Battling Unfair Unsats (Todd Construction, L.P. v. U.S.)

Historically, when a government contractor received an “unsatisfactory” performance rating (“Unsat”) that was issued without proper procedures being followed or was substantively erroneous, the contractor’s only immediate recourse was to ask the agency to reconsider. Otherwise, the contractor had to wait to seek judicial review through a bid protest on a subsequent procurement – forcing the contractor to wait for the Unsat to potentially deprive it of more work.

This presents a major problem for contractors. This article examines recent judicial developments in which the U.S. Court of Federal Claims opened the door for contractors to seek immediate review of erroneous Unsats.

Under the Contract Disputes Act, if a contractor wishes to pursue a claim against the federal government arising out of a contract, the contractor can turn to one of two places: an agency’s Board of Contract Appeals (BCA) or the U.S. Court of Federal Claims. However, it does not follow that both of these bodies are willing to take up a contractor’s appeal of an erroneous Unsat.

BCAs repeatedly have refused to hear contractor challenges to performance evaluations. In 1991, the Armed Services BCA determined that a contractor could not appeal a performance evaluation directly to the board because it was not a “claim” within the meaning of the Contract Disputes Act. Konoike Construction Co., ASBCA No. 40910, 91-3 BCA ¶24170 (1991). There, the contractor failed to follow procedure by first seeking a final decision of the contracting officer. Many BCAs have declined to hear others challenges to performance evaluations based on reading Konoike to broadly hold that requesting a change to a contractor performance evaluation is not a “claim.” The BCAs simply will not provide contractors a forum to review erroneous Unsats.

The Court of Federal Claims, on the other hand, has taken a different view. It has emphasized the importance of providing contractors with a judicial forum to challenge the fairness and accuracy of performance evaluations, especially “given the increasing importance of performance reviews and prejudice to contractors from erroneous ratings.”

Despite its limited jurisdiction under the Tucker Act (28 USC §1491) and in part because the BCAs refused to take up the issue, the Court of Federal Claims decided to provide contractors with a much-needed forum to challenge erroneous Unsats. Todd Construction, L.P. v. United States, No. 07-324 (Fed. Cl. filed May 25, 2007); BLR Group of America, Inc. v. United States, No. 07-579 (Fed. Cl. filed August 1, 2007).

Todd Construction’s lawsuit alleged that the U.S. Army Corps of Engineers, without observing proper procedures, issued a substantively erroneous Unsat. Todd asked the court to determine that the Corps’ Unsat was unlawful and to order the Corps to remove it. The government claimed the Court of Federal Claims did not have jurisdiction to hear the case.

Jurisdiction existed only if Todd could show that it had properly asserted a Contract Disputes Act “claim,” which the court held had four elements: 1) a decision of the contracting officer; 2) on a written demand; 3) made as a matter of right; 4) requesting relief arising under or relating to the contract.

The Court of Federal Claims held that generally a contractor appealing an Unsat would meet the third and fourth elements. The court also held that Todd submitted a written demand and obtained a decision of the contracting officer. Accordingly, the Court of Federal Claims determined it had jurisdiction to hear the case. Todd Construction, L.P. v. United States, 85 Fed.Cl. 34 (2008).

Almost eight months later, after receiving supplemental briefing from the parties, the Court of Federal Claims issued a second opinion dealing with the kinds of relief it was authorized to grant an aggrieved contractor. Todd Construction, L.P. v. United States, 88 Fed.Cl. 235 (2009).

The Court of Federal Claims held that it could enter a declaratory judgment and that it could remand the case to the agency. In reality, a declaration of rights (without more) would do little to resolve the dispute and would not put the contractor in any better position. The Court of Federal Claims recognized this and took its relief power a step further.

Under the Tucker Act, the Court of Federal Claims has authority to remand cases to agencies with “proper and just” directions. The Court of Federal Claims refused to adopt the government’s request for a narrow reading of “proper and just directions” that would amount to nothing more than telling the agency to follow the regulations. Instead, the Court of Federal Claims held that “[i]n the event that the Court finds procedural deficiencies or an erroneous evaluation, the Court should use its power to issue a declaratory judgment to assist the agency, on remand, to address the identified concerns.”

Since the Todd Construction case is ongoing, it is unclear how far the Court of Federal Claims will be willing to take a declaratory judgment when it finds an agency issued an erroneous or inaccurate Unsat. However, one thing is clear: The Court of Federal Claims has greatly expanded the ability of contractors to challenge Unsats that are inaccurate, erroneous or were issued without following the proper procedure.

So far, Todd Construction teaches two important lessons. First, while the Court of Federal Claims is willing to provide a forum for reviewing erroneous Unsats, a contractor cannot take the Unsat straight to the Court of Federal Claims. A contractor first must submit a written demand and receive a decision of the contracting officer, amounting to a “claim.”

Second, in reviewing whether an Unsat is substantively erroneous, the Court of Federal Claims will give great deference to the decision of the agency but will look very hard at whether the agency followed the proper procedures in arriving at the Unsat. Contractors should be familiar with both the FAR and the agency’s procedures related to issuance of performance evaluations. Equally as important, the contractor should keep diligent written records of instances in which the contracting officer or the agency did not follow the proper procedures.

This article first appeared in the May/June 2010 edition of The Bulletin, published by the Washington Building Congress.