks is represented by Lars E. Anderson, Sally Ann Hostetler, and James P. Miller of Odin Feldman Pittleman PC as well as Dale Bish of Wilson Sonsini Goodrich & Rosati, PC. The government is represented by Nicole Lohr and James Muetzel of the Office of Personnel Management.

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