The government’s motion for summary judgment on the timeliness of claims is granted in part, where the contractor knew of the basis of its claim when it notified the agency that a change in OSHA regulations would result in increased costs and where it was not required to submit a combined claim on behalf of itself and its subcontractor. The motion is denied in part, where the subcontractor’s claims did not accrue until the contract was modified to include the price adjustment clause in the list of flowdown provisions. While the price adjustment clause was included in the subcontract, the board held that the prime contractor did not have the right to assert the claims, and therefore the claims did not accrue, until the modification was signed.
Electric Boat Corporation appealed the Navy’s denial of its claim for additional costs under its contract for the construction of six Virginia-class submarines. In this portion of the proceedings, the parties cross-moved for the board’s opinion on whether the claim was timely filed.
The contract, awarded in August 2003, was primarily firm-fixed-price, but with some cost-reimbursement line items. Construction of each submarine was a fixed-price line item with cost sharing of costs above or below the target cost. The parties agree that the Navy’s original plan for the program envisioned design plus construction of the first submarine by EB and construction of the second submarine by subcontractor Huntington Ingalls, with a full sharing of design data between them, to be followed by competitive acquisition of the follow-on submarines based on price.
The two shipyards had previously entered into a teaming agreement, which EB argued was essentially a joint venture. However, the contract at issue was never modified to incorporate the teaming agreement and the agreement provided that Electric Boat would remain the prime contractor with HII remaining a subcontractor. Also relevant to this appeal, effective January 29, 2004, the Navy changed the contract to a multi-year procurement that funded a portion of the costs for two nuclear submarines.
On September 15, 2004, the Occupational Safety and Health Administration published a new regulation, referred to as Subpart P, Fire Protection in Shipyard Employment. At least as early as October 5, 2004, EB was aware of the new OSHA regulation and that it must comply with the new requirement and pursue an equitable adjustment. In February 2005, EB notified the Navy that compliance with the new requirement was estimated to increase the cost of performance by at least $125,000 per vessel. A June 2007 cost proposal included EB’s estimated costs of $35,166,238, and HII’s estimated costs of $27,524,878. In October 2008, the Navy made an offer to EB on just the EB portion of the proposal.
EB submitted a revised and updated proposal to the Navy on April 29, 2009, again including HII’ s proposed costs. The EB portion of the combined proposal was $56,516,943, and the HII portion was $16,149,340. During its review, the Navy found that the relevant price adjustment clause was not incorporated into flowdown language of the Block II contract. A NAVSEA CO indicated the clause was unintentionally omitted from the Block II contract and that the Navy intended for unique items for shipbuilding to be flowed down to HII.
On August 9, 2010, the Navy executed a bilateral modification incorporating the clause the list of identified flow down provisions. On December 19, 2012, EB filed a certified claim including both EB and HII’s claimed costs, which was denied. This appeal followed.
The board found the following issues were not in dispute. The parties did not dispute that EB’s contract contained the price adjustment clause, which provided the contractor with the right to an adjustment to the contract amount for certain changes to federal laws or regulations. The parties did not dispute that this clause was not included as a flow-down provision, but was nonetheless included in EB’s subcontract with HII. Finally, the parties did not dispute that the contract modification incorporated the price adjustment clause into the list of flowdown provisions.
The parties did dispute whether EB’s claims for increased costs due to the new OSHA requirements were timely filed.
EB argued that its cause of action did not accrue until August 9, 2010, the date of the contract modification, because until that date the price adjustment clause barred it from recovering costs for itself and HII related to the OSHA rules. According to EB, the teaming agreement required it to be equal partners with HII, and thus required a joint submission of its claim seeking recovery of both its costs and those of HII.
In response, the Navy argued the modification corrected a mutual mistake, as all the parties believed the price adjustment clause flowed from EB to HII. The Navy rejected EB’s assertion that its teaming agreement precluded it from submitting a cost proposal that did not include HII’s costs.
In short, EB’ s theory relied on the notion that it and HII were equal partners in the program and that this partnership created an impediment to EB seeking relief independently. The board agreed in part. Prior to the modification, EB could not submit a claim for HII’s costs. However, the board held that nothing prevented EB from presenting a claim for its own costs.
Notably, neither party addressed the possibility that EB and HII could have different claim accrual dates, which the board found to be the case. The board found that EB knew of the existence of its claim not later than February 8, 2005, when it submitted a contract change memorandum to the Navy, indicating entitlement due to the change in OSHA regulations. In addition, EB suffered some injury not later than August 15, 2005, the date two years after the effective date of the contract when the price adjustment clause would first provide the right to a price adjustment.
As the Navy argued, EB remained the prime contractor, despite the language of the teaming agreement with HII. Absent a modification of the contract adding HII as a second prime contractor or a novation transferring the contract to an EB-HII joint venture, nothing in the teaming agreement between EB and HII could change the terms of the contractual relationship between EB and the Navy.
The board rejected EB’s assertion that it had to present a complete claim to the Navy including both its costs and HII’s. First, the board found no contractual provision for this requirement. Second, EB’s argument that the Navy required it to present a unified claim for negotiation was irrelevant to the claim accrual. For these reasons, the board denied EB’s motion for partial summary judgment regarding its claim for its own costs.
EB alternatively argued that its claim could not have accrued before June 27, 2007, because EB was not able to approve a claim for submission prior to that date. Alternatively, EB asserted that no claim accrued until EB exhausted a purported pre-claim resolution process, or until EB suffered an actual injury when an invoice was not paid in full. EB also argued that its statute of limitations should run from the date each submarine was funded pursuant to the continuing claim doctrine and that EB is entitled to equitable tolling due to the Navy’s purported concealment of its decision regarding EB’s entitlement to an adjustment.
However, the board found no merit to these arguments. First, the board held that EB incorrectly asserted that its claim did not accrue until it was able to meet the CDA standard for asserting a claim. According to EB, before submitting a claim, it had to be able to certify that the claim is made in good faith with accurate and complete supporting data and that the amount is an accurate reflection of what the government owes.
However, even assuming EB is correct that it did not have the information necessary to assert its claim until June 2007, the board held this did not establish that its claim accrued on that date. That date was August 15, the date EB submitted a contract change memorandum to the Navy. The claim accrual was not delayed pending the outcome of an internal audit or analysis. Moreover, a claim accrues when a contractor incurs some injury and is first able to assert a claim, even if the contractor has not incurred all possible costs due to a change or breach.
The board also rejected EB’s assertion that its claim did not accrue until May 2, 2011, when it completed a purported pre-claim resolution process. The board found that the contract’s resolution process was standard government language regarding claims and that EB’s February 2005 notice to the Navy complied with the contract requirements.
Next, EB argued that its claim did not accrue until it suffered an actual injury, which first occurred on December 15, 2006, with respect to one of the six submarines, when an invoice was not paid in full. However, the board explained that an injury does not have to include monetary damages before a claim may be filed. EB’s contract change memorandum suggested the firm expected to be injured beginning in August 2005. The fact that payment was not reduced until December 15 ,2006 was irrelevant to the accrual of the claim.
Next, EB argued that, even if its claim first accrued more than six years prior to the submission of its claim, that it has a continuing claim and we must determine the accrual date for each submarine independently. According to EB, until they were funded, two submarines were merely options and were not contracts, and therefore its claims pertaining to these submarines did not accrue until they were funded, and that was a date less than six years prior to claim submission. However, the board found this argument ignored the contract modification, which changed the contract to a multi-year procurement and funded a portion of the costs for the two submarines. Thus, contrary to EB’s allegations, the submarines were not funded in a “series of independent events” but were a single procurement.
Finally, EB argued that it is entitled to equitable tolling due to the Navy’s purported concealment of its determination that EB was not entitled to an equitable adjustment. According to EB, the Navy determined by December 2009 that EB was not entitled to a cost recovery, but did not disclose this determination. Instead, the Navy invited EB to respond to questions, asked EB to “try again” to submit additional supporting documentation, and encouraged EB to file a request for equitable adjustment.
However, the board found these allegations insufficiently supported. The board found the allegations did not rise to the level of extraordinary circumstances that would have prevented it from filing a claim. In fact, evidence cited by the government established that EB was aware of its right to file a CDA claim, but that it preferred to continue to negotiate a contractual adjustment, despite a potential statute of limitations issue.
However, the board held that HII’s claim was not time-barred. While EB knew or should have known of the potential claim for HII’s costs not later than the date of EB’s contract change memorandum, HII’s costs were not eligible for adjustment because the price adjustment clause did not flowdown from EB to HII. EB’s inclusion of the clause in its subcontract with HU did not create a right for EB to seek an adjustment for HU’s costs from the Navy. Thus, EB did not have a claim for its subcontractor’s increased costs until the modification. The board agreed that the portion of the claim for HII’s costs did not accrue until August 9, 2010, and was therefore timely.
The Navy argued the claim for HII’s costs should be time-barred because EB included the price adjustment clause in the subcontract, and therefore the claims accrued before the modification. The government argued that both parties operated on the belief that the clause was included in the flowdown provisions. However, the board explained that while the modification may have corrected a mutual mistake, that did not mean that the modification was retroactive for applying the statute of limitations. While parties may agree that a modification is retroactive, the modification here stated that the effective date was the date the agreement was signed.
Electric Boat Corporation is represented by Richard C. Johnson and Daniel Q. Homer of Smith Pachter Mc Whorter PLC; and by D. Joe Smith and Eric K. Herendeen of Jenner & Block LLP; and by Stephen J. McBrady and Skye Mathieson of Crowell & Moring LLP. The government is represented by Craig D. Jensen, Navy Chief Trial Attorney, and by Russell A. Shultis, David B. Stinson, David M. Marquez, and Alana M. Sitterly, Trial Attorneys.
