You Better Get a Handle on the Sovereign Acts Doctrine or It Could Sink Your Claim

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The contractor claimed the government had constructively suspended the contract by delaying the approval of tax exemptions for goods shipped to Afghanistan. The board, however, found this was not a viable claim. The government acts in its capacity as a sovereign when processing tax exemptions. The tax exemptions applied to the general public, not just to the contractor, and nothing indicated the government delayed the tax exemptions to nullify its contractual obligations. A sovereign act cannot form the basis of a contract claim.

Appeals of Nassar Group International N.G.I. S.A.L. (Offshore) R.C. doing business as NGI Afghanistan for Contracting, ASBCA Nos. 58451, 59465, 59701

Background

NGI Afghanistan for Contracting had a contract to design and construct a garrison in Afghanistan. NGI submitted a claim for delays related to tax exemptions. Specifically, under an agreement between the U.S. and Afghanistan, goods imported to Afghanistan for the exclusive use of the U.S. government were not subject to taxation. The U.S. Embassy in Afghanistan instituted a process called the Customs Clearance Request (CCR) Procedure to ensure that the exemption was not abused. NGI claimed it had experienced delays on the contract due to the slow CCR Procedure. NGI believed these delays resulted in a constructive suspension of the contract. The government denied the claim.

Meanwhile, the government sent NGI a demand for payment for deficient electrical work. The government contended NGI had not installed grounding conductors for each building as required by the contract. NGI disputed the demand. The government issued a final decision, asserting a government claim for the electrical work.

NGI appealed its claim for CCR delays and the government’s claim for electrical work to the ASBCA.

Analysis

Real Party in Interest

The government moved to dismiss the appeal, alleging that NGI was not the real party in interest. The government argued that while NGI signed the contract, it was not a distinct entity. Rather, NGI was a fictitious business that was really part of a larger entity, Nassar Group International N.G.I. S.A.L.

But the board didn’t bite on this argument. If a fictitious business named in a contract has no legal existence apart from the real business, then the real business is the real party in interest. Here, the government treated NGI and Nassar as the same entity during performance; indeed, the government made payments to Nassar. Moreover, it was not clear how the government had been prejudiced by the misnomer. The board found that the fairest course of action was to amend the caption on the appeal.

Sovereign Acts Doctrine

The board rejected NGI’s claim for a constructive suspension due delays with the CCR Procedure. The CCR Procedure was a sovereign act by the government. A sovereign act is one that is public and general and not directed solely at a contractor. A sovereign act cannot serve as the basis of a contract claim. To determine whether an act is sovereign, the board considers whether the act (1) served a general purpose, (2) was specifically directed at relieving the government of its contractual obligations, (3) applied exclusively to the contractor, and (4) provided an economic benefit to the government.

Here, the procedure for obtaining tax exemptions was a public and general act. Nothing suggested that the government adopted the CCR procedure to nullify its obligation. The CCR Procedure didn’t just apply to NGI, but to everyone importing goods into Afghanistan. Finally, NGI had not identified any economic advantage the government received from the CCR Procedure. 

Aside from the Sovereign Acts doctrine, the board noted that NGI had not demonstrated unreasonable delay. There was no evidence showing the time it took the government to issue tax exemptions or what would be a reasonable time for the issuance of exemptions. Moreover, NGI had not shown how the purported delays impacted the critical path of the project.

Government Claim

The board also denied the government’s claim concerning the electrical work. NGI alleged it had installed grounding for each building, which complied with the contract’s specifications. The government had not carried its burden of proof to show there wasn’t, in fact, grounding installed on each building.

NGI is represented by Francisco Escalante of Escalante Law, P.A. The government is represented by Michael P. Goodman, Rebecca L. Brockmann, and Traci N. Cunningham of the Army Corps of Engineers.

–Case summary by Craig LaChance, Senior Editor

ASBCA - Nassar Group International