BISSELL, Circuit Judge.
Mayfair Construction Company (Mayfair) appeals from a decision of the Armed Services Board of Contract Appeals (ASBCA),
On September 5, 1980, the Department of the Air Force awarded a contract to Mayfair for the "Pacer Down" facilities restoration project at McConnell Air Force Base, Kansas, in the amount of $4,176,296. This contract incorporated by reference the March 1979 version of the Defense Acquisition Regulation Disputes clause.
On January 28, 1982, the contracting officer terminated the contract for the convenience of the government. Mayfair submitted a termination settlement proposal to the contracting officer on June 17, 1982, in the amount of $990,937.29. By letter of August 2, 1982, Mayfair's counsel denominated the June 17, 1982 proposal as a claim under the Contract Disputes Act of 1978 (CDA), 41 U.S.C. § 601 et seq. (1982), and enclosed certification of the proposal as a claim.
On December 11, 1984, Mayfair forwarded an updated termination settlement proposal to the contracting officer in the amount of $610,172, and certified this proposal as a claim under the CDA. The proposal included a request for interest from August 2, 1982, to December 10, 1984, in the amount of $146,612.12.
On February 14, 1985, the parties entered into a termination supplemental agreement under which they agreed that the government would pay Mayfair $438,346 for its termination costs. This agreement, however, expressly reserved Mayfair's claim for interest. On the same date, the contracting officer issued a final decision denying Mayfair's claim for interest. Thereafter, Mayfair appealed to the ASBCA, which held that the Disputes clause of the contract defined "claim" to require the existence of a dispute; no dispute existed between the parties, therefore no claim existed; and consequently, no interest would be allowable under the CDA where there was no claim.
1. Whether Mayfair's termination settlement proposal constitutes a claim.
2. Whether Mayfair may recover interest on its termination settlement proposal.
The contract at issue specifically incorporated by reference the March 1979 version of the Disputes clause. That clause defined claim as follows:
44 Fed.Reg. 12,524 (1979) (emphasis added). It is beyond cavil that under this clause, no claim exists unless it involves a dispute.
As a matter of fact, the ASBCA found here that no dispute existed between the parties. It looked to Mayfair's substantial concurrence with an August 1982 government audit report, and the large reductions Mayfair made thereafter in its proposed settlement. It noted that excluding the $146,612.12 interest element of Mayfair's December 1984 settlement proposal, the final settlement agreement for $438,346 gave Mayfair only $25,213.88 less than the $463,559.88 it had requested in December 1984. As a result, the ASBCA characterized Mayfair and the government during this period as being in "a pre-dispute, negotiation posture." Mayfair, 87-1 BCA at 98,744.
We must treat the ASBCA's factual findings as final unless "fraudulent, or arbitrary, or capricious, or so grossly erroneous as to necessarily imply bad faith," or unless those findings are "not supported by substantial evidence." 41 U.S.C. § 609(b) (1982). There is nothing here to suggest these findings are fraudulent, arbitrary, capricious, or grossly erroneous. With respect to the substantial evidence standard, this "means such relevant evidence as a reasonable mind might accept as
Mayfair attempts to resist this result with two arguments. First, Mayfair states that a revised Disputes clause that did not require a claim to be disputed superseded the March 1979 Disputes clause in Mayfair's contract. Mayfair notes that the new clause was issued on April 30, 1980, well before the award of the subject contract, on September 5, 1980. This argument, however, does not wash. The new clause applied only to contracts resulting from solicitations issued on or after June 1, 1980. 45 Fed.Reg. 31,035, 31,037 (1980). Because the solicitation for the subject contract was dated February 17, 1980, Mayfair, 87-1 BCA at 98,741, the new clause is inapplicable.
Mayfair also contends that the CDA does not require a claim to be disputed, and as such, the terms of the Disputes clause requiring a dispute are in violation of the statute. In order to dispose of this case, we need not, and do not, decide whether the CDA requires a claim to be disputed.
Mayfair's request for interest on its termination settlement proposals is governed by the Court of Claims decision in Nab-Lord Associates v. United States, 682 F.2d 940, 230 Ct.Cl. 694 (1982). There the Court of Claims held that the CDA does not authorize an interest award unless a contractor demands interest on a claim cognizable under the CDA. Id. at 943-44. For the reasons already given, Mayfair's termination settlement proposals were not cognizable claims. Therefore, any demand for interest that relies on these proposals as the underlying basis for an interest demand must fail.
In its December 11, 1984 settlement proposal, Mayfair demanded interest on its August 2, 1982 proposal on the theory that the earlier proposal had been properly certified as a CDA claim. However, because the earlier settlement proposal was not a claim, the demand for interest was unallowable.
Because Mayfair also certified its December 11, 1984 proposal as a CDA claim, it alleges that interest should run on the interest component of that "claim." We may dispose of this argument without reaching the broader issue of whether the CDA permits interest to run on an interest claim. Having held that the interest component of the December 1984 proposal was unallowable, no corpus remains on which interest can run. Therefore, no basis exists on which Mayfair may recover interest.
BENNETT, Senior Circuit Judge, dissenting.
I respectfully dissent. The majority concludes that substantial evidence supports the board's conclusion that no "dispute" existed between the parties since the
Following the government's termination for convenience of the Mayfair contract on January 28, 1982, Mayfair submitted a termination settlement proposal in the amount of $990,937.29. On August 2, 1982, Mayfair identified and certified the settlement proposal as a claim under the CDA. Over 2 years later, in December 1984, Mayfair submitted a second certified settlement "proposal" in the amount of $463,559.88 (not including an amount claimed as interest on that figure). It was not until May 28, 1985, that the government paid Mayfair $438,346, which represented the second proposal amount minus the disputed $25,213.88, in settlement of its termination for convenience claim.
Thus, Mayfair did not receive the government's final payment until 40 months after the government terminated the contract and the final payment received was $552,591.29 less than Mayfair's initial settlement proposal, which had been certified as a CDA claim almost 3 years before. In light of the time taken to resolve the amount due following the government's termination and the difference of over a half a million dollars between Mayfair's initial claim and the government's final payment, I do not hesitate in concluding that substantial evidence does not support the majority's (and the board's) conclusion that the initial termination settlement proposal submitted by Mayfair was merely part of the usual and ordinary process of a convenience termination, and therefore could not constitute a claim since the parties were in "a pre-dispute, negotiation posture." See Mayfair Construction Co., ASBCA No. 30800, 87-1 BCA ¶ 19,542.
My disagreement with the majority, however, is much more fundamental than a difference of opinion over the length of time or the amount of money needed to constitute a "dispute." In my view, a contractor's certified settlement proposal following the termination of a contract for the convenience of the government is as much a claim against the government related to a contract, see 41 U.S.C. § 605(a), as more "traditional" claims stemming from such events as constructive changes, delay, or defective specifications which unquestionably are treated as claims under the CDA. Yet here the majority unjustifiably allows contractor claims arising from convenience terminations to be segregated from all other types of claims arising from contracts with the government, despite no such distinction being made in the CDA.
Nor is there any evidence that Congress intended "claim" to incorporate, for the purposes of the CDA, the additional requirement of a dispute. As the board dissent also correctly points out, "claim" and "dispute" were not used synonymously by Congress in the text of the CDA. See 87-1 BCA at 98,747. Furthermore, the erroneous requirement of a dispute contained in the interim 1979 regulations defining "claim," referenced in the contract at issue, was deleted from the final regulations adopted in 1980.
In determining that no valid claim under the CDA existed in the present case, the board majority rejected the analysis of R.G. Beer and instead relied on Racquette River Construction Co., ASBCA No. 26486, 82-1 BCA ¶ 15,769. The board in Racquette River relied on a lack of a dispute and a lack of delay in settlement beyond a reasonable time to conclude that the contractor's settlement proposal following a termination for the government's convenience was not a claim. But examination of the facts indicates that the contractor submitted a claim for $91,454 and the government questioned at least $32,138 of it. Thus, the board's conclusion in Racquette River that no dispute existed appears contrived since much of the board's opinion delineates the contractor position and the corresponding government proposal, and then decides between the disputed positions. Even more curiously, the board
The majority here attempts to avoid addressing the issue of whether the requirement of a dispute as a prerequisite for a claim under the CDA contravenes the statute by concluding that the CDA does not prohibit the parties from agreeing to additional requirements not expressly contemplated or provided by Congress in the statute. However, the clear intent of Congress should not be permitted by this court to be sidestepped so easily by the parties. It is quite doubtful that Congress intended, as the majority allows here, for the parties to create a different definition of claim in every contract involving the government, especially since the government is the party which provides that definition through its regulations governing its procurement process. As was observed by the board in R.G. Beer,
85-2 BCA at 91,199.
The CDA was designed to end the prior practice rampant in the government contracting arena where a contractor would submit grossly inflated claims that had little relation to the facts, were improper as a basis for settlement, and were intended only as a starting point for bargaining. See Fidelity Construction Co. v. United States, 700 F.2d 1379, 1382-83 (Fed.Cir.) (citing legislative history of the CDA), cert. denied, 464 U.S. 826, 104 S.Ct. 97, 78 L.Ed.2d 103 (1983). To treat termination for convenience settlement proposals differently from other claims related to contracts and to ignore or prevent their certification as CDA claims encourages a return to submission of inflated proposals as a precursor to bargaining and contradicts the entire purpose of the CDA. This is not the type of negotiation posture intended by Congress or that should be encouraged by this court.
The legislative purpose behind 41 U.S.C. § 611, the interest provision in the CDA, adds further support for this conclusion. As discussed in Fidelity, 700 F.2d at 1384, Congress was concerned with fully compensating contractors for additional costs incurred in continuing performance under a contract. See also 87-1 BCA at 98,747. In the case of termination for convenience, the contractor's work may have been terminated prior to his receiving adequate compensation for the performance already completed. No interest is allowed for the time during which the contractor prepares the termination claim prior to its submission
The CDA interest provision also serves to provide "an additional inducement for the settlement of claims short of litigation." Brookfield Construction Co. v. United States, 661 F.2d 159, 164, 228 Ct.Cl. 551 (1981). It makes little sense to say that termination settlement claims should not be treated as claims under the CDA because they are merely in the predispute posture of negotiation, since a purpose of the CDA is to facilitate the settlement of claims short of litigation. Maintenance of a predispute posture should be encouraged, not penalized. Requiring a dispute before interest can accrue pushes the parties that much closer to litigation and only serves to encourage "creation" of a dispute in order to permit the payment of interest. If all other claims arising from contracts with the government currently handled under the CDA can be settled short of litigation, and that is the clear intent and purpose of the statute, it does not follow that treating settlement proposals in the same manner would somehow lead to a different result.
Allowing interest to contractors on their claims under the CDA was intended by Congress to make the bargaining process more equal so that the government could not unreasonably delay the claim analysis to the contractor's detriment. Since other types of CDA claims (not involving fraud) can be negotiated and settled, the fact that termination claims have historically been negotiated rather than merely granted or denied by the contracting officer is no reason to treat termination settlement claims differently from other claims under the CDA. Thus, I would conclude that a contractor should be able to elect to certify its settlement proposal as a CDA claim following a termination for the convenience of the government. Since Mayfair did exactly that, and there has been no suggestion that its initial certification was otherwise defective, I would conclude that Mayfair's termination settlement proposal was a valid CDA claim from August 2, 1982, the date on which the claim was validly certified in accordance with the CDA.
This court has held that a contractor can recover CDA interest even where the underlying quantum claim has been settled as long as the quantum claim was subject to the act and the settlement agreement did not extinguish the interest claim. ReCon Paving, Inc. v. United States, 745 F.2d 34 (Fed.Cir.1984). Since, unlike the majority, I would conclude that appellant's certified termination settlement proposal was a cognizable claim under the CDA and since the parties specifically excluded Mayfair's claim for interest from their settlement agreement, I would conclude that Mayfair is entitled to interest in accordance with the terms of 41 U.S.C. § 611:
According to the parties' stipulations, the total interest due on the $438,346 payment by the government for the period from the date of the initial certification of the claim, August 2, 1982, to the date of payment, May 28, 1985, would be $171,222.09. In my view, Mayfair is entitled to recover that amount.
The "Interest on Interest" Claim
In addition to the above amount, Mayfair also asserts that the interest element of its certified claim of December 11, 1984, is
As evidenced by the use of the term "shall" in section 611, the terms of the section are mandatory. When a proper CDA claim (including certification) has been filed by the contractor and an amount stemming from the claim found to be due to the contractor, the contractor is entitled to receive interest on that amount from the date that the claim was certified. E.g., Fidelity, 700 F.2d at 1385. In fact, although it is uniformly done, it does not appear that the contractor need specifically mention that it seeks interest on the underlying claims in order to recover the interest under the statute since payment of such interest is mandatory. So, absent a dispute over whether the underlying claim is indeed a claim, payment of interest on the amount paid on the claim should necessarily follow in accordance with the statute, and the issue of additional interest on that interest does not arise.
Here, however, since there was a dispute over whether Mayfair's termination settlement proposal could be certified as a CDA claim, the issue did arise. The board in this case unanimously agreed that no interest could be paid to Mayfair on the unpaid interest because only simple interest can be awarded against the Government. See Brookfield, 661 F.2d at 170; United States v. Mescalero Apache Tribe, 518 F.2d 1309, 1331-32, 207 Ct.Cl. 369 (1975), cert. denied, 425 U.S. 911, 96 S.Ct. 1506, 47 L.Ed.2d 761 (1976); Central Mechanical, Inc., ASBCA No. 29193, 85-2 BCA ¶ 18,005. However, the asserted "compound interest" in this case appears to stem from the fact that Mayfair seeks interest on an unpaid amount which itself happens to be interest. Thus, it appears that the interest sought here is indeed simple interest rather than compound interest, albeit simple interest based on an amount which happens to be interest itself, and therefore the claim for such should not necessarily be denied on that basis.
Nevertheless, I would also hold that interest could not be recovered on the unpaid interest of $171,222.09
The conclusion that a claim for interest on unpaid CDA interest is not itself a cognizable CDA claim is buttressed by the decision of the Court of Claims in Brookfield.
661 F.2d at 166-67.
The holding in Brookfield that claims for CDA interest do not need to be certified is a strong indication that such interest claims, while arising from the CDA, do not arise under a contract so as to qualify as CDA claims. Thus, claims for CDA interest would not themselves be entitled to CDA interest. See Nab-Lord Associates v. United States, 682 F.2d 940, 944, 230 Ct.Cl. 694 (1982) (in order for a contractor to receive interest under the CDA there must be an underlying claim for quantum which is governed by the act). Accordingly, for the reasons given, I would affirm that part of the board's decision holding that no additional interest could be recovered under the CDA on the $171,222.09 interest on the termination claim.
87-1 BCA at 98,743 (quoting 45 Fed.Reg. 31035 (May 9, 1980)). See also Paragon, 645 F.2d at 976.