Federal Court in Idaho Rules That a Government Contractor May Recover Consultant Fees, So Long as Those Fees Were Incurred in Contract Administration and Negotiation of an Equitable Adjustment But Denies Recovery Because the Consultant Failed to Maintain Proper Records

Tri-State Elec., Inc. ex rel. Apex Enters. v. Western Sur. Co., 1:14-CV-00245, 2017 U.S. Dist. LEXIS 4974 (D. Idaho Jan. 11, 2017)

The United States Department of Veterans Affairs (the “VA”) contracted with Sygnos, Inc. (“Sygnos”) for improvements to the electrical system at a VA hospital in Boise, Idaho. Sygnos subcontracted a portion of the work to Apex Enterprises, Inc. (“AEI”), who in turn subcontracted a portion of its work to Tri-State Electric, Inc. (“Tri-State”).  Delays plagued the project from the outset, and the work – originally scheduled for completion in 240 days – ultimately took more than 950 days to perform.  Disputes concerning responsibility for and the amount of delay damages ensued.

Sygnos submitted a request for equitable adjustment to the VA as a result of the delays. Receiving no timely response from the VA, Sygnos converted the request for equitable adjustment to a claim for delay damages under the Contract Disputes Act, which the VA and Sygnos settled for $645,000.  AEI and Tri-State subsequently sued Sygnos for delay damages they incurred on the project.  Sygnos did not dispute that AEI and Tri-State had suffered delays but it disputed some categories of damages claimed and cited the no-damage-for-delay clause in Tri-State’s contract as barring its claims.

During the delay period, AEI had retained Excell Consulting International, Inc. (the “Consultant”) to evaluate and quantify the impact of delays in support of a request for equitable adjustment. AEI sought to recover from Sygnos the fees that AEI paid the Consultant.  Sygnos moved for partial summary judgment, arguing that AEI’s consulting fees were barred by the Federal Acquisition Regulations (“FAR”).  The FAR allow a government contractor to recover consulting costs incurred in connection with the performance and administration of a contract, but disallow consulting costs incurred in connection with the prosecution of a claim against the government.  Relying upon case law which held that a request for equitable adjustment is “a claim” under the Contract Disputes Act, Sygnos argued that consulting fees AEI paid in developing its request for equitable adjustment were thus unallowable claim prosecution expenses.

The court found case law cited by Sygnos to be distinguishable and held that negotiation of a request for equitable adjustment can be a vital part of contract administration between the government and its contractors, and, when a consultant aids that process, the consulting expenses are allowable under FAR. The court noted that a consultant may serve a dual-function, first by assisting the contractor’s administration of the contract, requests for adjustments to the contract, and negotiations with the government, and second by providing evidence in support of a Contract Disputes Act claim if negotiations fail.  The court stressed that fees paid for the former function – in aid of the contract administration and adjustment negotiation process – are allowable, while the latter are unallowable claim prosecution expenses.

Nevertheless, the court ultimately found the consulting fees barred for violation of another FAR provision: FAR 31.205-33(f), which requires a claimant to submit itemized billings and detailed descriptions of the consultant fees sought by the claimant.  The court determined that the consultant bills submitted as evidence did not have the proper detail to permit recovery.

The court also denied Sygnos request for summary judgment under the no-damage-for-delay clause. The court noted that there were a split of authority on the issue, and followed a line of cases which refused to strictly enforce the exculpatory no-damage-for-delay provision when a delay is “exceptionally unreasonable.”  The court held that there was an issue of fact as to whether a delay which extended the contemplated 240 day contract into a 950 day contract was “exceptionally unreasonable.”  As both AEI and Tri-State contended that the project delay greatly exceeded their contemplation when they executed the contract, the court ruled that a question of fact remained for trial as to whether the delay was exceptionally unreasonable and in fact beyond their contemplation.

To view the full text of the court’s decision, courtesy of Lexis®, click here.

Stephen W. Kiefer

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