Claim Arising from Change In Law Accrued When the Law Changed, Not When Agency Decided that a Price Adjustment to Address the Change Was Unnecessary; Electric Boat Corporation v. Secretary of the Navy, Fed. Cir. 2019-1621

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ASBCA decision denying contractor’s claim as untimely is affirmed. The contractor sought to recover costs incurred as the result of a change in federal law. The contractor submitted a proposal to the agency requesting a price adjustment. The agency denied the request almost six years later. It was only after this denial that the contractor submitted a formal claim for the increased costs. The Federal Circuit held that the claim accrued when the law changed, not when the agency denied a request for a price adjustment. The contractor should have thus submitted a claim when the law changed, not when the agency denied what amounted to an informal request for a price adjustment. Because the contractor did not submit a claim until six years after the law changed, the claim was time-barred.

Electric Boat Corporation entered a contract with the Navy in 2003 for the construction of six nuclear-powered submarines. The contract included a Change-of-Law clause, which provided for a price adjustment in the event that a change in federal law increased the costs of performance. The clause stated that a cost adjustment would not be made during the first two years of performance. After two years, an adjustment would only be made if the cost increased more than $125,000 per ship. The clause required Electric Boat to notify the Navy of change in law. The clause further required that requests for a price adjustment should be made in accordance with contract’s procedures for submitting requests for an equitable adjustment.

In 2004, OSHA issued a new federal regulation that required companies to post a fire watch for “hot work” in a shipyard. In February 2005, Electric Boat notified the Navy of the change stating that it would result in an increase in the cost of performance in excess of $125,000. In 2007, Electric Boat submitted a cost proposal to the Navy seeking a price adjustment. Years later, in 2011, the Navy issued a decision denying Electric Boat’s request for a price adjustment.

In December 2012, Electric Boat filed a certified claim with Navy, seeking a price adjustment for the costs incurred in complying with the OSHA regulation. The Navy denied the claim. Electric Boat appealed to the ASBCA. The board, however, granted the Navy summary judgment, finding that the claim was barred by the Contract Dispute Act’s statute of limitations. Electric Boat then appealed to the Federal Circuit.

The court agreed with the ASBCA, holding that Electric Boat’s claim was untimely. The CDA requires that a claim be submitted within six years after accrual. OSHA enacted the fire watch regulation in 2004. As noted,Electric Boat could not seek a price adjustment for a change in law during the first two years of the contract. Thus, the Navy’s liability for the change did not fix until August 15, 2005, the two year anniversary of the contract. Thus, Electric Boat’s claim accrued in August 2005. But the company did not submit a formal claim until December 2012, which was more than six years after the claim accrued.

Electric Boat argued that its claim did not accrue until May 2011, when the Navy denied its request for price adjustment. Electric Boat contended that it had not been injured until it received notice of the Navy’s intent to not adjust the price.

The court acknowledged that a limitations period does not begin to run if a claim cannot be filed because mandatory pre-claim procedures have not been completed. But in this case, there were no mandatory pre-claim procedures. The contract expressly provided that to request a price adjustment, Electric Boat needed to follow the procedures for requesting an equitable adjustment. To be sure, Electric Boat notified the Navy of the price change, and it submitted a price proposal, but this was not the same as filing a formal request for an equitable adjustment. Ultimately, Electric Boat’s injury occurred when the law changed, not when the Navy decided not to adjust the price.

Still, Electric Boat argued that its claim was timely for five of the six submarines because its costs for these submarines did not exceed the target price until after 2006. Because Electric Boat was being fully compensated past 2006, it had no claim until its costs exceeded the target the price.

The court found this unavailing. Electric Boat was not required to incur actual costs for each submarine before filing a claim. Instead, when the claim accrued in 2005, Electric Boat had six years to file a claim for an equitable adjustment. The Navy’s payment of scheduled progress payments did not mean that the Navy had acquiesced to the alleged increased costs. Rather, there was an provision in the contract—i.e., the equitable adjustment procedures—for seeking increased costs.

Electric Boat also alleged that its claim was timely for two submarines because Congress did not authorize funding for those submarines until after December 2006. The court, however, held that the contract’s procedure for requesting an equitable adjustment did not make Congressional appropriation a condition precedent for seeking a price adjustment for each submarine. While Electric Boat was precluded from incurring actual costs on two submarines until funding was approved, it was not precluded from filing a claim for adjusted costs on those two submarines.

Electric Boat is represented by Ian Gershengorn, Matthew S. Hellman, and D. Joe Smith of Jenner & Block LLP. The government is represented by William James Grimaldi, Joseph H. Hunt, Martin F Hockey, Jr., and Robert E. Kirschman, Jr. of the Department of Justice as well as Alana M. Sitterly and Russell Shultis of the Navy.

Fed Circuit - Electric Boat