The federal procurement landscape is layered with enforcement mechanisms and initiatives designed to prevent and detect fraud, waste, and abuse, or what is commonly referred to as "procurement fraud." The government's primary enforcer, the Department of Justice (DOJ), has a number of tools for combating procurement fraud, most notably the civil False Claims Act (FCA). While fighting fraud and corruption has been a public policy initiative for decades, the future promises heightened enforcement, with the Air Force's recent execution of a Memorandum of Understanding to target acquisition fraud and corruption1 and a report from the Government Accountability Office calling for the Department of Defense to more thoroughly assess and report department-wide fraud risks.2 Moreover, the defense industry is gearing up for an influx of fraud enforcement actions arising out of the end of the war in Afghanistan.3
One area where contractors face the risk of encountering government fraud enforcement is in the disputes process. The FAR's "Disputes" clause is the contractual mechanism for resolving disputes. If the parties cannot resolve their issues, the contractor must turn to the procedures established by the Contract Disputes Act of 1978 (CDA),4 which involves submission of a written claim followed by an appeal, either to one of the Boards of Contract Appeals (BCAs) or to the U.S. Court of Federal Claims (COFC). The vast majority of contract claims are appealed to the BCAs, which were established to afford contractors avenues with a less expensive and expeditious resolution of claims.
Fraud is generally excluded from the disputes process- most of the formal civil fraud process takes place in federal district courts. However, fraud enforcement has seeped its way into the contract disputes system, typically in the form of government counterclaims for fraud or potential forfeiture remedies associated with fraud at the COFC. Through a series of often intricate and inconsistent decisions, fraud has also migrated into claim appeals at the BCAs, despite the CDA's legislative history indicating Congress's intent to exclude fraud from the BCAs' jurisdiction.5 In this regard, a contractor's choice of forum has meaningful consequences. Appeals filed at the COFC bring with them the risk of the DOJ asserting a counterclaim alleging fraud under a variety of statutes, including the FCA6 and the CDA's antifraud provisions.7 Appeals filed at the BCAs-where most appeals are filed-are subject to a more complicated analysis as to whether the appeal may proceed in light of the Agency's belief or suspicion of fraud, depending on how and when the fraud is alleged.
This article examines how the BCAs have addressed allegations and evidence of fraud in claim appeals. First, this article reviews the CDA antifraud provisions and their corresponding FAR provisions. Second, this article analyzes the BCAs' jurisdiction to consider appeals where the contracting officer (CO) declined to issue a final decision on the basis of suspected fraud. Third, this article analyzes the BCAs' jurisdiction to consider appeals where the CO issues a final decision despite a suspicion of fraud. Finally, this article considers under what circumstances the BCAs retain jurisdiction over appeals in which the government raises fraud as an affirmative defense.
Statutory and Regulatory Language
Contract Disputes Act Appeal Procedures
The CDA requires that "[a]ll claims by a contractor against the government relating to a contract shall be . . . submitted to the contracting officer for a decision."8 After receipt of a contractor's certified claim, "[a] contracting officer shall, within 60 days of receipt . . . (A) issue a decision;9 or (B) notify the contractor of the time within which a decision will be issued."10 A "[f]ailure by a contracting officer to issue a decision on a claim within the required time period is deemed to be a decision by the contracting officer denying the claim and authorizes an appeal or action on the claim. . . ."11
The contractor may appeal the CO's final decision (COFD) to the appropriate BCA within 90 days of receipt, or to the COFC within 12 months of receipt.12 The contractor holds the right to select the forum (subject to the timeliness requirements).13 Given that the government may raise a counterclaim of fraud at the COFC, a contractor who is suspicious of the government's intent may instead select the relevant BCA, where the government does not have the same rights due to the jurisdictional limitations of the BCAs, thereby potentially limiting the government's litigation options.
CDA Antifraud Provisions
The CDA contains four limitations on the requirement that the contracting officer issue a decision when the claim involves fraud, collectively referred to as the "antifraud" provisions.14 First, the requirement that claims must be submitted within six years of accrual does not apply to a "claim by the Federal Government against a contractor that is based on a claim by the contractor involving fraud."15 Second, the requirement that the contracting officer issue a decision does not apply to "a claim or dispute for penalties or forfeitures prescribed by statute or regulation that another Federal agency is specifically authorized to administer, settle, or determine."16 This limitation is for claims that arise pursuant to statutes such as the FCA, which DOJ has sole authority to administer. Third, if it is determined that the contractor's claim is based upon misrepresentations of fact or fraud, the government may recover the amounts determined to be unsupported.17 DOJ is charged with bringing claims based upon this provision.18 Fourth, and typically the most relevant, the requirement to issue a decision does not authorize an agency head to "settle, compromise, pay, or otherwise adjust any claim involving fraud."19
Federal Acquisition Regulation Subpart 33.2
The FAR implements the CDA antifraud provisions in FAR 33.209, which addresses suspected fraudulent claims, provided that "[i]f the contractor is unable to support any part of the claim and there is evidence that the inability is attributable to misrepresentation of fact or to fraud on the part of the contractor, the contracting officer shall refer the matter to the agency official responsible for investigating fraud." FAR 33.210 gives the contracting officer authority "to decide or resolve all claims arising under or relating to a contract subject to the [CDA]." However, that authority does not extend to (a) a claim or dispute for penalties or forfeitures prescribed by statute or regulation that another federal agency is specifically authorized to administer, settle, or determine or (b) the settlement, compromise, payment, or adjustment of any claim involving fraud.20
CO Declines to Issue Final Decision Due to Suspected Fraud
On one hand, the CDA does not authorize an agency head to settle, compromise, pay, or otherwise adjust any claim involving fraud. Those matters are left up to the DOJ. On the other hand, FAR 33.210 provides the CO with authority "to decide or resolve all claims arising under or relating to a contract subject to the [CDA]." In light of these rights and limitations, how is a CO required to treat a claim in which he or she suspects fraud? FAR 33.209 provides some guidance-it requires the CO to refer the matter to the agency official responsible for investigating fraud where there is "evidence" that the unsupported part of the claim is premised on a "misrepresentation of fact or fraud." However, the more difficult question surrounds the CO's authority to "decide" or "resolve" claims where the CO believes that there is some evidence of fraud. The BCA decisions appear to consider a variety of factors in determining the extent of the CO's authority: whether there is suspicion of fraud in the claim itself, whether fraud is suspected elsewhere in the performance of the contract, whether an investigation is already underway at the time of the jurisdictional challenge, and whether the Board took jurisdiction over the appeal before the CO alleged fraud.
Suspicion of Fraud in the Claim Submission
The Civilian Board of Contract Appeals (CBCA) has examined a CO's authority to adjudicate claims where the CO believed there was evidence of fraud in the claim submission. Savannah River21 involved submission of a certified claim requesting a COFD interpreting the contract as to the allowability of the disputed costs under a specific contract clause. Prior to the submission of the contractor's claim, DOJ notified the contractor of an impending FCA action against it. While the claim was with the CO, DOJ filed the FCA suit against the contractor. Thereafter, the CO issued a letter to the contractor, indicating that he suspected that costs in the claim were fraudulent, had referred the matter to the relevant agency officials, and lacked authority to issue a COFD. The contractor filed its appeal at the CBCA on a deemed denial basis. In granting the government's motion to dismiss for lack of jurisdiction, the CBCA held that the CO was not authorized to issue a final decision and had complied with the regulation in not issuing a final decision because he "suspected the costs were fraudulent."22 Moreover, the CBCA held there could not be a deemed denial of a claim where the CO was without jurisdiction to issue a final decision.23
The CBCA recently clarified its ruling in Savannah River, emphasizing that the timing of the government's enforcement action was critical to the question of jurisdiction. In Widescope Consulting & Contracting Services,24 the contractor appealed to the Board on a deemed denial basis after the CO failed to issue a decision on its claim. Thereafter, the CO concluded that there was a misrepresentation of fact or fraud on the claim, determined he was "without authority to decide the claim," and proceeded to notify the contractor that "a decision would not be forthcoming on its claim." The government, relying on Savannah River, moved to dismiss, maintaining that the Board lacked jurisdiction to hear the appeal because the CO did not issue a final decision on the contractor's claim due to suspected fraud. In denying the motion, the CBCA noted that the difference hinged on the fact that, at the time the jurisdictional motion was presented in Savannah River, DOJ had already filed a fraud action in the U.S. district court. By contrast, in Widescope, no similar action had been filed and the CO's "mere suspicion" of fraud on the claim was insufficient to defeat jurisdiction. The CBCA concluded that because the CO had not been divested of the authority to issue a decision on the claim, and because the CO could have decided it, the appeal was properly before the Board on the basis of a deemed denial.
Thus, as it currently stands, the CBCA will dismiss a claim filed on a deemed denial basis where fraud is suspected, but only if DOJ has filed a corresponding fraud action at the time of the request for dismissal. However, if a CO refuses to issue a final decision due to suspected fraud, the Board will retain jurisdiction over an appeal from a deemed denial if no parallel fraud action is pending.
Suspicion of Fraud in Performance of the Contract
The Armed Services Board of Contract Appeals (ASBCA) recently addressed the situation in which a CO refuses to issue a COFD due to suspected fraud in the performance of the contract (rather than fraud in the actual claim itself), thus highlighting a critical distinction as it relates to the Board's jurisdiction to consider the appeal. In Tetra Tech EC, Inc.,25 Tetra Tech and the Navy entered into a contract that contemplated the award of task orders for survey and possible radiological remediation. During Tetra Tech's performance of various task orders, the government alleged that the contractor had misrepresented soil sample surveys. Ultimately, two Tetra Tech site workers pleaded guilty to falsifying soil sample results. Meanwhile, the government also disputed the accuracy of Tetra Tech's investigation of radiological contamination and accordingly assigned Tetra Tech a negative Contractor Performance Assessment Reporting System (CPARS) rating. Tetra Tech challenged the CPARS rating in claims to the CO, asserting that the Navy violated FAR section 42.1503(b)(1) by rating the contractor on issues outside of the firm's performance of the contract. However, the CO refused to issue a final decision on the basis that there were elements of fraud that divested her of authority to do so.
Specifically, the CO noted that litigation alleging violations of the FCA arising from Tetra Tech's radiological remediation work was pending. After Tetra Tech appealed to the ASBCA on a deemed denial basis, the government moved to dismiss the appeal for lack of jurisdiction, arguing that the CO had no authority to decide Tetra Tech's claims, which the government alleged could not be separated from its fraud. Moreover, the government asserted that there could be no deemed denial of a claim when a CO is divested of authority to issue a final decision.
In denying the government's motion, the Board held that it had the jurisdiction to "consider claims when there are allegations of fraud in the contract, so long as there are not allegations of fraud in the claim itself, and [the Board] need not make factual findings of fraud."26 The Board further noted, citing recent decisions, that the CDA jurisdictional prohibition applies to fraud related to the claim and does not apply to fraud believed to be involved somewhere else, such as the formation or performance of the contract. The Board held:
So long as the suspected fraud is not intertwined with the basis for the claim and we are not required to make factual determinations of fraud, the contracting officer's assertion that he or she lacks authority to issue a final decision does not act to divest us of jurisdiction.27
Here, the Board determined that Tetra Tech's alleged fraud-falsifying sampling and survey results-should not be an issue in determining whether the Navy complied with the contract requirements and regulations concerning performance evaluations. As will be relevant in the discussion below of the government's affirmative defense of fraud, Tetra Tech shows that a Board will retain jurisdiction over claims not requiring a factual determination of fraud.
CO's After-the-Fact Assertion of Fraud
The BCAs have been steadfast: "[O]nce the Board is vested with jurisdiction over a matter, the contracting officer cannot divest it of jurisdiction by his or her unilateral action."28 Thus, once a CO issues a COFD on some contractual basis (even if fraud is suspected), or if the CO fails to issue a COFD and the contractor appeals on a deemed denial basis (but says nothing about suspected fraud), the BCAs are vested with jurisdiction and the CO cannot divest it through unilateral action. This has been addressed in a number of recent cases where the CO has tried to do exactly that-assert a suspicion of fraud after the Board has taken jurisdiction.
Nauset Construction Corp.29 involved a contractor's appeal on a deemed denial basis of its claim for additional payment under a terminated construction contract. Thereafter, the CO issued a letter determining she had no authority to decide the claims because they involved fraud. The CO concluded that the claimed costs were "fraudulent or false" because Nauset had been under investigation by several federal agencies.30 In denying the government's motion to dismiss, the Board held that whether the claims involved fraud was not operative to resolve the jurisdictional matter before it, but rather the Board found the essential fact was that two claims were presented to the CO and she declined to issue a decision on those claims.31 The Board, in essence, concluded that whether there was fraud was irrelevant-the contractor appealed based on the CO's continual delays in deciding its claims, and the CO's later decision that she could not decide Nauset's claims could not retroactively remove jurisdiction from the Board.32
Mountain Movers/Ainsworth-Benning, LLC33 involved another attempt by a CO to retroactively invalidate a COFD based on contractual issues based on a later suspicion of fraud. Approximately two months after a contractor's timely appeal, the CO rescinded his final decision after discovering purportedly fraudulent statements made by the contractor years earlier. The government moved to dismiss claims for lack of jurisdiction based on the CO's rescission of the COFD. In denying the government's motion, the ASBCA noted that (1) the COFD found partial merit in the contractor's claim and therefore it was not based on fraud, and the ASBCA retains jurisdiction over a COFD that resolves a claim on a basis other than fraud; (2) the COFD could not have been based on fraud because the CO contended he was unaware of the purported fraud at the time he issued his final decision; and (3) once the ASBCA obtained jurisdiction over the appeal, the CO could not divest the Board of jurisdiction by issuing a new decision purporting to rescind the prior one.34
Should a CO Issue a Decision Despite a Suspicion of Fraud?
The aforementioned cases (with the exception of Mountain Movers) involve situations where the CO declined to issue a COFD due to perceived evidence of fraud, either in the claim or elsewhere in the performance of the contract. But where does that instruction come from? In a concurring opinion in Widescope, Judge Marian E. Sullivan analyzed the propriety of a CO's refusal to issue a final decision over suspected fraud, writing that although the Board has noted that the phrases from the FAR "authority to decide" and "any claim involving fraud" suggest a prohibition on the CO from issuing any decision, this limitation would conflict with the CDA requirement that a CO issue a decision on all claims submitted.35 Rather, Judge Sullivan wrote that FAR 33.210 "can be read narrowly to eliminate a contracting officer's ability to issue a decision that does anything more than deny a claim involving fraud (i.e., settles, compromises, pays, or otherwise adjusts a claim)."36
Beyond the conflict between the CDA and the FAR, Judge Sullivan noted the reasoning in Savannah River, where the CO refused to issue a decision, creates the possibility that a CO will never act upon a claim, allowing the claim to stall indefinitely, which would be "an untenable result, given the administrative review mechanism of the CDA."37 Although the COs in both Widescope and Savannah River properly referred the suspected fraud per the instructions of FAR 33.209, Judge Sullivan noted that the rationale in Savannah River would still prevent a CO from issuing a decision. Rather, "[t]he contracting officer had an obligation to issue a decision on the claim, despite the suspicion that it involved fraud, and the contracting officer had the authority to deny the claim."38
In sum, whether the Board will maintain jurisdiction over a deemed denial, where the CO has declined to issue a final decision, involves a fact-intensive inquiry. If the CO does not issue a COFD on the basis of suspected fraud in the claim, the Board will maintain jurisdiction of an appeal on a deemed denial basis (Widescope), unless DOJ had previously initiated a fraud action (Savannah River). Similarly, if the CO does not issue a COFD on the basis of suspected fraud in the performance of the contract (not the claim), the Boards will maintain jurisdiction over the claim so long as it need not make factual findings of fraud to decide the claim (Tetra Tech). Finally, the ASBCA will maintain jurisdiction over a valid appeal from a COFD or a deemed denial where the CO, who said nothing prior to the appeal, subsequently tries to assert that he had no authority to decide the claim because of suspected fraud (Nauset Construction), or where the CO tries to rescind the COFD for the same reason (Mountain Movers). In those instances, where no suspected fraud is raised by the CO until after the Boards have taken jurisdiction, the CO cannot divest the Boards of jurisdiction-however, as discussed below, the government may use other means to defeat jurisdiction through the assertion of affirmative defenses of fraud.
1. Press Release, Wayne Amann, Off. of Special Investigations Pub. Affairs, Joint MOU Targets Fight Against Acquisition Fraud, Corruption (July 13, 2021), https://www.af.mil/News/Article-Display/Article/2692107/joint-mou-targets-fight-against-acquisition-fraud-corruption/.
2. U.S. Gov't Accountability Off., GAO-21-309, DOD Fraud Risk Management: Actions Needed to Enhance Department-wide Approach, Focusing on Procurement Fraud Risks (Sept. 20, 2021), https://www.gao.gov/products/gao-21-309?utm_campaign=usgao_email&utm_content=topic_govops&utm_medium=email&utm_source=govdelivery.
3. William D. Hartung, Profits of War: Corporate Beneficiaries of the Post-9/11 Pentagon Spending Surge (Costs of War Rsch. Series, Sept. 13, 2021), https://watson.brown.edu/costsofwar/files/cow/imce/papers/2021/Profits%20of%20War_Hartung_Costs%20of%20War_Sept%2013%2C%202021.pdf.
4. Contract Disputes Act of 1978, Pub. L. No. 95-563, 92 Stat. 2383 (codified at 41 U.S.C. §§ 7101 to 7109).
5. Martin J. Simko Constr., Inc. v. United States, 852 F.2d 540, 543-45 (Fed. Cir. 1988).
6. 31 U.S.C. §§ 3729-3733.
7. 41 U.S.C. § 7103.
8. Id. § 7103(a)(1)-(2).
9. In the decision, the CO "shall state the reasons for the decision reached" and inform the contractor of its appeal rights. Id. § 7103(e). The CO is not required to make specific findings of fact. Id.
10. Id. § 7103(f)(2).
11. Id. § 7103(f)(5).
12. Id. § 7104(a)-(b)(1)
13. See Bonneville Assocs. v. United States, 43 F.3d 649, 653 (Fed. Cir. 1994).
14. 41 U.S.C. § 7103.
15. Id. § 7103(a)(4)(B).
16. Id. § 7103(a)(5).
17. Id. § 7103(c)(2).
18. Widescope Consulting & Contracting Servs. v. Dep't of Health & Human Servs., CBCA 6895, 2021 WL 1590347 (Apr. 16, 2021) (citing Martin J. Simko Constr., Inc. v. United States, 852 F.2d 540, 545 (Fed. Cir. 1988)).
19. 41 U.S.C. § 7103(c)(1) (emphasis added).
20. See Widescope Consulting & Contracting Servs., 2021 WL 1590347 (noting that paragraph b was promulgated in its current form in 1986 "to emphasize the limitations on the contracting officer's authority in the settlement of claims involving fraud," 51 Fed. Reg. 36,970, 36,972 (Oct. 16, 1986), whereas the original version of FAR 33.210(b), promulgated in the initial version of the FAR, read: "A claim involving fraud." 48 Fed. Reg. 42,102, 42,350 (Sept. 19, 1983).).
21. Savannah River Nuclear Sols., LLC v. Dep't of Energy, CBCA 5287, 17-1 BCA ¶ 36,749, at 179,114.
23. Notably, the contractor argued that the CO could have issued a final decision on the contractual issue as to the allowability of the costs claimed, despite the fraud allegations, in accordance with the Federal Circuit's decision in Daff v. United States, 78 F.3d 1566, 1570 (Fed. Cir. 1996). Savannah River, 17-1 BCA ¶ 36,749, at 179,116. However, the Board declined to entertain such an argument on the basis of facts that did not occur. Id.
24. Widescope Consulting & Contracting Servs., CBCA 6895, 2021 WL 1590347.
25. ASBCA No. 62449, 2021 WL 3418608.
26. Id. at 184,053.
28. Mountain Movers/Ainsworth-Benning, LLC, ASBCA No. 62164, 20-1 B.C.A. (CCH) ¶ 37,664, at 182,864.
29. Nauset Constr. Corp., ASBCA No. 61673, 21-1 B.C.A. (CCH) ¶ 37,852.
30. Id. at 183,815.
31. Id. at 183,816.
32. Id.; see also ESA South, Inc., ASBCA No. 62242, 20-1 B.C.A. (CCH) ¶ 37,647 (holding the CO's after-the-fact letter did not divest the Board of jurisdiction where the CO did not assert claim prior to appeal on deemed denial basis).
33. Mountain Movers/Ainsworth-Benning, LLC, 20-1 B.C.A. (CCH) ¶ 37,664, at 182,864.
34. Id.; see also GSC Constr., Inc., ASBCA No. 62530, 21-1 B.C.A. (CCH) ¶ 37,809 (CO declaration in support of government's motion to dismiss asserting potential fraud in claim insufficient to defeat jurisdiction where ASBCA only needs to determine contractual issues to decide claim).
35. Widescope Consulting & Contracting Servs., CBCA 6895, 2021 WL 1590347 ("In the face of such a conflict, the FAR provision cannot stand.").
36. Id. at 10 (noting that such an interpretation reconciles the FAR clause with the CDA requirement that the contracting officer issue a decision on a properly presented claim).
38. Id. at 11 (emphasis added).
Originally published by The Procurement Lawyer.
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