Argument Recap

Earlier this month, the Federal Circuit heard oral argument in ACLR, LLC v. United States, a government contract case that attracted an amicus brief. In this case, the Federal Circuit will review a judgment of the Court of Federal Claims, which granted the government’s motion for summary judgment. The panel included Judges Prost, Hughes, and Stark. This is our argument recap.

John A. Bonello argued for ACLR. He began by clarifying the issues being appealed. He explained that ACLR is seeking a reversal related to the lower court’s ruling on an alleged constructive termination for convenience of a 2007 contract and a remand related to the lower court’s ruling on an alleged breach of the duty of good faith for both a 2007 and 2010 contract. Additionally, he explained, ACLR is seeking a reversal of a determination of reasonable costs resulting from the termination.

Bonello then argued that, rather than the government intending to terminate its contract with ACLR by telling ACLR not to perform the contracted audit, the government was actually showing it had no intent of ever honoring the contract. One judge clarified that the government would have had the right to terminate for convenience given there was a termination for convenience clause in the original contract. In response, Bonello argued that the government’s failure to make a formal termination for convenience suggested it was never going to honor the contract. A judge, however, responded, “That’s what happens when a government terminates a contract for convenience. They are saying ‘we aren’t going to honor the contract.’ They have that right.”

Another judge then moved the argument to costs resulting from the termination. Bonello was asked for a clarification of these costs, specifically the claim that one individual worked over 3000 hours in less than two weeks. Bonello clarified that those 3000 hours occurred from the awarding of the contract in January until the contract was terminated in November, not during the less than two weeks time when work began on the audit and it was quickly canceled. One judge asked if ACLR had documents proving all the time spent on the 2007 audit. Bonello responded by arguing it would have been much easier to prove the time spent on the audit had the government formally terminated the original contract. Furthermore, he argued, since ACLR was in a contingency fee contract, it was not required to keep track of its costs under the contract. In response, a judge noted that ACLR would need evidence to show termination for convenience costs. Bonello later argued that ACLR met the relevant standard by providing the court with W-2s, estimates of time, and receipts.

A judge asked why ACLR was seeking reimbursement of its entire four year lease, despite performing other contracts for the government during that period. Bonello argued that, since the 2007 contract would have been a huge undertaking, it was responsible for ACLR to sign its lease. Bonello continued by stating that the government had argued below that ACLR had no proof with respect to its costs, but ACLR responded with over 100,000 pages of records. One judge, however, characterized the government’s position as challenging whether ACLR had a relevant record keeping system, and given that ACLR provided so many unorganized documents it appears the lower court agreed with the government. Bonello then contended ACLR was prepared to sort through these documents at trial. 

The judges then asked if ACLR is able to show sufficient evidence for a reasonable fact finder to find that the government acted in bad faith. Bonello pointed to various evidence before pointing out that in a motion for summary judgment deference is given to the non-movant. 

Joseph A. Pixley argued for the United States. The argument began by one judge asking why the government had accepted a Performance of Work Statement if it was not going to allow ACLR to perform the audit. Pixley clarified that, since ACLR drafted the statement, the government was not initially aware of the problems that it had with some of ACLR’s methodologies. Moreover, he argued, there is no evidence the government knew the contract would not work before accepting the PWS.

A judge asked why there is not a triable issue of fact regarding whether the government acted in bad faith. Pixley responded by arguing ACLR presented no evidence that the government did not intend to honor the contract. 

Pixley further argued ACLR did not have a regular organized method for tracking the relevant costs of the two audits, and could not use the W-2s provided to properly allocate hours to each contract. He also clarified that, while ACLR did not need to track its hours as a deliverable for their contingency fee contract, it did need to track its hours in order to prove termination for convenience costs. 

A judge mentioned an argument brought up in the amicus brief, which relates to guidance suggesting contractors may rely on their own standard record keeping systems to demonstrate reasonable charges. Pixley argued that the guidance is not binding, it is not included in the contract, and the language actually used in the actual contract does not include “may.” He argued ACLR only needed a system good enough to show that a cost was actually attributable to the contract. He maintained ACLR did not do this by pointing to receipts for groceries, flowers, and gun ammunition within the documents ACLR claimed proved its costs. 

In rebuttal, Bonello pointed to evidence in the appendix related to how the 3000 hours of the one employee were allocated, as well as clarifying that those hours occurred between January 2011 when the contract was first awarded and January of 2012 when all of the costs stopped. In response, a judge suggested that ACLR still did not properly document its costs. Bonello responded by arguing ACLR did properly document its costs, but simply could not associate specific times to specific tasks as the lower court demanded. A judge then asked where in the lower court’s opinion did the lower court demand this. Bonello responded that this was the only conclusion one could draw from the case. 

We will continue monitoring this case and report on developments.