Late last month, the Federal Circuit issued its opinion in Lockheed Martin Aeronautics Co. v. Secretary of the Air Force, a government contract case that attracted an amicus brief. This case concerns whether the federal government’s resort to unilateral price determinations under two F-16 Aircraft contracts constituted government claims under the Contract Disputes Act of 1978. In particular, the Federal Circuit reviewed a determination by the Armed Services Board of Contract Appeals that it lacked subject matter jurisdiction because the government’s price modifications did not constitute government claims. In an opinion authored by Judge Reyna and joined by Judges Mayer and Hughes, the court affirmed the Board’s judgment dismissing Lockheed Martin’s appeals for lack of jurisdiction. This is our opinion summary.
Judge Reyna first presented the facts of the case:
To expedite work on pressing government projects, the government can issue what are called “letter contracts” or “Undefinitized Contract Actions” (“UCAs”). UCAs allow contractors to begin work before the parties have reached a final agreement on contract terms, like price. The price is expected to be converted into a firm price—or “definitized”—in a timely manner.
This appeal involves two UCAs that the Air Force entered into with Lockheed Martin for upgrades to F-16 aircraft. Both UCAs include “definitization” clauses that provide that if the parties are unable to reach agreement on price by a certain time, the Contracting Officer or “CO”—the government’s agent who can negotiate, execute, modify, or terminate a contract on behalf of the government—may determine a reasonable price. After several years of negotiations, the Air Force and Lockheed Martin were unable to agree on the price terms for the UCAs. The CO assigned to each UCA unilaterally definitized their respective UCA at a price of about $1 billion.
Lockheed Martin appealed directly to the Armed Services Board of Contract Appeals (“ASBCA”) under the Contract Disputes Act (“CDA”), asserting that the COs failed to definitize at a reasonable price as required under the UCAs. The government moved to dismiss, arguing that the ASBCA lacked jurisdiction over the appeals because Lockheed Martin failed to submit a certified contractor claim to the COs requesting a final decision on its claims as required under the CDA. Lockheed Martin asserted that the COs’ unilateral definitizations qualified as government claims under the CDA, which a contractor can directly appeal to the ASBCA without having to submit its own claim to the COs. The ASBCA disagreed with Lockheed Martin and dismissed the appeals for lack of jurisdiction.
Lockheed Martin appeals to this court, pressing the same “government claim” argument here.
Judge Reyna next described how “Congress amended the Office of Federal Procurement Policy Act (‘OFPPA’) to authorize the Administrator of the Office of Federal Procurement Policy to ‘issue policy directives . . . for the purpose of promoting the development and implementation of the uniform procurement system.'” He further discussed how “the Federal Acquisition Regulation (‘FAR’) . . . provides the implementing regulations for the OFPPA.” Judge Reyna then talked about how the “Department of Defense’s additions to the FAR are set forth in the Defense Federal Acquisition Regulation Supplement (‘DFARS’).” He explained that, “relevant here, the FAR and the DFARS contemplate the government entering into UCAs.”
The opinion then noted how the Contract Disputes Act (“CDA”) “recognizes two types of ‘claims’: those brought by the government against a contractor (government claims) and those brought by a contractor against the government (contractor claims).” Judge Reyna also talked about how in order “for a board of contract appeals to have jurisdiction under the CDA, there must be a CO decision on a claim.”
Judge Reyna then referenced a prior case that “defines a ‘claim’ as a ‘written demand or written assertion by one of the contracting parties seeking, as a matter of right, the payment of money in a sum certain, the adjustment or interpretation of contract terms, or other relief arising under or relating to this contract.’” He also mentioned another case where the Court held that “the phrase ‘as a matter of right’ in the regulatory definition of a ‘claim’ requires . . . that the [party] specifically assert entitlement to the relief sought—[t]hat is, the claim must be a demand for something due or believed to be due.”
Judge Reyna then described the Courts holding:
We hold that the COs’ decisions to definitize the contract prices here were not government claims because they were not demands or assertions by the government seeking relief against Lockheed Martin. When the COs definitized the contract prices, they were simply following the agreed upon procedures for determining the final contract price. . . . The COs were not making a demand or an assertion seeking entitlement to “something due or believed to be due.” . . . Nor did the completion of the definitization process result in the government seeking relief against Lockheed Martin.
Judge Reyna explained that the COs’ definitizations of prices in other cases where government claims were found “clearly amounted to a demand or an assertion seeking relief against the contractor based on the contractor’s performance under the contract.”
Judge Reyna then addressed Lockheed Martin’s argument that, “by inserting new prices into the contracts, the COs made an ‘adjustment’ ‘of contract terms’ within the FAR’s second category of ‘claims.’” He responded to this argument by explaining that, “even assuming that the COs’ actions were demands or assertions against Lockheed Martin, we do not think that the COs’ establishment of prices where none existed before can be legitimately characterized as an adjustment of contract terms.”
Judge Reyna rejected another argument made by Lockheed Martin, that “by unilaterally definitizing the prices, the government sought ‘other relief’ within the FAR’s third category of ‘claims’ in the form of ‘impos[ing] prices and demand[ing] performance.'” He noted that “the COs’ ‘imposing prices’ is permitted under the definitization clauses and cannot be characterized as the government seeking something due or believed to be due from Lockheed Martin.”
According to the court, “Lockheed Martin’s responses to the COs’ definitizations are potentially contractor claims” as opposed to government claims. Relatedly, Judge Reyna disagreed with Lockheed Martin “that the phrase ‘subject to Contractor appeal’ in the definitization clauses means that the definitizations in this case are government claims.”
In sum, in this case the Federal Circuit held that “the COs’ definitizations of the contract prices were not government claims because they were not demands or assertions by the government seeking relief against Lockheed Martin.” As a result of its analysis, the court affirmed the Board’s judgment dismissing Lockheed Martin’s appeals for lack of jurisdiction.