Some projects require the contractor to begin performance immediately, with the urgency of the government requirement providing no time to establish terms, specifications, or prices. The government may enter into undefinitized contract actions (UCAs) or letter contracts for such projects. The contract clause at Federal Acquisition Regulation (FAR) 52.216.25 provides the process for the definitization of UCAs. Since UCAs permit performance without firmly established terms such as pricing, procuring agencies are expected to agree on the undefinitized contract terms in a timely manner after the commencement of performance. When the agency and the contractor cannot agree on a firm price, the FAR definitization clause allows the contracting officer (CO) to conclude negotiations and unilaterally determine a reasonable price. Notably, because the definitization clause expressly permits it, the CO’s unilateral establishment of pricing is considered an act of contract administration and not a government claim. Consequently, if the contractor does not agree with the CO’s unilaterally established price, it must file a claim with the CO before appealing that decision at a relevant Board of Contract Appeals (BCA) or the Court of Federal Claims (COFC).
In an April 2023 decision, the Court of Appeals for the Federal Circuit resolved this issue on appeal by affirming an Armed Services Board of Contract Appeals (ASBCA) decision. That appeal involved two UCAs the United States Air Force entered into to upgrade the F-16 Fighting Falcon aircraft. When the Air Force and its contractor could not agree upon a price despite years of negotiations, the CO unilaterally definitized the UCAs at approximately $1 billion. Considering the CO’s definitization actions to be government claims, the contractor filed an appeal directly with the ASBCA, alleging that the CO failed to establish a reasonable price per the requirements of the UCAs. The contractor sought a declaratory judgment that the CO’s unilateral definitizations were inconsistent with the FAR, which required the CO to definitize the UCAs at a reasonable price. The Air Force moved to dismiss the contractor’s appeal for failing to submit a certified claim and requesting the CO’s final decision per CDA requirements. The ASBCA agreed with the agency’s position and dismissed the appeal for lack of jurisdiction. Subsequently, the contractor filed its appeal with the Federal Circuit, with the sole issue on appeal being whether the CO’s definitizations were government claims directly appealable to the ASBCA.
The Federal Circuit pointed to its previous decisions in which it held that the FAR definition of a “claim” requires the government or the contractor to expressly assert entitlement to relief sought. Stated another way, the claim must be a demand for something due or something believed to be due. The Court explained that when the Air Force COs unilaterally definitized the pricing terms of the UCAs, they were simply following the agreed-upon procedures provided in the definitization clause for finalizing the contract terms. Thus, the COs did not make a demand or an assertion seeking entitlement to something due. Similarly, the government did not seek relief against the contractor after completing the definitization process. The Court compared the unilateral price definitizations to previous cases involving a government claim, such as cases where the government sought a non-monetary remedy under the contract’s inspection clause and where the government terminated the contract for default. The Court noted that the CO’s actions in those cases were necessarily different from the definitization actions in the present case because the CO’s actions there amounted to a demand or an assertion by the government against the contractor. Meanwhile, the definitization actions in the present case were simply administration actions expressly permitted under the contract’s definitization clause.
Letter contracts or UCAs are acquisition flexibilities that permit contractors to immediately begin performance on urgent government requirements before all the contract terms, like pricing, are definitized. The definitization clause in the FAR requires procuring agencies to negotiate with the contractor and define the terms in a timely manner after the commencement of performance. If the parties cannot agree on the undefinitized terms, the CO may conclude negotiations and unilaterally establish the terms, including firm pricing. In such a scenario, the CO’s actions in establishing the pricing terms do not amount to a government claim as they do not constitute a demand or an assertion seeking entitlement to something due or something believed to be due. Such actions are considered administrative actions because they are expressly authorized under the contract’s definitization clause and are, therefore, subject to traditional contractor claims under the CDA. Thus, contractors seeking to assert that the CO failed to set a reasonable price when unilaterally establishing pricing under the definitization clause may not directly appeal the definitization action at a relevant BCA or the COFC. In such situations, contractors should first file a claim with the CO and request his final decision before appealing that decision if necessary.
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.
