The government’s motion to dismiss litigation seeking reimbursement of legal costs incurred in defense of a qui tam suit is denied, where the relator’s case relied on the contractor’s performance under a task order before it was converted to firm fixed-price, where the task order modification did not null the contractor’s rights that existed prior to the modification, and where the court found that the cost principles of FAR Subpart 31.2, though absent from the initial fixed-price level-of-effort contract, were presumed to be incorporated under the Christian Doctrine. Because the contractor’s qui tam defense was successful and because it sought reimbursement at the level allowed by the FAR, the court held the plaintiff had sufficiently pled the requirements for allowability.
The Tolliver Group Inc. filed a lawsuit seeking reimbursement of legal fees totaling $195,889.78 under a contract with the Army for production of a series of technical manuals. Tolliver incurred these legal fees while successfully defending its contract performance against a qui tam relator. The government moved to dismiss on the basis Tolliver had not stated a claim upon which relief could be granted.
Following its successful defense against the qui tam suit, Tolliver submitted a claim for an equitable adjustment seeking reimbursement of $195,889.78 under its task order for allowable legal expenses incurred in defending the suit. The sum represented 80 percent of its attorneys’ fees, the maximum allowed by the FAR for a successful defense of a False Claims Act suit. Tolliver’s claim expressly cited FAR § 31.205-47, which establishes cost principles for allowability of legal costs in commercial contracts.
However, the contracting office denied the claim, explaining that the task order, as modified, was a firm fixed-price order that contained no provisions for the government to assume the risk of legal costs. The CO also found that Tolliver’s legal costs were not allowable under the cost principles of FAR Subpart 31.2, because the legal costs were neither allocable to the contract nor within the terms of the contract. The CO found the legal costs were neither incurred specifically for the contract nor provided the government with a benefit. Regarding the terms of the contract, the CO found that the fixed-price nature of the contract, absent a clause providing otherwise, proscribed adjustments to Tolliver’s compensation based upon its actual cost experience.
In its case, Tolliver claimed that its litigation costs resulted directly from performing the contract as directed by the government. The qui tam relator alleged that Tolliver had falsely certified that it used a government-provided technical data package when preparing the manuals under its contracts, but the court found the Army had never provided the data package, and yet still instructed Tolliver to continue performance. Accordingly, Tolliver’s compliance with the requirement to rely on the technical data package was not material to performance, and the case was dismissed.
Tolliver argued that the government’s instruction to perform without the required technical data package gave rise to the relator’s complaint, and therefore its costs should be allocable to the contract. While the task order was modified to be firm fixed-price, the initial award was for a fixed-price, level of effort task order. That modification also dropped the government’s requirement to provide the technical data package.
As a preliminary matter, the court found that the contract as originally awarded implicated the cost principles of FAR Subpart 31.2, contracts with commercial organizations. Cost principles were applied to the pre-modification task order, stating its developmental nature and the initial fixed-price, level-of-effort type, and including an attendant cost analysis expressed in terms of the estimated labor hours and costs.
Tolliver alleged that the operative contract is the initial fixed-price, level-of-effort contract, not the later firm-fixed-price contract, while the government argued the post-modification fixed-price contract precluded any adjustment of costs to the government. The government argued that FAR § 31.205-47 provides guidance on how to determine whether a legal fee is an allowable cost, but that the parties must look to the terms of the contract to determine whether costs are allowable. The government argued that all fixed-price contracts preclude adjustments absent a contractual clause permitting them.
The court noted that under the government’s contention, the government could never be liable for anything other than the contract price, absent circumstances that do not exist here. If accepted, the government’s argument would preclude application of the cost principles of FAR Part 31 to fixed-price contracts absent an express contractual clause adopting those provisions.
In response, Tolliver argued the operative contract is the task order prior to modification—a fixed-price, level-of-effort contract—and that this type of contract is essentially a cost contract during the relevant period of performance. In essence, although Tolliver incurred the legal expenses after the task order was modified to firm fixed-price, it argued those expenses were attributable to work under the pre-modification task order, because the qui tam suit related to its performance under the contract as it existed prior to the modification. Because the government dropped the requirement that Tolliver rely on the government-provided technical data package when it modified the task order, the suit could not have been brought based on Tolliver’s work post-modification.
The court found the modification has no indication of a retroactive effect, but used only forward-looking language, which generally implies that a modification lacks retroactive effect. The modification converted the task order to firm fixed-price and created and funded 13 new tasks. Pre-existing terms and conditions not expressly addressed by the modification were considered to remain unchanged and in full force and effect. Unless the negotiation for Modification 8 or operation of law extinguished Tolliver’s rights that existed prior to Modification 8, Tolliver would retain its right to reimbursement of allowable costs to the extent that such a right existed.
Under the pre-modification task order, the contractor would be paid based on the level of effort expended, not on the results achieved. Prior to the modification, the government paid Tolliver for the value of labor it expended, at an agreed upon rate based on the type of labor, and up to a fixed cost ceiling.
Although neither an express nor implied term allowing cost reimbursement appeared in the contract, the court found the cost principles of FAR Subpart 31.2 appear to apply by operation of law under the Christian doctrine, which provides that a mandatory contract clause is considered to be included in the contract. Because the fixed-price, level-of-effort development contract as it existed prior to modification was manifestly established on the basis of cost principles pursuant to FAR §§ 15.404-1 and 31.103, the court found the provisions of FAR § 31.205-47 appear to apply.
Further, as Tolliver successfully defended itself and sought reimbursement of its legal costs in the amount allowed by the FAR, the court held the plaintiff sufficiently pled the requirements for allowability. Accordingly, the court denied the motion to dismiss.
The Tolliver Group is represented by W. Brad English of Maynard, Cooper & Gale, P.C., with whom were J. Andrew Watson, Jon D. Levin, and Michael W. Rich. The government is represented by Ashley Akers, Trial Attorney, Commercial Litigation Branch, Civil Division, Chad A. Readler, Acting Assistant Attorney General, Civil Division, and Robert E. Kirschman, Jr., Director, and Tara K. Hogan, Assistant Director, Commercial Litigation Branch, Civil Division, Department of Justice. Of counsel was Maj. John E. Swords, Litigation Attorney, General Litigation Branch, United States Army Legal Services Agency.
