Claim seeking to recover legal fees contractor incurred defending against a qui tam suit is granted. A relator sued the contractor in a qui tam suit under the False Claims Act, alleging that the contractor had falsely certified its compliance with a contract requirement. The government declined to intervene in the suit. The contractor successfully defended the suit and then filed a claim with the government for its legal fees. The government denied the claim. The court, however, found that the contractor was entitled to an equitable adjustment. The court reasoned that the government’s conduct—specifically its failure to provide the contractor with technical data required by the contract—breached the contract’s implied warranty of satisfactory performance and gave rise to the qui tam litigation. The government was responsible for the contractor’s legal fees.
The Tolliver Group, Inc. had a contract with the Army to develop technical manuals for a mine clearing vehicle. The contract required the Army to provide Tolliver with a technical data package with engineering drawings. The Army, however, never provided the technical package. Instead, after Tolliver had been performing for several months, the Army modified the contract by removing its obligation to provide the technical package.
But the modification came too late. An individual filed a qui tam suit against Tolliver under the False Claims Act in Virginia district court. The suit alleged that during the period before the contract modification, Tolliver had falsely certified compliance with the technical data package even though it had never received the package. The government declined to intervene or to move to dismiss the qui tam suit, so Tolliver defended itself in the action.
The district court dismissed the qui tam suit reasoning that there was no fraud: the Army knew it had not provided Tolliver with the technical package, and it had instructed Tolliver to proceed with performance. The relator in the qui tam suit appealed to the Fourth Circuit, which upheld the district court’s dismissal. Thereafter Tolliver submitted a claim to the Army for an equitable adjustment, seeking to recover the fees it incurred in defending the qui tam suit. The Army denied the claim. Tolliver then appealed to the COFC. Both Tolliver and the government moved for summary judgment.
The court noted that under the doctrine first set forth in United States v. Spearin, 248 U.S. 132 (1918), when the government fails to furnish contract specifications, it is deemed to have breached the implied warranty of satisfactory performance, and the contractor is entitled to recover costs flowing from that breach. To prove an equitable adjustment, the contractor must prove that the government’s conduct caused an injury to the contractor.
The court found that Tolliver had established entitlement to an equitable adjustment. The contract required the Army to provide the technical package, and the Army did not provide it. This was an omission that prevented Tolliver from performing the contract as specified. While the government corrected this omission with a contract modification, it failed to rein in the forces—i.e., the qui tam suit—set in motion by the omission. This abrogated the government’s implied warranty of satisfactory performance.
What’s more there was little question that the government’s actions were the cause of the qui tam suit. As the district court had noted, the Army had directed Tolliver to proceed with performance without the technical package. This was the very conduct the relator complained about in the qui tam suit. Because the lack of a technical package served as the basis for the qui tam suit, the fees that Tolliver incurred to defend itself were attributable to the government.
The court noted that the contract included FAR 52.243-1, a standard contract clause that requires a contractor to request an adjustment within 30 days of a written order. Here, Tolliver had filed its claim 112 days after the Fourth Circuit affirmed dismissal of the qui tam. But the court reasoned that the time limitation in FAR 52.243-1 is simply a means to protect against prejudice caused by late filings and it therefore liberally construed in favor of contractors. There was no indication of prejudice due to the late filing of Tolliver’s claims. Indeed, it was not clear to the court how Tolliver could have complied with the 30 day requirement because it did not know if the relator would continue to appeal dismissal of the suit.
The government alleged as a defense that the type of firm-fixed-price, level-of-effort contract at issue is not subject to adjustment based on Tolliver’s cost experience. The court opined that this argument might have merit if Tolliver had been able to perform under the contract’s specifications. But an equitable adjustment was appropriate precisely because the contract could not be performed as specified.
The court also noted the there is a limit on equitable adjustments that bars contractors from recovering the costs of defending themselves against third party claims. In this case, however, Tolliver was not defending itself against a third party claim. In a qui tam suit under the False Claims Act, the relator brings the claim on behalf of the government. Thus, the government was the actual plaintiff in the qui tam action.
The court granted Tolliver’s motion for summary judgment and denied the government’s cross-motion. The court, however, requested additional briefing on the reasonableness of Tolliver’s fees.
Tolliver is represented by Walter Brad English, Emily J. Chancey, and Michael W. Rich of Maynard Cooper & Gale P.C. The government is represented by Ashley Akers, Joseph H. Hunt, Robert E. Kirschman, Jr., and Tara K. Hogan of the U.S. Department of Justice as well as James M. Ives of the Army Legal Services Agency.
