When an Owner comes after the Contractor for liquidated delay damages (LDs) after a project is completed late, the Contractor’s only substantive defense is to argue that the delay was excused by force majeure or Owner actions (naturally there may be procedural defenses, like timeliness). However, a recent decision by the United States Court of Federal Appeals for the Federal Circuit has erected a new requirement that the Contractor must first fulfill before it can assert its substantive defense. The decision in question is M. Maropakis Carpentry, Inc. v. United States, ___ F.3d ____, No. 2009-5024 (June 17, 2010). It holds that in order to dispute the basis for an LD assessment by the U.S. Navy, the Contractor first had to submit a certified claim for a time extension. No time extension claim = no defense to LDs.
After finishing the project 467 days late, Maropakis had sent letters asking for a time extension but failed to turn them into a formal, certified claim. Maropakis then brought a claim against the Navy for the unpaid contract balance, which the Navy had withheld as partial payment for claimed LDs. The Navy counterclaimed for the full 467 days of LDs. The court granted summary judgment on the Navy’s counterclaim, on the basis that since Maropakis had never formally sought (in the form of a certified claim) a time extension, the court had no jurisdiction to consider such a claim in defense of the LD assessment. The trial court agreed, as did the Federal Circuit on appeal.
The Federal Circuit’s ruling on appeal was as follows: “we hold that a contractor . . . must meet the jurisdictional requirements and procedural prerequisites of the CDA [Contract Disputes Act-the U.S. law that requires claims to be certified before they can be litigated], whether asserting the claim against the government as an affirmative claim or as a defense to a government action.” The Court saw no reason to distinguish between affirmative claims and matters of defense to government claims in applying the requirement for a certified claim prior to litigation, at least when the defense would involve an adjustment to the contract terms, as in the case of a time extension.
The dissenting opinion argued in vain that there is a clear distinction between presenting an affirmative claim for relief, where claim certification is required, and simply defending against a government claim, where no affirmative relief is sought.
The simple lesson of Maropakis is that whenever completing a U.S. government contract late, it is vital to submit a formal claim for a time extension so as to preserve your right to dispute a possible LD assessment (which may not come for several years). There are also two broader concerns. First, this is another brick in the wall of recent decisions by the Federal Circuit hostile to the position of Contractors. Contractors should be learning that they are not dealing with a tribunal at all inclined to give them the benefit of the doubt. Second, developments in the law relating to U.S. government contracts frequently spread to the U.S. private sector. Where private contracts require some sort of formalities associated with asserting a claim, the Owner may raise similar arguments, seeking to bar any ability to dispute its later assessment of LDs when the claim formalities were not followed to seek a time extension.