Claim Preclusion in Federal Contracts Litigation

August 22, 2024 Sareesh Rawat, Esq.

Res judicata provides that when a final judgment has been entered on the merits of a case, it is a finality as to the claim or demand in controversy. Therefore, in federal contract claims litigation, contractors are typically required to bring all their claims arising out of the same contract in the same litigation. The doctrine of res judicata, which encompasses the related doctrines of issue and claim preclusion, may apply when a contractor litigates a matter at a Board of Contract Appeals and later brings a suit with the same or similar set of operative facts at the Court of Federal Claims (COFC). Issue preclusion prohibits a losing party from relitigating already litigated issues. Meanwhile, claim preclusion prevents litigation of matters that have not been litigated but should have been raised in an earlier litigation. Therefore, the doctrine of claim preclusion operates as an affirmative defense, warranting the dismissal of matters that should have been raised in earlier litigation with the same or similar set of operative facts.

In Avant Assessment, LLC v. U.S., 159 Fed. Cl. 632 (2022), the COFC dismissed parts of the complaint based on the doctrine of claim preclusion, finding that the plaintiff should have raised certain arguments during its prior litigation at the Armed Services Board of Contract Appeals (ASBCA). The Army issued the contracts underlying the claims for the acquisition of foreign language testing materials to gauge the proficiency of military linguists. Under the contract, the government retained intellectual property rights in both accepted and rejected items as the contracts provided the government sole ownership and exclusive rights to the testing materials. Army had initially terminated the contracts for default, but the default terminations were later converted into convenience terminations as a result of the contractor’s successful appeals at the ASBCA. Following the successful convenience conversions, the contractor submitted termination settlement proposals to the contracting officer (CO), which were denied. After the CO’s denial, the contractor again appealed the CO’s adverse decision to the ASBCA.

Notably, during the discovery phase in the ASBCA litigation, the contractor learned that the government had not only retained the rejected testing materials but also “used” them by transferring the rejected items to a third party. Therefore, the contractor demanded payment for the rejected test materials in the ASBCA litigation. The contractor alleged that the Army had constructively accepted the rejected testing materials by retaining and using them after rejection. Alternatively, the contractor argued that the Army improperly rejected the testing materials. The ASBCA dismissed a large portion of the contractor’s claim for lack of jurisdiction since the contractor’s constructive acceptance claims were not first presented to the CO, as is required under the Contract Disputes Act (CDA). Importantly, for the remainder of the termination for convenience claim, the ASBCA entered judgment, which became final. The contractor then submitted the dismissed portion of its claims to the CO for a final decision, which was again denied. However, this time, instead of appealing the CO’s adverse decision at the ASBCA, the contractor appealed the CO’s final decision at the COFC.

In Counts I-III of its COFC complaint, the contractor sought damages relating to the government’s convenience termination of its contracts, including the improper rejection claims raised for the first time before the COFC. In Counts IV-VI, the contractor sought damages under Uniform Commercial Code (UCC) § 2-606(1) based on the government’s implied acceptance of items that the government initially rejected but subsequently used without paying the contractor. In Count VII, the contractor sought damages under the theory of equitable estoppel. In Count VIII, the contractor sought declaratory judgment regarding the work it performed before it was notified of the termination. Therefore, Counts VII and VIII related to the contractor’s termination for convenience claims. In response to the complaint, the government pointed to the Board’s final judgment, arguing that litigation to determine compensation for the convenience termination had already concluded at the ASBCA. Consequently, the government took the position that the contractor’s attempts to relitigate the matter had to fail as the doctrine of claim preclusion barred its claims.

Termination for Convenience Claims

The Court began its analysis by noting that for claim preclusion to apply, the government must show that:

The same parties litigated in a previous suit.
The adjudicative forum entered a final judgment on the merits of that previous suit.
The latter claim is based on the same transactional facts as the first claim, such that the latter claim should have been litigated in the previous case.

There was no dispute that the same parties litigated before the ASBCA as in the present suit. It was also clear that the ASBCA litigation resulted in a final judgment. Finally, the contractor’s claims relevant to termination for convenience (that is, Counts I-III, VII, and VIII) were determined to be based on the same set of transactional facts as the ASBCA litigation – such that they should been raised before the ASBCA in the prior litigation. Therefore, the COFC concluded that the doctrine of claim preclusion barred the contractor’s termination for convenience claims.

Additionally, the COFC determined that it was immaterial for the applicability of the doctrine of claim preclusion that ASBCA had not entered judgment on the merits of some of the arguments related to the termination for convenience. The Court explained that an adjudicative forum’s dismissal for lack of subject matter jurisdiction in the previous action does not typically support claim preclusion in subsequent actions. However, in this case, the contractor’s equitable estoppel and declaratory judgment claims (Counts VII and VIII, respectively) were barred because the contractor should have raised these arguments in the prior litigation. The Court explained that the jurisdictional defect before the ASBCA concerning the contractor’s equitable estoppel and declaratory judgment claims was solely due to the contractor’s failure to submit all its claims to the CO simultaneously. Since the contractor did not raise all its arguments relevant to the convenience termination when submitting its initial settlement termination proposal to the CO, the COFC concluded that the contractor was now precluded from raising those arguments on appeal at the COFC because the ASBCA litigation had ended. Consequently, citing the doctrine of claim preclusion, the Court dismissed all counts in the contractor’s complaint relevant to termination for convenience.

UCC Claims

Unlike the termination for convenience claims, the COFC held that the doctrine of claim preclusion did not bar the contractor’s UCC claims for two reasons. Firstly, the UCC claims required the Court to focus on a different set of facts unrelated to the convenience termination. Secondly, the contractor could not have included its UCC arguments in its settlement proposals to the CO because it could not have known the pertinent facts surrounding the government’s post-rejection use conduct at the time it submitted the settlement proposals.

Specifically, the contractor had alleged in counts IV-VI of its COFC complaint that under UCC § 2-606, it was entitled to recover the value of the test items the government rejected, retained, and used. The Court ruled that the contractor could proceed with the UCC counts of its COFC complaint because the contractor only found out about the government’s post-rejection use of the testing materials during the discovery stage of the ASBCA litigation. The Court also noted that the contractor requested a stay in proceedings during the ASBCA litigation to correct jurisdictional issues. However, the ASBCA went ahead with the case before it. Therefore, the COFC agreed with the contractor that it could not have included its UCC claims in the prior litigation because the essential facts to establish the claim were within the government’s exclusive control. Consequently, the Court decided that the doctrine of claim preclusion did not bar the contractor’s UCC claims.

The doctrine of claim preclusion in federal contracts litigation ensures that the contractor has one, and only one, full and fair opportunity to litigate its matter. It prevents contractors from submitting some, but not all, of their claims to the CO at the same time to strategically create or limit CDA jurisdiction over their claims. Therefore, contractors should be mindful of the applicability of res judicata when engaged in protracted litigation involving the same or similar set of operative facts spanning several years and across multiple adjudicative forums. Claims should be presented in their entirety to the CO as early as possible, and any appeals should be filed within the timeframes established under the CDA. Depending on the specific circumstances, if new facts giving rise to additional claims are uncovered during appeals litigation, contractors should request a stay in proceedings to meet the presentment requirement and resolve any jurisdictional issues to ensure all related matters are litigated together.

This Federal Contract Claims Insight is provided as a general summary of the applicable law in the practice area and does not constitute legal advice. Contractors wishing to learn more are encouraged to consult the TILLIT LAW PLLC Client Portal or Contact Us to determine how the law would apply in a specific situation.

Related Insights

Jurisdictional Considerations in Appeals Challenging Terminations for Default

June 7, 2024 Sareesh Rawat, Esq.

The government may terminate a federal contract if the contractor fails to meet its contractual obligations. The contracting officer (CO), in such cases, issues a final decision terminating the contract for default and outlines the reasons for the default. In the event of a termination for default, the government is only liable to the contractor for the portion of the contract that was already performed. While the CO may exercise discretion to terminate a contract for default, such a decision is appealable to the Board of Contract Appeals or the Court of Federal Claims (COFC) pursuant to the Contract Disputes Act (CDA). The CO’s decision to terminate may be set aside by the adjudicative forum if it is arbitrary, capricious, or constitutes an abuse of the CO’s discretion. For instance, a decision to terminate for default may be arbitrary and capricious if there is a lack of nexus between the CO’s decision to terminate the contract for default and the contractor’s performance on the contract. In such situations, while the concerned adjudicative forum may lack the ability to provide injunctive relief, it may nevertheless convert the CO’s default termination to one for the government’s convenience.

Establishing Date of Receipt of CO’s Final Decision for Triggering CDA Appeals Limitations Period

July 5, 2024 Sareesh Rawat, Esq.

Once a contractor submits a claim to the government under the Contract Disputes Act (CDA), the government is required to provide it a copy of the contracting officer’s final decision (COFD). The receipt of the COFD by the contractor is a key event in the lifecycle of a CDA claim because it triggers the beginning of the statute of limitation period to appeal the COFD at a Board of Contract Appeals (BCA) or the Court of Federal Claims (COFC). Upon receipt of the COFD, the contractor has ninety (90) days to file an appeal at a BCA or twelve (12) months to file an appeal at the COFC. Since the statute of limitations is a condition on the waiver of the government’s sovereign immunity, adjudicative forums enforce it strictly as long as the government can establish, by evidence, the date on which the contractor received the COFD. The Federal Acquisition Regulation (FAR) § 33.211(b) obligates the contracting officer (CO) to furnish to the contractor a written copy of the COFD by certified mail, return receipt requested, or by any other method that generates evidence of receipt. Notably, the CO’s obligation to furnish a copy of the COFD to the contractor applies equally to all final decisions on claims, regardless of whether the contractor or the government initiates the claim.

Implications of a Lack of Notice Detailing Contractor Appeal Rights in a CO’s Final Decision

July 17, 2024 Sareesh Rawat, Esq.

To file appeals under the Contract Disputes Act (CDA), contractors are required to first submit their claims to the contracting officer (CO) for a contracting officer’s final decision (COFD). The Federal Acquisition Regulation (FAR) § 33.211(a)(4)(v) requires COs to include in their final decisions a notice detailing the contractor’s rights to appeal the COFD at the Boards or the COFC. Such notice of contractor appeal rights should include language substantially similar to the following:

“This is the final decision of the Contracting Officer. You may appeal this decision to the agency board of contract appeals. If you decide to appeal, you must, within 90 days from the date you receive this decision, mail or otherwise furnish written notice to the agency board of contract appeals and provide a copy to the Contracting Officer from whose decision this appeal is taken.”

As detailed in the appeal rights notice, the contractor has ninety (90) days to appeal the COFD to an appropriate Board of Contract Appeals or up to twelve (12) months to appeal the decision at the Court of Federal Claims (COFC). The receipt of the COFD by the contractor triggers the beginning of the CDA appeals limitations period, within which the contractor must appeal the COFD at a Board of Contract Appeals (BCA) or the Court of Federal Claims (COFC). Notably, in cases where the government issues a decision terminating a contract for default, the receipt of notification of the CO’s decision to terminate the contract begins the CDA appeals limitation period. Such a default termination notice must typically contain the contractor appeal rights language detailed above. However, the omission of the appeals rights language in the termination notice does not, by itself, negate an otherwise final decision. Additionally, the lack of such an appeal rights notice also does not stop the receipt of the COFD from triggering the CDA appeals limitation period – unless the contractor can demonstrate detrimental reliance or prejudice stemming from the omission of such notice.

Demonstrating Changed Circumstances to Avoid Terminations for Default

August 10, 2024 Sareesh Rawat, Esq.

The government retains the right to terminate a contract for default when the contractor fails to meet its performance obligations. The default termination, commonly considered one of the most undesirable outcomes for contractors, may nevertheless be converted into a termination for the government’s convenience if, on appeal, the government fails to prove that its default termination decision was justifiable. Notably, when the contractor appeals the government’s decision to terminate its contract for default, it is the government’s burden to prove default termination in the first instance. In other words, the government must demonstrate the correctness of its actions in terminating a contract for default. When contract modifications change the terms of the original contract such that the government’s default termination decision is no longer justified under the modified contract, adjudicative forums will typically convert the default termination to one for the convenience of the government, citing the change in circumstances from contract award to termination.

The Armed Services Board of Contract Appeals (ASBCA) in ASBCA 58866 and ASBCA 58867 converted the Army’s terminations for default for two similar contracts into terminations for convenience due to changes in the terms of the contracts due to later modifications. The Army awarded the underlying contracts for the acquisition of thousands of foreign language test items to assess the proficiency of military linguists. The contracts included the Federal Acquisition Regulation (FAR) 52.212-4 clause: “Contract Terms and Conditions—Commercial Products and Commercial Services.” During the performance, the government was only responsible for paying for the items it accepted, with no apparent definition of what constituted an acceptable item, presumably leaving the acceptability determination at the government’s discretion. The government retained intellectual property rights in both accepted and rejected items as the contracts provided the government sole ownership and exclusive rights to the deliverables. After the contracts were awarded to the same contractor, the Army issued nearly identical modifications, stating that any foreign language test items still required under the contracts but not accepted by the government would be “automatically descoped” from the contract. The Army eventually terminated the contracts for default, citing the contractor’s failure to provide the agreed-upon number of acceptable items.

Claim Preclusion in Federal Contracts Litigation

TILLIT LAW Federal Contract Claims Insights