The FAR permits recovery of termination settlement costs that can be proved using a standard record keeping system. Here, the COFC denied the contractor’s claim for settlement costs, finding it did not have a standard record keeping system. The contractor appealed. But the Federal Circuit affirmed, holding that the contractor’s record keeping system was simply a vast collection of documents that was neither standard nor a system.
ACLR. LLC v. United States, Fed. Cir., 2023-1190
- The Contract – The contractor had a task order to identify and recover overpayments made to private insurers under Medicare. The contract provided that the contractor would be paid a contingency fee of 7.5 percent of the amounts recovered.
- The Claim – The contractor identified millions in overpayment for FY 2007 and 2010. But the government, for assorted reasons, told the contractor not to collect those payments. The contractor filed a suit in the COFC alleging the government breached by not allowing the contractor to collect the payments.
- COFC Proceedings – The COFC determined that by not allowing the contractor to collect the overpayments, the government had constructively terminated portions of the task order for convenience. The COFC remanded, so the parties could work out termination settlement costs. The government said the contractor was only entitled to $157,000 in costs. The contractor argued it was entitled to almost $6 million, which was 7.5 percent of the amount of overpayments identified in 2007 and 2010. The government moved for summary judgment, arguing the contractor did not keep sufficient records to establish its damages. The COFC agreed and entered judgment for the government.
- Constructive Termination – The contractor appealed to the Federal Circuit. The contractor argued on appeal that the government had not constructively terminated the task order; it had breached. But the court rejected the argument. The task order incorporated FAR 52.212-4(l), the termination for convenience provision. That provision authorizes an agency to terminate any portion of a task order for convenience. When an agency stops or curtails a contractor’s performance for questionable reasons, the termination for convenience clause may constructively justify the agency’s actions. The court held that the record supported a constructive termination.
- Damages – The contractor argued that even if the government had terminated, it was still entitled to earn the 7.5 percent fee on the overpayments it identified in 2007 and 2010. Not so, said the Federal Circuit. The contract only permitted the contingency on amounts collected, not amounts identified. Here, the contractor never collected the amounts identified. It was not entitled to recover any contingency fee.
- Standard Record Keeping System – FAR 52.212-4(l) only allows a contractor termination costs it can prove using a “standard record keeping system.” The COFC found the contractor could not prove settlement costs because it did not have a standard record keeping system. The contractor appealed this ruling, but the Federal Circuit sided with the COFC. The contractor’s system was a “vast collection of documents . . . rather than a systematic organized method of tracking costs. The contractor’s records were not thought out; indeed, its system belied the plain meaning of a standard system. The court opined that to find the contractor’s system sufficient would read “standard” and “system” out of the FAR regulation.
The contractor is represented by John Bonello and Thomas David of the Reston Law Group. The government is represented by Joseph Alan Pixley, Brian M. Boynton, Augustus Jeffrey Golden, Martin F. Hockey, Jr., and Patricia M. McCarthy of the Department of Justice.
–Case summary by Craig LaChance, Editor in Chief
