Foreign Contractor And Subcontractor Claims Against The United States Government Part One

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1 Foreign Contractor And Subcontractor Claims Against The United States Government Part One by John B. Tieder, Jr., Senior Partner, Paul A. Varela, Senior Partner, and David B. Wonderlick, Partner Watt Tieder Newsletter, Fall 2013 Introduction This piece, the first of two parts, is an abstract of an article that will appear in the next edition of the International Construction Law Review (Informa UK Ltd.). It describes briefly the bases of construction contract claims against the United States Government (hereinafter U.S. Government ) and the procedures for presenting those claims from the perspective of a non-united States contractor performing a contract for an agency of the U.S. Government outside of the political jurisdiction of the United States, as well as considerations for subcontractors on such projects. The subject matter seems to be of current interest as this firm has seen a considerable increase in such disputes arising from the U.S. Government s embassy construction program, the large number of projects in Iraq and Afghanistan, and significant military construction in numerous locations. The United States Government As A Party To Construction Contracts With Foreign Contractors Waiver Of Sovereign Immunity The U.S. Government is, of course, a sovereign entity. As such, it is totally immune from legal actions from its own citizens, as well as citizens of other countries, except for those situations where it has specifically waived that immunity. United States v. Mitchell, 445 U.S. 535, 538 (1980). This sovereignty has been waived for contract actions by the Tucker Act. 8 U.S.C The Tucker Act specifically allows contract claims under the Contract Disputes Act of U.S.C This Act is the fundamental statute governing contract claims against the U.S. Government and is described in detail throughout subsequent sections of this article. Claims under the Tucker Act may be brought in a special court located in Washington, D.C., known as the United States Court of Federal Claims. 28 U.S.C Alternatively, claims arising under the Contract Disputes Act may be brought before one of two Boards of Contract Appeals: the Armed Services Board (ASBCA) which has jurisdiction over claims related to contracts with the United States Army, Navy, and Air 1

2 Force, as well as the National Aeronautics and Space Administration, including those performed overseas, Id. 7105(e)(1)(A), and the Civilian Board (CBCA) which has jurisdiction over contracts with almost all other executive agencies, including the United States Department of State. Id. 7105(e)(1)(B). Appeals from the United States Court of Federal Claims, the ASBCA and the CBCA are taken to the United States Court of Appeals for the Federal Circuit. 28 U.S.C. 1295(a)(3) and (10). Appeals from the United States Court of Appeals for the Federal Circuit are heard only by the United States Supreme Court, Id. 1254, but for all practical purposes, the Court of Appeals for the Federal Circuit is the final level of appeal. Statutes And Regulations Governing Contracts The primary sources of the U.S. Government s authority to contract are derived from statute, with separate statutory authorization for both civilian and military procurement. 41 U.S.C et seq.; 10 U.S.C These statutes authorize the Government to enter into contracts and delegate the authority to develop specific contracting regulations to the various procuring agencies. See, e.g., 10 U.S.C. 2202, 41 U.S.C These regulations, once properly promulgated, have the force and effect of law. See, e.g., Hamlet v. United States, 63 F.3d 1097, (Fed. Cir. 1995). The primary body of regulations applicable to U.S. Government contracts are contained within the Federal Acquisition Regulation (FAR), title 48 of the United States Code of Federal Regulations. These regulations apply to all procuring agencies and cover every aspect of the contracting process, from tendering procedures to post-performance audits. The regulations can be supplemented by the various procuring agencies. Contract Disputes Act Of 1978 The Contract Disputes Act of 1978 (CDA), 41 U.S.C , deals with the processing of contract claims against the Government. It covers the following main points: - All claims in excess of $100,000 must be certified by the contractor. This means the contractor must warrant to the Government that the basis of the claim and the amount due is factually correct. Id. 7103(b). - A contractor is entitled to interest on its certified claim from the date it is received. Id The Government, through an individual known as the contracting officer, must decide (i.e., accept or reject, in whole or in part) claims for amounts less than $100,000 within 60 days of receipt. However, in the case of claims in excess of 2

3 $100,000 the contracting officer has 60 days to merely provide the contractor with a timeline for the issuance of the decision. Id. 7103(f). - The contractor must appeal any adverse contracting officer s decision within 90 days if it desires to have that decision administratively reviewed by a Board of Contract Appeals, or file a lawsuit within one year in the United States Court of Federal Claims. Id Penalties for the submission of fraudulent claims. Id. 7103(c). The main provisions of the Act regarding certification of claims and the appeal processes are set forth in a specific clause of the contract entitled the Disputes clause. 48 C.F.R Treaties And Other Agreements Regarding Foreign Contracting The United States has entered into numerous bilateral and multilateral treaties and other agreements which relate in some degree to the procurement of goods and services from citizens of foreign countries. Four of the most common are Memoranda of Understanding, Offshore Procurement Treaties, Technical Working Agreements and agreements entered into under the Arms Export Control Act. Each is briefly discussed below. Memoranda Of Understanding Memoranda of Understanding (MOU) are reciprocal agreements between the United States and its primary military allies for the research, development, production and procurement of defense equipment and related items. They cover such points as mutual procurements, exchanges of technology, and development of a coordinated procurement program. See, e.g., Memorandum of Understanding Between the Government of the United States of America and the Government of the Italian Republic Concerning Reciprocal Defense Procurement, available at Offshore Procurement Treaties Offshore Procurement Treaties are agreements which specifically cover U.S. Government procurement in a foreign country. A typical example is the Agreement Relating to Offshore Procurement in Spain with Memorandum of Understanding and Standard Contract Attached. 5 UST 2328; TIAS 3094; 235 UNTS 45, available at The attached standard contract terms address such issues as payments, subcontracting, termination, and intellectual property rights. See id. 3

4 Technical Working Agreements A third type of agreement, which pertains only to construction in foreign countries, is the Technical Working Agreement. The U.S. Department of Defense has provided a set of Procedures, Guidance, and Information addressing the scope of Technical Working Agreements, which should, if possible cover all elements necessary for the construction that are required by laws, regulations, and customs of the United States and the foreign government, including issues such as payment of taxes and duties, acquisition of rights and provision of utility services, and the handling of claims and litigation. PGI , available at The DFARs expressly reference this PGI as providing such guidance. 48 C.F.R (b). In addition, the contractors are required to comply with all local labor laws. Id Arms Export Control Act he Arms Export Control Act, 2 U.S.C et seq., permits the U.S. Government to enter into agreements for the administration of contracts on behalf of a foreign government. One major example was the Agreement on Construction of Military Facilities between the United States and the Kingdom of Saudi Arabia, dated 5 June This agreement provided for the design, construction and financing of military facilities in the Kingdom of Saudi Arabia. Basically, the U.S. Army Corps of Engineers administered the entire program for the Government of Saudi Arabia with the funding provided by Saudi Arabia. Required Construction Contract Conditions The FAR, as supplemented by the various agency implementing regulations, sets forth the required conditions for construction contracts. 48 C.F.R et seq. Although there are some variations, depending on the country where the contract is being performed and the controlling international agreements, the clauses are basically the same. Foreign contractors should note, in particular, that price or currency fluctuations clauses are not required conditions and are typically not included. Governing Law Although the standard Government Disputes clause, id , is applicable to U.S. Government contracting abroad, it does not specify which jurisdiction s law is to govern claims and disputes arising under the contract. While in some instances the conflict of laws issue has been resolved by treaty or other international agreement, in most cases, the applicable law will be decided by the U.S. Court of Federal Claims, Ct. Fed. Cl. R. 44.1; see also A.S.B.C.A. R. 6(c) (setting forth similar requirement), or the 4

5 Board of Contract Appeals, see, e.g., Taisei Rotec Corp., 02-1 B.C.A. (CCH) 31,739 (A.S.B.C.A. 30 Jan. 2002), which hears the dispute. Notably, before either tribunal, a party that will request the application of foreign law must provide written notice of its intent to do so. Ct. Fed. Cl. R. 44.1; see also A.S.B.C.A. R. 6(c). In general, the court or Board will apply foreign law in cases where there is no choice of law provision in the contract, the contract is performed in a foreign country, and the foreign contractor presents clear and sufficient evidence of what the foreign law is and its relevancy to the dispute. The burden of providing the foreign legal authority and establishing its applicability to the dispute falls on the party seeking its application usually the contractor, but occasionally the U.S. Government, which will be held to the same standard. F. Weigel Hochdrackteehnik Gmbh & Co. Kg, 12-1 B.C.A. (CCH) 34,975 (A.S.B.C.A. 15 Mar. 2012). Watt, Tieder, Hoffar & Fitzgerald, L.L.P Greensboro Drive, Suite 100 McLean Virginia