When can a contractor start accruing interest on costs included in a contract claim against the federal government? A recent decision of the U.S. Court of Appeals for the Federal Circuit affirmed a board of contract appeals decision which required the payment of Contract Disputes Act ("CDA") interest on the costs from the date the claim was received by the contracting officer even though some of the costs were incurred later. Louis Caldera v. J.S. Alberici Constr. Co., 153 F.3d 1381 (Fed. Cir. 1998).
In October 1989, the Corps of Engineers ("Corps") awarded a $200,000,000 contract to perform work on the Melvin Price Lock and Dam project on the Upper Mississippi River. In 1990, the contractor encountered stone obstructions which it claimed were differing site conditions. On June 19, 1991 the contractor submitted a letter to the Corps stating that it was submitting a request for an increase in the contract price in the amount of $6,256,400 which was part of an equitable adjustment for the differing site conditions encountered on the project. On March 6, 1994 the Corps and the contractor agreed to increase the contract price by $5,866,900 which took into account the costs resulting from the differing site condition. However, the Corps and the contractor disagreed as to whether interest could be added to this adjustment. The contractor contended that interest on the unpaid portion of the increase should start to accrue on June 19,1991 when its letter was submitted requesting the adjustment. The Corps asserted that no interest should accrue at all.
The disagreement focused on whether the contractor was entitled to add interest to the amount of the adjustment pursuant to section 611 of the Contract Disputes Act which states that interest on amounts due for contractor claims shall be paid from the date the contracting officer receives the claim until payment thereof. After the Corps denied the interest claim, the contractor appealed to the Corps of Engineers Board of Contract Appeals ("Board") which granted summary judgement in favor of the contractor and awarded interest on the unpaid amount of the equitable adjustment from June 19,1991 forward. Specifically, the Board found that the June 19, 1991 letter constituted a "claim" under 41 U.S.C. section 605(a) and the Board interpreted section 611 to start interest accruing on costs when the contracting officer received the "claim" -- not when the costs were incurred.
In affirming the Board's decision, the Court of Appeals stated that the only issue was whether section 611 permits interest to accrue on costs before the contractor actually incurs them. The court noted that this section of the Contract Disputes Act states that "interest on mounts found due the contractor on claims shall be paid from the date the contracting officer receives the claim pursuant to section 605(a) until payment thereof." In a prior decision interpreting the CDA, that court noted that it had recognized that section 611 sets a single, red-letter date for the interest on all amounts found due by a court without regard to when the contractor incurred the costs. Therefore, the court concluded that section 611 clearly set a date from which to compute interest on awards and stated that if a statute wrongly requires the United States to pay interest on a contractor's prospective costs, only Congress could correct it. As a result, the Board decision was affirmed.
Comment
The decision by the Engineer Board of Contract Appeals was previously reported in Common Sense Contracting, p. 330 -- CDA Interest At Risk, which, in addition to referencing the Board's decision on the appeal, discussed the potential effect of proposed legislation to amend the CDA to state that interest would be paid from the date the claim is received or the date the costs were incurred, whichever is later. Now that the government's appeal to the Court of Appeals for the Federal Circuit has been denied, there may be further legislative efforts to change the decision.