Plaintiff’s motions for summary judgment on two counts seeking declaratory relief are granted, where the contract clearly did not permit the agency to claw back provisional incentive fees before the completion of the project, and where the government conceded that regulatory requirements for a legal management plan did not apply to the plaintiff and therefore its REA for legal costs was allowable. The government’s motion to dismiss a breach of contract claim as time-barred is denied, where the plaintiff’s claim did not accrue until it knew that the agency would not process a baseline change to add the fee to the contract, as it had promised to do.
In a series of separately filed claims that were later consolidated for the court’s consideration, CB&I AREVA MOX Services LLC sought damages and declaratory relief under its contract to construct a mixed oxide fuel fabrication facility for the Department of Energy’s National Nuclear Security Administration.
MOX Services’ supplemental complaint contained five counts: 1) breach of contract (incentive fee); 2) declaratory relief (premature claw back of provisional incentive fee); 3) breach of contract (fixed fee on out-of-scope work and for the realization of risks NNSA assumed); 4) breach of contract (request for equitable adjustment preparation costs); and 5) declaratory relief (REA preparation costs).
Before the court are cross-motions for summary judgment regarding the declaratory relief counts of the supplemental complaint. MOX Services argued that Count II presented a pure question of contract interpretation on whether NNSA prematurely clawed back $21.6 million of cost/schedule incentive fee payments it had made to MOX Services. Similarly, the plaintiff argued that that Count V presented a question of regulatory interpretation on whether the attorneys’ fees and other professional consultant costs claimed by MOX Services for reimbursement as contract administration costs in investigating and preparing an REA constitute legal costs.
In response, the government filed a motion for partial dismissal of Counts II, III, and V, arguing that the declaratory relief counts should be dismissed for lack of jurisdiction because they were not presented to the contracting officer, they do not present a case or controversy and are not ripe, and because declaratory relief may not be granted when money damages are adequate. On Count III, the government moved to dismiss because MOX Services failed to provide required contractual notice of the claim, and because the claim allegedly is time barred by the Contract Disputes Act’s six-year statute of limitations.
Under the contract, MOX Services was eligible to earn quarterly incentive fees for making progress toward completing construction within certain cost and schedule parameters. The contract’s Project/Cost Incentive Fee Band & Schedule included a 6.75 percent fee schedule and a 7 percent fee schedule. The 7 percent fee schedule became effective upon the execution of a contract modification for a “hot start” of the project. MOX Services asserted that NNSA wrongly has refused to execute a “hot start” modification to avoid paying the higher fee, and thus contends that it is entitled to use the 7 percent fee schedule.
The incentive fee provisions also included a vesting schedule. For at least the first year after MOX Services invoiced for quarterly incentive fees, the entire incentive fee was provisional. For as long as MOX Services’ performance remained within the cost and schedule parameters during the previous four quarters, 50 percent of the provisional incentive fee payment became final, and could not be reclassified or taken back by NNSA. The other half of each quarter’s incentive fee remained provisional.
NNSA paid MOX Services for 12 quarterly incentive fee payments for fiscal years 2008 through 2010. Thereafter, NNSA determined that MOX Services was no longer within the applicable cost and schedule parameters, and then suspended further incentive fee payments in February 2011. In total, the NNSA paid MOX Services $29.1 million, of which $21.6 million is provisional. On September 29, 2016,3 MOX Services submitted a certified claim for approximately $53 million in suspended incentive fee, representing the incentive fee amounts from fiscal years 2011 to 2015 that NNSA has not paid. In response, the contracting officer issued two final decisions denying the claim for $53 million and demanding that MOX Services refund all of the provisional incentive fee payments previously made. Through a combination of direct payments and reduced NNSA payments of MOX Services’ invoices, MOX Services has satisfied NNSA’s demand for repayment of the provisional incentive fee plus interest.
MOX Services sought the return of these funds. The court found that the various contract provisions taken together unambiguously provide that the incentive fee NNSA pays to MOX Services is to remain in the custody of MOX Services until the MFFF construction is completed. The court found that the provisional incentive fees are used explicitly to adjust cost sharing between the parties when construction is finished. Only at project completion does any unvested incentive fee become subject to potential payback to NNSA.
NNSA’s attempt to claw back $21.6 million in provisional incentive fees was premised on the assertion that MOX Services has hopelessly exceeded the estimated project cost, has no chance of meeting the project schedule parameter, and thus will not be able to show entitlement to any incentive fees at project completion. In opposition, MOX Services maintained that the estimated project cost and schedule must be adjusted under the changes clause, because MOX Services is not responsible for the increased costs and schedule delays incurred to date.
The court noted that these arguments would be resolved in the other claims MOX Services submitted. However, Regardless of which party is responsible for the increased costs and schedule delays, the court found that none of the contract provisions permitted NNSA to claw back provisional incentive fees before the completion of the project. The court found that the CO used the denial of the plaintiff’s claim and the demand for a refund as a way to gain leverage over MOX Services through baseless retaliation, and grated the plaintiff’s motion for summary judgment on Count II.
In relation to its REA claim to NNSA, MOX Services sought reimbursement of $2 million for outside counsel and accounting consultants to assist in investigating and preparing the REA. The parties disagreed on whether the REA preparation costs would be allowable as contract administration expenses. During oral arguments, the government’s counsel conceded that 10 C.F.R. Part 719 does not apply to MOX Services, and cannot be relied upon as a basis to oppose MOX Services’ claims for REA preparation expenses. Accordingly, the court granted declaratory relief in favor of MOX Services.
Having found in favor of the plaintiff on Counts II and V, the court turned to the government’s motion to dismiss Count III, MOX Services’ claim for breach of contract (fixed fee on out-of-scope work and for the realization of risks NNSA assumed). The government argued that (1) that the claim was not based upon any contractual provision; and (2) that MOX Services failed to submit the claim to the contracting officer within six years of accrual.
The court found these arguments to be without merit. First, the court found the suggestion that MOX Services’ breach of contract claim is not based upon a specific contract provision was simply wrong. NNSA was obligated to increase the congressional baseline for the MFFF project and to issue a corresponding modification to the contract to account for “fee bearing” changes and certain “outside of the project risks” that were expressly assumed by NNSA. MOX Services’ complaint asserted that NNSA failed to fulfill these obligations.
While the government argued that Count III was styled as a breach of contract claim rather than an equitable adjustment claim, the court found this to be a semantic distinction without a substantive difference. MOX Services based its claim for fixed fee on both the changes clause and other risk-shifting provisions that have been disregarded by NNSA. The court found it indisputable that MOX Services followed CDA procedures by submitting the REA and then a certified claim for fixed fee, putting all of these issues squarely before the CO for a decision.
The government argued that MOX Services cannot state a claim under the changes clause because it did not comply with the requirement to assert a right to an equitable adjustment within 30 days of receiving a written change order. However, the court found no change orders existed, and therefore notice did not need to be submitted within a 30-day period. Further, even if some notice requirement applied, the court found that MOX Services’ claim is not precluded because the government knew all of the operative facts giving rise to the claims. Further, the court explained that the CDA’s statute of limitations is an affirmative defense that does not relate to its jurisdiction to hear a matter.
The court also noted that the claim accrued only after MOX Services reasonably understood that NNSA would refuse to re-baseline the project as it promised to do. In this case, the re-baselining proposal in late 2012 was just the first step towards completion of the mandatory pre-claim procedure envisioned by the parties to address the fee on out-of-scope work. MOX Services could not have known of the breach—and its claim did not accrue—until it knew or should have known that the NNSA would not process a baseline change to add the fee to the contract. The NNSA did not even direct MOX Services to start the rebaseline process until January 2012, which the court noted was well within the six-year statute of limitations.
CB&I AREVA MOX Services LLC is represented by Mark J. Linderman, with whom were Dennis J. Callahan and Stephen L. Bacon of Rogers Joseph O’Donnell, PC. The government is represented by Joseph E. Ashman, Senior Trial Counsel, with whom were P. Davis Oliver and Anthony Schiavetti, Trial Attorneys, and Chad A. Readler, Acting Assistant Attorney General, Robert E. Kirschman, Jr., Director, and Allison Kidd-Miller, Assistant Director, Commercial Litigation Branch, Civil Division, Department of Justice.
**The Court issued its original decision on June 11, 2018. On July 6, 2018, the government filed a motion for partial reconsideration concerning a portion of the decision. The Court granted this motion and reissued its opinion in full. The revised decision is presented here first, with the original below.