March 22, 2021 Feature

The New Negligent Negotiations Theory of Recovery

Nicholas Solosky

The Contract Disputes Act (CDA) provides the framework for government contractors to pursue claims for time and money against federal agencies.  Typically and traditionally, following the well-worn path that during performance, the government caused the contracts to incur time and/or costs beyond what the contract required entitling the contractor to recover time extensions and costs through a request for equitable adjustment (REA) or CDA Claims.  In this way, CDA Claims are usually easy to understand. But, not all claims are so straightforward. 

Recently, several contractors advanced CDA Claims presenting the novel legal theory that the government must take responsibility for fundamental planning issues dating all the way back to the project’s proposal phase and well before performance.  Dubbed the “Negligent Negotiations” theory, the premise is that an agency’s failure to engage in meaningful negotiations during contract formation can lead to additional costs during performance – and, more importantly, that the agency must pay those costs to the contractor as damages.

This article unpacks the legal basis underlying the Negligent Negotiations theory.  Next, it examines how the Boards of Contract Appeals approach CDA Claims based on the theory.  Finally – and critically for government contractors – it discusses the practical implications and the steps you should take if the Negligent Negotiations theory applies to your government contract or construction project.

Legal Basis for the Negligent Negotiations Theory

The Negligent Negotiations theory arises out of the obligations set forth in Federal Acquisition Regulation (FAR) 15.306(d)(3).  In simple terms, the regulation requires federal agencies to engage in “meaningful negotiations” during contract formation of negotiated procurements.  During these discussions, the contracting officer “at minimum” must discuss deficiencies and significant weaknesses included in the offeror’s proposal. 

Contractors advancing CDA Claims based on the Negligent Negotiations theory argue that the agency’s failure to engage in these meaningful discussions during negotiations caused them to incur additional costs or to perform additional work during contract performance.  In other words, the agency bears responsibility for setting the project up to fail before the work even started.

The ASBCA Allows a Negligent Negotiations Claim to Proceed

The first test for the Negligent Negotiations theory came before the Armed Services Board of Contract Appeals in Appeal of Chugach Fed. Sols., Inc., ASBCA No. 61320, 19-1 B.C.A. (CCH) ¶ 37380 (May 16, 2019).  In that case, the contractor appealed a CDA Claim for an adjustment of contract price, arguing that the Navy’s failure to convey its concerns with respect to staffing levels at the proposal stage caused it to incur substantial costs to meet the agency’s actual expectations during contract performance.  That is, the contractor argued that the Navy was aware from the start that the proposed staffing levels would not meet expectations (and assigned a significant weakness to the proposal in that regard), but nevertheless considered the proposal acceptable and proceeded with awarding the contract.

The Navy filed a motion to dismiss on the basis of jurisdiction, arguing that the Claim was “in reality a pre-award bid protest” that challenged the Navy’s evaluation of the proposal, “rather than a claim related to [the contractor’s] performance of the contract.”  The ASBCA denied the agency’s motion, noting that the contractor was not a disappointed bidder, but rather an awardee with a legitimate claim related to contract performance (i.e., that it performed additional work beyond what was negotiated by the parties).

In a subsequent May 2020 decision, the ASBCA denied the Navy’s motion for summary judgment with respect to the Negligent Negotiations claim.  The Board found that the contractor supported its Claim through documents and deposition testimony of Navy witnesses that demonstrated a material issue of fact as to whether the Navy properly informed the contractor of the significant weaknesses identified during the proposal phase. 

The Chugach case remains pending as of January 2021, so there is still potential for the Board to address the Negligent Negotiations theory in a more direct and substantive way.

The CBCA Declines to Extend the ASBCA’s Rationale in Chugach

The Civilian Board of Contract Appeals (CBCA), in contrast to the ASBCA decision discussed above, has been more hesitant to consider CDA Claims based on the Negligent Negotiations theory.  In its July 2020 decision, Hamstra Chico LLC, Appellant, 20-1 B.C.A. (CCH) ¶ 37654 (July 16, 2020), the CBCA granted the government’s motion for summary judgment and denied the contractor’s appeal for certain utility costs.

The appeal in Hamstra concerned a U.S. Department of Veterans Affairs (VA) contract for the construction and lease of a building.  The initial solicitation stated that the cost of “electricity, gas, and water [would] be paid directly by the VA.”  However, the agency later issued an amended solicitation stating that such utility costs would be paid directly by the contractor.  The contractor acknowledged the amendment, but did not alter its subcomponent cost proposal.  The VA did not consider the issue a deficiency or significant weakness and proceeded to award the contract based on the contractor’s proposal (including, significantly, the signed amendment).  After completing construction, the contractor submitted a CDA Claim arguing that the agency engaged in defective negotiations by failing to identify the utility cost issue as a concern or weakness during the proposal phase.

In denying the appeal, the CBCA expressly acknowledged the Chugach decision (ASBCA decisions are not binding at the CBCA), but distinguished the case on the facts.  Importantly, that means that the Negligent Negotiations theory is not necessarily invalid at the CBCA.  The Board left the door open for a claim involving different facts.  By way of example, claims involving the agency assigning a significant weakness during the proposal phase (as seen in the Chugach decision at the ASBCA) could certainly result in a different outcome from the CBCA.

By analogizing Hamstra’s facts to those in Chugach as part of the decision, the CBCA seems to hint it is not entirely opposed to the Negligent Negotiations theory of recovery, and that it may consider such a claim under the right circumstances in the future.

Practical Considerations for Federal Contractors

Bottom Line Up Front:  Federal construction contractors awarded contracts through FAR Part 15 negotiated procurements may be able to pursue Negligent Negotiation claims – if they have the right facts and enough evidence.

Based on the decisions from the ASBCA and CBCA examined in this article, a colorable claim under the Negligent Negotiations theory will likely have the following three key elements:

  • Conflict between the contractor and the agency for legal responsibility over a disputed portion or element of the work;
  • Evidence that the contractor advised the agency of its intent to approach the work using certain means or methods; and
  • Proof that the agency flagged the contractor’s approach as a deficiency or significant weakness during the contract’s proposal phase, but elected to award the contract and proceed with performance anyway.

The third element (evidence of government knowledge during the proposal phase) presents the greatest challenge for contractors seeking to recover under the Negligent Negotiations theory.  Procedurally speaking, the contractor is unlikely to know in advance whether (or not) the agency assigned a weakness to any particular element of its proposal. Viewed through the lens of the Hamstra decision at the CBCA, it is possible that the absence of evidence in that regard could sink a Negligent Negotiations claim in the end.

Contractors that suspect the agency engaged in Negligent Negotiations must undertake affirmative and diligent steps to protect their rights to seek a time extension and damages under the contract and the FAR.  These best practices include:  (1) providing timely and detailed notice of the condition to the agency, (2) keeping comprehensive project records, and (3) tracking the project schedule and costs. 

Contractors that take these steps up front will put themselves in a better position to obtain relief through an REA or CDA Claim later down the line (even if the Negligent Negotiations theory is not borne out by the facts of record).  Proper notice and detailed record keeping are key elements of every CDA Claim regardless of the underlying legal theory. 

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Nick Solosky

Fox Rothschild, Washington, DC, Division 13 (Government Construction)