United States: Recent Federal Circuit Decision Clarifies When A CDA Claim For Payment Of Money Accrues

The Federal Circuit recently clarified when a CDA claim for payment of money accrues for purposes of determining whether the CDA's 6-year statute of limitations has run. In Kellogg Brown & Root Servs., Inc. v. Murphy, KBR filed the claim with the Army on May 2, 2012 for work done by its subcontractor in Iraq; thus, the critical date of accrual for limitations purposes was May 2, 2006. The ASBCA dismissed the claim, holding that the claim had accrued prior to May 2, 2006 and, thus, the limitations period had run prior to the filing of the claim. The Federal Circuit reversed and remanded for determination of the merits of the claim.

In 2001, the Army and KBR entered into a cost-plus-award-fee contract under the Logistics Civil Augmentation Program. KBR subcontracted with a joint venture (KCPC/Morris) to construct dining facilities and provide meal and related services. On July 31, 2003, KBR terminated the subcontract for default; KCPC/Morris disputed the termination and, at KBR's request, continued performance until September 12, 2003.

On January 24, 2005, KBR and KCPC/Morris entered into an agreement converting the termination into a termination for convenience. The agreement also divided KCPC/Morris' costs into two groups, one of which KBR paid and was not at issue, while the other consisted of certain KCPC/Morris performance and termination costs. With respect to the latter costs, the agreement stated that the parties would cooperate to prepare well-supported invoice(s) for the U.S. Government. On August 26, 2006, KCPC/Morris submitted to KBR a certified claim, which KBR forwarded to the Army without certifying the validity of the costs. The Army refused to consider the information and directed KBR to settle the claim with its subcontractor, then bill the Government. On February 17, 2012, KBR and KCPC/Morris entered into an agreement for payment to KCPC/Morris of more than $10 million, and on May 2, 2012, KBR filed a certified claim with the Army for that amount. The CO did not act on the claim, placing it in "deemed denial" status, and KBR appealed to the ASBCA.

The Army moved to dismiss, stating that the 6-year limitations period had run. The board granted the motion, finding alternative dates for the accrual of the claim, both of which preceded the critical limitations date of May 2, 2006. The board found that the claim accrued on September 12, 2003, when KCPC/Morris ended its work—or, alternatively, on January 24, 2005, when KBR and KCPC/Morris agreed to cooperate to present an invoice to the Army for certain costs.

On appeal, the Federal Circuit first considered the September 12, 2003 date. The court began with the FAR definition of "accrual," which includes "the date when all events, that fix the alleged liability of either the Government or the contractor and permit assertion of the claim, were known or should have been known. For liability to be fixed, some injury must have occurred." The ASBCA had reasoned that liability was fixed on September 12, 2003 because the claim was for alleged entitlement to certain costs. In contrast, the Federal Circuit explained that the FAR definition of "claim" includes a written demand seeking payment of money in a sum certain, and it noted that the Army did not state that the amount of the claim was reasonably known in 2003 or 2005—but instead argued that liability was fixed by KBR's cost-reimbursement contract with the Army (though the amount of the liability was not established).

The Federal Circuit explained, however, that under the FAR, a "claim" for "the payment of money" does not "accrue" until the amount of the claim, a "sum certain," is "known or should have been known." KBR argued that it did not have sufficient information to request a sum certain until KCPC/Morris first presented its claim to KBR on August 26, 2006, after the critical date for accrual of limitations purposes. The ASBCA did not find otherwise, and the Army did not argue otherwise.

The court held that accrual of the claim did not occur until KBR requested, or reasonably could have requested, a sum certain from the Government. The court added that the Army repeatedly told KBR that it would not consider any of KBR's submissions until after resolution of the subcontractor issues. With respect to the board's alternative date of January 2005, when KBR entered into a settlement agreement with KCPC/Morris, the court noted that the Army did not argue that a "sum certain" was known at that time—and held that KBR's claim did not alternatively accrue when KBR and its subcontractor agreed to resolve certain costs and cooperate to present a claim when the costs were resolved.

The Federal Circuit addressed other arguments advanced by the Army, including arguments involving the distinction between routine and non-routine requests for payment in CDA matters and the Severin doctrine. However, the court's decision rests primarily on the FAR's requirements that a claim for the payment of money does not accrue until the amount of the claim—a sum certain—is known or should have been known.

Originally published June 22, 2016

Visit us at mayerbrown.com

Mayer Brown is a global legal services provider comprising legal practices that are separate entities (the "Mayer Brown Practices"). The Mayer Brown Practices are: Mayer Brown LLP and Mayer Brown Europe – Brussels LLP, both limited liability partnerships established in Illinois USA; Mayer Brown International LLP, a limited liability partnership incorporated in England and Wales (authorized and regulated by the Solicitors Regulation Authority and registered in England and Wales number OC 303359); Mayer Brown, a SELAS established in France; Mayer Brown JSM, a Hong Kong partnership and its associated entities in Asia; and Tauil & Chequer Advogados, a Brazilian law partnership with which Mayer Brown is associated. "Mayer Brown" and the Mayer Brown logo are the trademarks of the Mayer Brown Practices in their respective jurisdictions.

© Copyright 2016. The Mayer Brown Practices. All rights reserved.

This Mayer Brown article provides information and comments on legal issues and developments of interest. The foregoing is not a comprehensive treatment of the subject matter covered and is not intended to provide legal advice. Readers should seek specific legal advice before taking any action with respect to the matters discussed herein.