Court Awards Equitable Adjustment for Legal Fees to Defend Qui Tam Suit!

by Victoria Tollossa

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The Court of Federal Claims recently awarded an equitable adjustment (EA) to a contractor providing reimbursement of legal fees to successfully defend a False Claims Act (FCA) action. The Tolliver Group v. United States, No. 17-1763C, 1/22/20.

The Facts

In 2011 the Army awarded the contractor a firm fixed price level of effort contract to develop and deliver technical manuals for an Army mine clearing vehicle.  The PWS required the Army to deliver government furnished property (GFP) to the contractor after award, including a technical data package (TDP) to facilitate performance of the contract.  The Army never delivered the GFP but insisted that the contractor continue to perform. The contractor incurred additional costs.

The Army ultimately recognized these additional costs and in 2013 issued Mod 8 to compensate the contractor.  In 2014, a subcontractor employee (relator) filed a FCA suit against the contractor, contending that the contractor wrongfully certified compliance with the TDP despite never having received it.  The Army was of course fully aware of these facts, and not surprisingly the United States refused to intervene in the action. The FCA suit was dismissed and affirmed on appeal. However, the FCA litigation extended over three years and the contractor incurred huge legal fees.

In 2017, the contractor submitted a claim to the Army CO seeking an equitable adjustment under the Army contract for $195,889 for these legal fees. The CO denied the claim, and the contractor filed this action with the court.

The Court’s Analysis

In brief, the court ruled that the Army’ s defective/imperfect specification breached the implied warranty of the specifications which led to the filing of the FCA action and the legal fees for which the Army was responsible. The Court also held that the relator was not akin to a third party in accordance with those cases that forbid a contractor from recovering costs to defend against third party claims. The court held that an EA — presumably under the Changes clause of the Army contract– was the appropriate legal basis to award this relief. The court remanded the case to the parties to address the reasonableness of the amount requested.

The Impact

From a contractor perspective, this is a significant case that serves notice that the government will be held responsible for all the legal consequences of its contract failures — in this case the breach of its implied warranty and the contractor legal costs that flowed therefrom. From the government’s perspective, this is a significant case that exposes the government to a liability, i.e., the FCA legal fees, that arguably were not foreseeable.

Will the government appeal? Stay tuned!