In a recent decision, the Armed Services Board of Contract Appeals (ASBCA or the Board) ruled that the Navy asserted a government claim and issued a contracting officer's final decision (COFD) under the Contract Disputes Act (CDA) when it sent a letter to a contractor demanding reimbursement of previously paid costs. 

On its face, the decision in PAE Applied Technologies LLC, ASBCA No. 63233 (Aug. 24, 2023)  is a reminder that contractors must remain vigilant of their right to appeal from any government communication that arguably constitutes a COFD on a government claim. But a closer look at PAE also raises important questions about whether the Board will be slow to implement the Federal Circuit's recent ruling in ECC Int'l Constructors, LLC v. Sec'y of Army, No. 2021-2323 (Fed. Cir. Aug. 22, 2023), which held claims-processing rules in the Federal Acquisition Regulation (FAR) are not jurisdictional.

Background

Starting in March 2021, PAE and the Navy exchanged correspondence in which they disagreed about the allowability of contract costs previously paid to PAE pursuant to the Coronavirus Aid, Relief, and Economic Security (CARES) Act. About a year into the discussions, the contracting officer (CO) sent PAE a letter titled "DEMAND FOR PAYMENT FOR UNALLOWABLE COVID COSTS." In the letter, the Navy CO demanded "reimbursement of the funds in the amount of $4,302,782.81 plus applicable indirect rates plus two percent (2%) fee." 

This letter was notable in three particular respects. First, the CO asked PAE to contact her in writing if it believed the debt was invalid or that the amount was incorrect. Second, the letter warned that the government's payment office could initiate procedures to offset the debt against other payments owed to PAE and noted that PAE could ask to repay the debt in installments or defer payment entirely for good cause. Third, the letter was not labeled a COFD and did not include a notice of appeal rights under the CDA. 

PAE appealed the demand letter to the ASBCA later that month. Almost 14 months later, the government moved to dismiss the appeal for lack of jurisdiction on the basis that the March 2021 letter did not constitute an appealable final decision. 

The ASBCA's Decision in PAE

Under the CDA, the ASBCA has jurisdiction over an appeal from a CO's final decision on a valid government claim. The CDA does not define the term "claim," so tribunals have historically looked to the definition of that term in the FAR. As the ASBCA observed in PAE, the FAR defines a claim, in part, as "a written demand or written assertion by one of the contracting parties seeking, as a matter of right, the payment of money in a sum certain…" To be valid under the FAR definition, a claim must include adequate notice of the basis and amount being demanded and also "provide a basis for meaningful dialogue between the parties aimed toward settlement or negotiated resolution," as the ASBCA noted. 

The government made four arguments as to why the ASBCA lacked jurisdiction over PAE's appeal. Each of those arguments turned on the FAR's definition of a "claim," not on the language of the CDA itself. Specifically, the Navy asserted that the ASBCA lacked jurisdiction because the CO's demand letter:

1. Was not labeled as a COFD
2. Did not include the mandatory CDA appeal language
3. Did not demand a sum certain dollar amount
4. Did not make an unequivocal demand for payment "as a matter of right." 

The ASBCA rejected the government's first argument, citing precedent holding that a CO's communications, including demand letters, need not be labeled as "final decisions" for the Board to have CDA jurisdiction. It also rejected the Navy's second argument, finding that omitting notice of a contractor's appeal rights in a final decision is only relevant if it prejudices the contractor. In this case, PAE timely appealed from the CO's demand letter, so the ASBCA found that PAE was not harmed by the omission. 

Next, the ASBCA addressed the Navy's argument that jurisdiction was lacking because the government's claim supposedly failed to state a sum certain by demanding repayment of not only $4.3 million in direct expenses, but also "applicable indirect rates" and "applicable burdens." According to the Navy, the CO's use of the qualifier "applicable" was too vague to calculate an overall sum certain and thus insufficient to support CDA jurisdiction. The ASBCA did not accept this argument either. First, it held that the $4.3 million demand was a sum certain sufficient to support jurisdiction, even assuming the other portions of the demand were not as precise. Second, it found that the Navy had used the "applicable" qualifier because it was challenging PAE's indirect rate calculations. According to the ASBCA, that issue went to "the ultimate determination of whether those costs are allowable but does not impact whether the government's claim included a sum certain for the Board's jurisdiction." Third, it observed that the sum certain requirement — which appears in the FAR, but not in the CDA — exists mainly to provide adequate notice of the claimed amount. In PAE, the contractor had sufficient notice of the total amount because, using the $4.3 million figure, PAE could apply its own indirect rates and fee to calculate a payment amount. 

Last, the ASBCA rejected the Navy's argument that the CO failed to make an unequivocal demand for payment "as a matter of right" simply because her letter invited PAE to respond if it disputed the debt or the amount and allowed for the possibility of installment payments or deferred collection. Looking to the "totality of the previous correspondence between the parties," the ASBCA concluded that the letter was in fact a demand for payment as a matter of right, given the CO's admission that the letter was intended to "break the stalemate" between the parties and evidence that she planned to continue questioning the costs even though she had attempted to rescind the letter just weeks before the Navy moved to dismiss the appeal. 

Takeaways

In a certain sense, the ASBCA's decision in PAE is not especially remarkable. The Board has previously found demand letters to be final decisions on government claims, so its decision in PAE is merely additive to the existing precedent on what CO communications will be treated as a government "claim" under the FAR definition. See, e.g., Kellogg Brown & Root Servs., Inc., 22-1 BCA ¶ 37,974 at 184,427. But digging deeper into PAE, one must ask, why did the ASBCA bother to address those fact-specific issues when the Federal Circuit and Supreme Court have held repeatedly that non-statutory "claims-processing rules" — like those stated in the FAR, but not in the CDA — do not deprive a tribunal of its statutory jurisdiction? 

As we previously discussed, the Federal Circuit held in ECCI that the FAR's sum certain requirement is non-jurisdictional, relying on Supreme Court precedent finding that comparable "claims-processing rules," with no statutory analog, cannot be jurisdictional. The panel in ECCI reasoned that the sum certain requirement is non-jurisdictional because it appears only in the FAR and so any defense based on that requirement can be waived if not asserted early in a proceeding. 

In PAE, the Navy raised its jurisdictional defense more than one year after the appeal was filed, and all the government's arguments were predicated on claims-processing rules found in the FAR but not the CDA. The Federal Circuit issued its decision in ECCI before the ASBCA decided PAE. So, while the procedural posture of PAE is not entirely clear, the Board should have had no trouble finding that the Navy waived its jurisdictional defense by failing to assert it in the first 14 months of the case. Instead, in a short footnote, the ASBCA concluded that its decision was "not impacted by the Federal Circuit's decision" in ECCI because the Navy's claim met the sum certain requirement. But that misses the point. Under ECCI, the FAR's sum certain requirement is non-jurisdictional, so the only question in PAE was whether the Navy waited too long to assert a defense based on that requirement, not whether the requirement was met. 

Unfortunately, the ASBCA's footnote can also be misread as purporting to limit the Federal Circuit's holding in ECCI to the FAR's sum certain requirement. That misreading not only misses the clear impact of ECCI on any FAR-based challenge to the ASBCA's CDA jurisdiction (e.g., labeling, appeal rights, sum certain, matter of right), but it also ignores the plain language of the CDA itself and the unmistakable trend in analogous cases recently decided by the Supreme Court. Because of this, the PAE decision is, at best, a missed opportunity for the ASBCA to join with the Federal Circuit and Supreme Court on these issues and, at worst, a step in the wrong direction on what is otherwise an uncontroversial question of law — i.e., that the FAR's claims-processing rules cannot deprive the ASBCA of jurisdiction in a CDA appeal. 

If you have any questions about the PAE decision, or contract claims generally, please contact one of the Miller & Chevalier attorneys listed below:

Jason N. Workmaster, jworkmaster@milchev.com, 202-626-5893

Alex L. Sarria, asarria@milchev.com, 202-626-5822

Connor W. Farrell, cfarrell@milchev.com, 202-626-5925
 

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