THIS OPINION WAS INITIALLY ISSUED UNDER PROTECTIVE ORDER

THIS OPINION WAS INITIALLY ISSUED UNDER PROTECTIVE ORDER

AND IS BEING PUBLICLY RELEASED IN REDACTED FORM ON

AUGUST 15, 2023

MOTION FOR SUMMARY JUDGMENT

GRANTED IN PART: July 31, 2023

CBCA 7077, 7103

OST, INC.,

Appellant,

v.

DEPARTMENT OF HOMELAND SECURITY,

Respondent.

Antonio R. Franco, Samuel S. Finnerty, and Todd M. Reinecker of PilieroMazza

PLLC, Washington, DC, counsel for Appellant.

Patrick J. Madigan, Office of Chief Counsel, Federal Emergency Management

Agency, Department of Homeland Security, Washington, DC, counsel for Respondent.

Before Board Judges LESTER, VERGILIO, and GOODMAN.

Opinion for the Board by Board Judge LESTER. Board Judge VERGILIO concurs in part

and dissents in part.

LESTER, Board Judge.

Appellant, OST, Inc. (OST), appeals the decision by a contracting officer for the

Federal Emergency Management Agency (FEMA) denying a claim from OST that

incorporated a claim from its subcontractor, AmeriTask LLC (AmeriTask). FEMA has

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CBCA 7077, 7103

2

requested summary judgment in its favor on three different grounds: (1) that the claim is

barred by the six-year statute of limitations under the Contract Disputes Act (CDA),

41 U.S.C. § 7103(a)(4) (2018); (2) that OST failed to provide timely notice (under the

contract’s Limitation of Funds (LOF) and Limitation of Costs (LOC) clauses) that actual

costs would exceed the estimated costs funded under OST’s prime contract; and (3) that,

because the underlying subcontract is an illegal cost-plus-a-percentage-of-cost (CPPC)

contract, it is unenforceable, leaving OST without any ability to recover alleged

underpayments from the Government. In addition, FEMA asks us to find that FEMA did not

breach its contract by failing to pay monies for which AmeriTask never invoiced OST and

that OST never invoiced FEMA.

We grant in part FEMA’s motion for summary judgment, finding that (1) AmeriTask

cannot assert a breach of contract based upon FEMA’s non-payment of money that

AmeriTask never invoiced; (2) OST cannot recover costs incurred in fiscal years for which

obligated contract funding has already been fully expended; (3) a portion of OST’s claim is

barred by the CDA statute of limitations; and (4) AmeriTask’s subcontract with OST is an

illegal CPPC contract. We deny that portion of FEMA’s motion asking that we bar any

recovery because of the subcontract illegality, but we limit any recovery for those fiscal years

in which contract funding was not fully expended to quantum meruit rather than for costs

incurred.

Statement of Undisputed Facts

I.

Performance Under OST’s Prime Contract with FEMA

On January 2, 2008, FEMA awarded a cost-plus-fixed-fee contract, no.

HSFEHQ-08-C-0130 (the prime contract), to OST to administer certain insurance and

pension fund services for the National Flood Insurance Program (NFIP). Under the terms

of the contract, OST’s fixed fee, which was set at a specific dollar amount, would be “paid

in installments based on the percentage of completion of work” in not less than monthly

increments. Appeal File, Exhibit 1 at 5.1 The original period of contract performance was

January 1 through December 31, 2008, id. at 11, but the contract provided options for several

one-year extensions of the contract, which, if exercised, would be funded incrementally. The

prime contract incorporated several clauses from the Federal Acquisition Regulation (FAR),

including the “Availability of Funds (Apr 1984)” (AOF) clause at FAR 52.232-18 (48 CFR

52.232-18 (2008)); the “Limitation of Cost (Apr 1984)” (LOC) clause at FAR 52.232-20; the

“Limitation of Funds (Apr 1984)” (LOF) clause at FAR 52.232-22; the “Subcontracts (June

1

All exhibits are found in the appeal file, unless otherwise noted.

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3

2007)” Alternate I clause at FAR 52.244-2; the “Allowable Cost and Payment (Dec 2002)”

clause at FAR 52.216-7; and the “Fixed Fee (Mar 1997)” clause at FAR 52.216-8. Exhibit 1

at 27, 29.

From the outset of OST’s prime contract through its conclusion, OST provided

services and invoiced FEMA. Respondent’s Statement of Undisputed Material Facts

(RSUMF) ¶ 15; Appellant’s Statement of Genuine Issues (ASGI) at 2. As performance

under the contract continued and options were exercised, FEMA obligated fiscal year (FY)

appropriated funds on an incremental basis to the prime contract—thirty-three times between

January 2, 2008, and March 22, 2017. RSUMF ¶ 15; ASGI at 2; Exhibit 55.

FEMA has already paid OST all funds that were obligated to the contract, with two

exceptions. RSUMF ¶ 16; ASGI at 2. In its twelfth obligation of funding (effected May 17,

2011), which covered the option exercise for work from December 29, 2010, to

December 28, 2011 (year 2011), FEMA obligated $6,388,289 but has paid OST only

$4,456,299.95, leaving an available balance of $1,931,989.05. Exhibit 55. In its thirteenth

funding obligation (effected December 14, 2011), which covered another option exercise for

work from December 29, 2011, to December 28, 2012 (year 2012), FEMA obligated

$13,080,000 but has paid OST only $12,345,547.15, leaving an available balance of

$734,452.85. Id. FEMA issued unilateral contract modifications when it obligated the

funding for 2011 and 2012, each time identifying the amount of the “incremental funding”

being added to the prime contract and specifying the period of performance to which the

incremental funding applied. Exhibits 13, 15. With regard to the other thirty-one times that

FEMA obligated funding, FEMA has paid OST the entirety of those obligated amounts,

leaving no available balance outside of years 2011 and 2012. See Exhibit 55.

II.

OST’s Subcontract with AmeriTask

On or about January 2, 2009, OST subcontracted a portion of its prime contract to

AmeriClaim, Inc. (AmeriClaim) (which was later assigned to AmeriTask) for a period of

time ending in December 2015.2 The subcontract contained language describing itself as a

“cost-plus-fixed-fee” contract but defined the fixed fee as 8% of total subcontract cost, as

follows:

2

Although AmeriClaim originally held the subcontract, AmeriClaim and OST

agreed in 2014 to assign AmeriClaim’s interests in and responsibilities under the subcontract

to AmeriTask. For ease of reference, we refer to AmeriTask as the subcontractor.

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The Fees to be paid by OST to Subcontractor for performing the Tasks for the

base period under the terms of this Agreement will be based on a cost plus

fixed fee contract. These rates will be adjusted annually based on the results

of an Incurred Cost Audit by [the Defense Contract Audit Agency (DCAA)].

The Fixed Fee will be billed at 8.0 percent of total cost inclusive of general

and administrative expenses.

Exhibit 41 at 76. Additionally, the subcontract required AmeriTask to submit monthly

invoices to OST for approval “not later than the 5th business day of the following month”

(although another part of the subcontract inconsistently required AmeriTask to submit its

invoices “on [the] first of each month”). Id. at 68, 75. It also required that “[o]n a daily basis

Subcontractor staff will be required to enter all hours worked into the OST web-based time

and attendance reporting system Daily to which they will all be granted access.” Id. at 75.

“The amount due on each invoice [was to be] calculated by multiplying the Fees by the

Period for work performed” during that period. Id. at 68. In accordance with the

subcontract’s terms, AmeriTask consistently submitted monthly invoices to OST beginning

in early 2009.

In early 2010, however, while preparing its tax returns for the year ending

December 31, 2009, AmeriTask concluded that it had failed to bill OST for a significant

amount of costs incurred in 2009, along with associated fees. Complaint ¶ 10; RSUMF ¶ 10;

ASGI at 2; Exhibit 30 at 4. Discussions between AmeriTask and OST about AmeriTask’s

underbilling continued into the latter part of 2010. RSUMF ¶ 11; ASGI at 2. In October

2010, AmeriTask informed OST that, although “many variables exist that require further

refinement and proper documentation,” AmeriTask’s “estimations strongly suggest that

[AmeriTask] has substantially under invoiced OST for labor and overhead [for the period

from early 2009 through September 2010] in the general estimated area of $750,000.00 to

upwards of $925,000.00.” Exhibit 42 at 15-16. AmeriTask asserted that “additional

accounting needs to be completed before anyone is able to definitively ascertain the correct

and final number” of the amounts underbilled. Id. at 16.

In early 2011, AmeriTask, in response to a November 2010 request from OST, hired

an independent auditor to perform an extensive audit of the company’s accounting system.

RSUMF ¶¶ 12-13; ASGI at 2. In a letter dated April 18, 2011, the auditor concluded that

AmeriTask’s accounting system was compliant with generally accepted accounting

principles (GAAP). Exhibit 30 at 13. On May 26, 2011, OST met with AmeriTask to

discuss the underbilling issue, at which time OST provided AmeriTask with an invoicing

template to use for future invoicing. RSUMF ¶ 14; ASGI at 2. In August 2011, AmeriTask

submitted revised invoices to OST for 2009 and 2010, purporting to demonstrate

AmeriTask’s underbilling for those years.

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5

At some point between August 2011 and August 2013, AmeriTask hired another

professional government contracting accountant to audit its financial records and its

accounting methods and practices. On August 15, 2013, based on that individual’s guidance

and recommendations, AmeriTask submitted to OST a summary of what it believed its

underbillings were not only for calendar years 2009 and 2010 but also for 2011 and 2012.

See Exhibit 30 at 5; Declaration of Alan R. Nagel (Nagel Declaration) ¶ 11. After OST

requested that AmeriTask conduct an audit of its 2011 and 2012 costs, AmeriTask had its

auditor revise the August 15, 2013, report to reflect only 2009 and 2010 costs. See Exhibit

30 at 5; Nagel Declaration ¶¶ 11-12. AmeriTask submitted the revised 2009 and 2010 report

to OST on February 5, 2014. See Nagel Declaration ¶ 12.

OST did not notify FEMA of AmeriTask’s disclosures about alleged underbillings

until it received that revised report. OST asserts that, on February 6, 2014, it disclosed the

underbillings to FEMA (for the first time) when, by email, it submitted the AmeriTask

accountant’s 2009 and 2010 incurred-cost audit report to the FEMA contracting officer. See

Appellant’s Memorandum of Points and Authorities in Opposition to Respondent’s Motion

for Summary Judgment, Exhibit B. OST’s documentation shows that, on March 12, 2014,

the FEMA contracting officer responded by email that it could not validate or approve the

identified costs, citing deficiencies in AmeriTask’s internal controls, the absence of historical

data, and the absence of a cited DCAA audit report. Id. On March 13, 2014, OST informed

AmeriTask that it would resubmit AmeriTask’s request for payment after AmeriTask

provided the requested information. Id. Although FEMA cannot locate this email chain in

its records, there does not appear to be any question about the authenticity of the emails that

OST attached to its briefing.

AmeriTask then hired a new firm, Gov-Con Solutions, Inc. (GCS), to prepare

incurred-cost-submission spreadsheets for each year in which AmeriTask had performed

work from 2009 through 2013. Complaint ¶ 19; Nagel Declaration ¶ 13. On May 11, 2016,

AmeriTask submitted GCS’s findings to OST, showing a total underbilling during that

five-year period of $1,130,664.95, and provided OST with invoices for its costs and fees for

each calendar year from 2009 through 2013. Complaint ¶ 19; Exhibits 45-49. OST did not

at that time notify FEMA of the alleged underbillings.

III.

Submission of Certified Claims

On February 28, 2017, AmeriTask submitted a certified claim to OST, seeking

payment of $1,130,664.95 for previously unbilled costs allegedly incurred from 2009 through

2013. Exhibit 30 at 3-165. AmeriTask asserted that the increased costs represented

previously unbilled direct and indirect costs, plus a corresponding increase reflecting its 8%

fee. Id. at 6.

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OST forwarded AmeriTask’s claim to the FEMA contracting officer on June 14, 2017,

accompanied by its own cover letter in which it requested a contracting officer’s final

decision on the claim. Exhibit 30 at 1-2. Attached to the claim were AmeriTask’s invoices

to OST for the allegedly underbilled costs, all of which were dated February 16, 2017, and

none of which had been previously submitted to FEMA. Id. at 161-65. In its cover letter,

OST asserted that, “[i]f AmeriTask’s final invoices are accepted for payment by the

Government, OST will submit its final invoice with its G&A applied to the AmeriTask, LLC

final costs at the bottom-line level,” as follows:

Year

2009

2010

2011

2012

2013

AmeriTask, LLC Claimed Amount

OST’s G&A ( )

Total

Claimed Amount

$

450,943.00

$

92,797.00

$

282,095.00

$

179,102.68

$

125,728.00

$

1,130,665.68

$

$

Id. at 1. OST also provided the claim certification required by FAR 33.207. Id. at 2.

The contracting officer responded to the claim by questioning whether, because OST

had not previously submitted the invoices for payment or any invoices for OST’s G&A

markup, the costs being claimed were due and owing and, for additional identified reasons,

questioned whether the submission was a proper claim. Exhibit 39 at 7. He also questioned

a representation in AmeriTask’s claim to OST that FEMA had previously been provided

AmeriTask’s invoices for 2009 and 2010 and that FEMA had rejected them, asserting that

he could find no record of any such submissions. Id.

On January 3, 2018, OST resubmitted the June 14, 2017, claim, accompanied by a

new certification and a new invoice from OST that included its own G&A markups on

AmeriTask’s amended claimed costs, which, taken together, totaled $1,206,820.56.

Exhibits 37 at 167, 39 at 6.

IV.

OST’s Appeals

On March 19, 2021, OST filed an appeal with the Board from the “deemed denial”

of its June 14, 2017, certified claim, which OST said in the notice that it had “resubmitted

to FEMA on January 3, 2018.” The Clerk docketed that appeal as CBCA 7077.

Unbeknownst to OST, on March 16, 2021, the contracting officer had issued a decision on

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the claim that OST “submitted on June [14], 2017 and resubmitted on January 3, 2018,”

denying it in full. Exhibit 38 at 1. On April 16, 2021, OST filed a new appeal, this time an

appeal of the contracting officer’s actual written decision on the June 14, 2017, claim. The

Clerk docketed that appeal as CBCA 7103. By order dated April 19, 2021, the Board

consolidated the two appeals to eliminate the possibility of duplicative proceedings arising

out of the same claim.

On April 30, 2021, OST filed its complaint in the two appeals. In it, OST increased

the amount that it was claiming on AmeriTask’s behalf from $1,130,664.95 to $1,979,297.

Complaint ¶¶ 20, 25. OST explained that, “[i]n late 2018 through June 2019, well after the

Certified Claim was submitted, GSC conducted a revised audit of AmeriTask’s books and

records . . . and discovered that the Certified Claim had been understated due to variances

related to AmeriTask’s overhead and G&A indirect rates.” Id. ¶ 24.

On May 27, 2022, after the parties completed discovery, FEMA filed its motion for

summary judgment. By order dated October 17, 2022, after the parties had fully briefed

FEMA’s motion, the Board requested supplemental briefing regarding FEMA’s argument

that OST’s failure to comply with the LOF and LOC clauses in the contract barred recovery.

The parties twice requested extensions of time for the supplemental briefing so that they

could explore the possibility of settlement, but, after the parties could not reach an amicable

resolution to their dispute, FEMA filed its supplemental brief on January 31, 2023, and OST

responded with its own brief on February 24, 2023.

Discussion

I.

Standard of Review

In considering jurisdiction, the Board accepts as true the undisputed allegations in the

complaint and draws all reasonable inferences in favor of the appellant. ARI University

Heights, LP v. General Services Administration, CBCA 4660, 15-1 BCA ¶ 36,085, at

176,187. To the extent that jurisdictional facts are disputed, “the party bringing the action

must establish jurisdiction by a preponderance of the evidence.” Id.

In considering a request for summary judgment, we evaluate whether there is a

genuine issue as to any material fact (a fact that may affect the outcome of the litigation) and

the moving party is entitled to relief as a matter of law. Anderson v. Liberty Lobby, Inc., 477

U.S. 242, 247 (1986). Any doubt on whether summary judgment is appropriate is to be

resolved against the moving party. Celotex Corp. v. Catrett, 477 U.S. 317, 325 (1986).

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II.

8

Jurisdictional Issues

A.

The Contracting Officer’s Concern About a Sum Certain

“As a prerequisite for the Board’s jurisdiction, the CDA requires a contractor to

present a valid claim over which the contracting officer has rendered a final decision.”

Parsons Global Services, Inc. v. McHugh, 677 F.3d 1166, 1170 (Fed. Cir. 2012) (citing 41

U.S.C. § 7103). If a contractor is seeking the payment of money, the claim must identify the

amount sought in a sum certain. M. Maropakis Carpentry, Inc. v. United States, 609 F.3d

1323, 1327 (Fed. Cir. 2010).

In his decision on OST’s June 14, 2017, certified claim, the FEMA contracting officer

asserted that the claim did not seek relief in a sum certain, indicating that OST’s reference

to a future invoice for G&A that OST would submit if FEMA accepted AmeriTask’s invoices

rendered the amount at issue indefinite. FEMA did not raise this jurisdictional issue in its

summary judgment motion, but, because the Board has an independent obligation to ensure

that it possesses jurisdiction, McAllen Hospitals LP v. Department of Veterans Affairs,

CBCA 2774, et al., 14-1 BCA ¶ 35,758, at 174,969, we address it here.

Reviewing the June 14, 2017, claim, it is clear that OST’s representation that it would

submit a future invoice for G&A did not render the monetary amount requested uncertain.

OST specifically identified the amount of the G&A markup that it intended to invoice should

FEMA approve the claim ($

) and provided a specific total dollar amount

($

), inclusive of G&A, that ultimately would be due and owing. The June 2017

submission sought a sum certain. See Contract Cleaning Maintenance, Inc. v. United States,

811 F.2d 586, 592 (Fed. Cir. 1987) (“All that is required is . . . a clear and unequivocal

[written] statement that gives the contracting [party] adequate notice of the basis and amount

of the claim.”). To the extent that the June 14, 2017, claim could somehow be found lacking,

OST’s resubmitted claim, dated January 3, 2018, also identifies a sum certain

($1,206,820.56), albeit one slightly higher than the June 14, 2017, claim.

B.

OST’s Submission of AmeriTask’s Invoices as a “Claim”

As discussed above, the Board’s jurisdiction over a contract dispute in which the

contractor seeks money depends upon whether the contractor submitted a valid claim.

Parsons Global, 677 F.3d at 1170. “A voucher, invoice, or other routine request for payment

that is not in dispute when submitted is not a claim.” FAR 2.101 (definition of “claim”). An

invoice “may be converted to a claim, by written notice to the contracting officer as provided

in [FAR] 33.206(a), if it is disputed either as to liability or amount or is not acted upon in a

reasonable time.” FAR 2.101.

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The first time that OST submitted AmeriTask’s 2011, 2012, and 2013 invoices to the

FEMA contracting officer was June 14, 2017—as attachments to what it called a certified

claim. When submitted, those invoices were not in dispute. OST could not avoid the

pre-existing dispute requirement of FAR 2.101 by dressing the first submission of the

invoices in a way that made them look like a claim. Nevertheless, by the time that OST

resubmitted its claim on January 3, 2018, a reasonable amount of time had passed within

which FEMA had not acted on the invoices, allowing OST to assume that they were in

dispute. Accordingly, OST’s second certified request for payment on January 3, 2018, of the

2011, 2012, and 2013 invoices was a “claim” that provides us with jurisdiction over that

invoice payment dispute. See, e.g., Intown Properties, Inc., HUD BCA 95-C-135-C9, et al.,

96-2 BCA ¶ 28,363, at 141,625.

As for the 2009 and 2010 AmeriTask invoices, OST’s evidence makes clear that, in

February 2014, it had presented FEMA with invoices from AmeriTask for costs incurred in

those two years. FEMA responded by stating that the invoices lacked sufficient information

to be processed and declined to pay them. By the time that OST attached those invoices to

its June 24, 2017, certified claim, they were sufficiently disputed to be a part of a “claim.”

We possess jurisdiction to entertain them.

C.

OST’s Increase in Claimed Damages

In the certified claim that OST submitted on June 14, 2017, and resubmitted on

January 3, 2018, OST identified the amount of AmeriTask’s damages (not including OST’s

markups) as $1,130,665.68. That amount was the sum total of final invoices that AmeriTask

submitted for the five years (2009 through 2013) that AmeriTask performed. OST added a

specific amount of G&A markup in the June 14 claim and a specific amount of G&A markup

in the January 3, 2018, claim, identifying a total “sum certain” being claimed in each. OST

alleges as its basis for relief that “the Government refused to pay [those] invoices” and that

“FEMA materially breached the Prime Contract by refusing to pay” OST for the AmeriTask

work. Complaint ¶¶ 29, 30.

In its complaint, OST increased the amount of the claim that it is seeking on behalf

of AmeriTask from $1,130,665.68 to $1,979,297, Complaint ¶¶ 20, 25, while simultaneously

announcing that it is dropping its request for a G&A markup. Id. ¶ 20 n.2. OST alleges that,

after OST submitted AmeriTask’s pass-through claim to FEMA, a third-party accounting

firm audited AmeriTask’s records, discovered that the certified claim was understated, and

calculated that AmeriTask had incurred $1,979,297 (rather than the $1,130,665.68 originally

invoiced) in unpaid costs and fees between 2009 and 2013. Id. ¶¶ 24, 25. OST asserts that,

“[b]ecause the increase in the claimed amount arises out of the same set of operative facts,

does not constitute a new claim, and is reasonably based on additional information not

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available when the Certified Claim was [submitted], neither a new certified claim nor a

recertified claim need be submitted for this appeal to proceed.” Id. ¶ 26.

As long as the certified claim that the contractor submitted states an amount that the

contractor was seeking in a sum certain, the contractor can, on appeal, increase or decrease

the amount being sought without affecting the Board’s jurisdiction. K&K Industries, Inc.,

ASBCA 61189, 18-1 BCA ¶ 37,134, at 180,723. Here, though, the increase is problematic

because of the nature of the alleged breach of contract. That is, OST asserts that FEMA

breached the contract by refusing to pay the invoices presented to it, invoices that requested

payment in a specific amount. OST’s contract contains the standard FAR clause titled

“Allowable Cost and Payment (Dec. 2002),” which provides that “[t]he Government will

make payments to the Contractor when requested as work progresses,” Exhibit 1 at 29

(quoting FAR 52.216-7(a)(1) (emphasis added)), and that, to obtain payment, “[t]he

Contractor may submit to an authorized representative of the Contracting Officer, in such

form and reasonable detail as the representative may require, an invoice or voucher supported

by a statement of the claimed allowable cost for performing this contract.” Id. (quoting FAR

52.216-7(a)(1)). The payments that the contracting officer approves, or disapproves, are

“based upon [the] contractor invoices.” TRW, Inc., ASBCA 51172, et al., 99-2 BCA

¶ 30,407, at 150,328.

Under the contract’s payment clause, “[t]here [is] no breach until appellant request[s]

payment and the government reject[s] the request.” Parsons-UXB Joint Venture, ASBCA

56481, 09-2 BCA ¶ 34,305, at 169,459; see Todd Pacific Shipyards Corp., ASBCA 55126,

et al., 11-1 BCA ¶ 34,759, at 171,087 (“[T]here can be no breach of that [payment] clause

. . . until the contractor requests payment and the government fails to pay.”). Here, the

invoices that FEMA did not pay and that form the basis of the breach claim total

$1,130,665.68. Neither OST nor AmeriTask has presented any other challenged invoices to

FEMA. OST has no basis for claiming a contract breach involving additional dollars that

AmeriTask never invoiced and non-payment of invoices that OST never submitted. We limit

OST’s potentially recoverable damages in this appeal to the breach alleged, which is

FEMA’s refusal to pay the amounts identified in the invoices.

III.

OST’s Failure to Satisfy the Contract’s Funding and Cost Limitation Clauses

A.

OST’s Failure to Provide Prior Notice of Cost Overruns

FEMA argues that OST’s claims for the unpaid subcontract costs are barred by the

LOF clause (FAR 25.232-22), as well as the AOF and LOC clauses (FAR 52.232-18 and

52.232-20, respectively) in the prime contract. The AOF clause provides that “[t]he

Government’s obligation under th[e] contract is contingent upon the availability of

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appropriated funds from which payment for contract purposes can be made.” FAR

52.232-18. Pursuant to the LOF and LOC clauses, “[t]he parties estimate that performance

of this contract will not cost the Government more than . . . the estimated cost specified in

the Schedule.” FAR 52.232-22(a); see FAR 52.232-20(a). “[T]he estimated cost shown in

the contract constitutes a ceiling on the government’s contractual liability.” Advanced

Materials, Inc. v. Perry, 108 F.3d 307, 310 (Fed. Cir. 1997).

If, at any point during performance, the contractor “has reason to believe that the costs

it expects to incur under this contract in the next 60 days, when added to all costs previously

incurred, will exceed 75 percent of . . . the total amount so far allotted to the contract by the

Government,” the contractor has to notify the contracting officer. FAR 52.232-22(c); see

FAR 52.232-20(b)(1). Timely notice “provide[s] an option to the Government, i.e., it may

decide to add more money to the contract if it appears that more will be needed or it can stop

the work when the funds have been exhausted regardless of the status of the completion of

the work.” Consulting Services Corp., ASBCA 20288, 76-2 BCA ¶ 12,124, at 58,249.

“Although the clause does not provide for any penalty which automatically flows from a

failure to give notice, a contractor who fails to give such notice remains responsible for the

consequences which flow from such failure.” TEM Associates, Inc., DOT BCA 2556, 93-2

BCA ¶ 25,759, at 128,179; see Ray Communications, Inc., GSBCA 15509-ST, 06-1 BCA

¶ 33,273, at 164,916 (“[A] contractor that performs work in excess of the applicable cost

ceiling without obtaining express authorization from the contracting officer [to continue]

does so at its own risk, unless it can demonstrate the applicability of an exception to the

rule . . . .”).

These cost limitation provisions “are designed to allow government officials to place

limits on project expenditures unless it is determined by them that additional expenditures

are warranted.” C&L Construction Co. v. United States, 6 Cl. Ct. 791, 806 (1994) (citing

2 John Cosgrove McBride & Isidore H. Wachtel, Government Contracts § 23.30[3] (1984)),

aff’d, 790 F.2d 93 (Fed. Cir. 1986) (table). As a result, such provisions “are strictly

construed and enforced.” Ray Communications, 06-1 BCA at 164,915. By enforcing

estimated cost ceilings, notification requirements when a contractor is getting close to an

estimated cost ceiling, and the need for contracting officer approval to incur costs beyond the

ceiling, “the Government is able to ensure that the contract does not become ‘a blank check

drawn on the Treasury.’” Id. at 164,915-16 (quoting Wind Ship Development Corp.,

DOTCAB 1215, 83-1 BCA ¶ 16,135, at 80,158 (1982)).

The parties agree that OST never provided FEMA any notice before completing

contract performance in the years 2009 through 2013 that it anticipated exceeding the

estimated costs in the contract. They dispute, however, whether the absence of notice

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matters, with OST arguing that it falls within exceptions to the general notice requirement.

We address the alleged exceptions upon which OST relies below.

B.

Availability of the Obligated Funds Remaining on the Contract

In arguing that its failure to provide pre-incurrence notice of impending cost overruns

is irrelevant, OST first focuses on the fact that some obligated funds still remain on the

contract. It acknowledges that it expended and was paid the entirety of the funds obligated

for performance in the contract’s base year (2009), the first option year (2010), and all option

years from 2013 onward. For performance in 2011, however, obligated funds totaling

$1,931,989.05 were never spent, and, for performance in 2012, obligated funds totaling

$734,452.85 were not spent. Exhibit 55. OST argues that, because the contract has “an

unused, available balance of $2,666,441.90” (the total of the remaining 2011 and 2012

obligated funds), ASGI ¶ 42, there is ample funding available to pay AmeriTask’s current

underbilling claim, rendering irrelevant the absence of prior notice.

OST’s argument ignores restrictions on the availability of appropriations imposed by

law. Although funding for 2011 and 2012 was not fully expended, OST’s claim includes

costs incurred in 2009, 2010, and 2013, years for which all obligated funds have already been

used. “The bona fide needs rule is one of the fundamental principles of appropriations law:

A fiscal year appropriation may be obligated only to meet a legitimate, or bona fide, need

arising in, or in some cases arising prior to but continuing to exist in, the fiscal year for which

the appropriation was made.” 1 General Accounting (now Accountability) Office (GAO),

Principles of Federal Appropriations Law 5-11 (3d ed. Jan. 2004) (GAO Redbook); see 33

Comp. Gen. 90, 92 (Aug. 20, 1953) (“Fiscal year appropriations may properly be ‘obligated’

only for bona fide needs actually existing within the fiscal year sought to be charged.”). By

statute, FEMA is precluded (with limited exceptions) from using an appropriation for one

fiscal year to pay for obligations generated in a different fiscal year:

The balance of an appropriation or fund limited for obligation to a definite

period is available only for payment of expenses properly incurred during the

period of availability or to complete contracts properly made within that period

of availability and obligated consistent with section 1501 of this title.

However, the appropriation or fund is not available for expenditure for a

period beyond the period otherwise authorized by law.

31 U.S.C. § 1502(a). Accordingly, unless the agency obligates funds using a multi-year or

no-year appropriation, which FEMA did not use here, “appropriations for service of a given

fiscal year cannot be used for any other purpose than the payment of the expenses incurred

for the service of that year.” 33 Comp. Gen. at 92; see 45 Comp. Gen. 59, 65 (Aug. 5, 1965).

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There are situations in which an appropriation for one fiscal year might be available

to pay for nonseverable work that, by necessity, has to carry over into a portion of the next

fiscal year, see 1 GAO Redbook at 5-4, -14; 73 Comp. Gen. 77, 79 (1994), but, “where the

services [being provided] are continuing and recurring in nature,” like under OST’s contract,

“the contract is severable” and the services must be charged to the fiscal year(s) in which

they are rendered. 1 GAO Redbook at 5-24 to -25. The GAO Redbook provides a clear

explanation of the limitations on the use of annual fiscal year appropriations in contracts that,

like OST’s, involve a base contracting year with a series of one-year continued performance

options:

If an agency is contracting with fiscal year appropriations and does not have

multiyear contracting authority, the only authorized course of action, apart

from a series of separate fiscal year contracts, is a fiscal year contract with

renewal options, with each renewal option (1) contingent on the availability of

future appropriations, and (2) to be exercised only by affirmative action on the

part of the government (as opposed to automatic renewal unless the

government refuses). The inclusion of a renewal option is key; with a renewal

option, the government incurs a financial obligation only for the fiscal year,

and incurs no financial obligation for subsequent years unless and until it

exercises its right to renew. The government records the amount of its

obligation for the first fiscal year against the appropriation current at the time

it awards the contract. The government also records amounts of obligations

for future fiscal years against appropriations current at the time it exercises its

renewal options.

Id. at 5-41 (citations omitted).

OST’s contract operated under incremental funding that was tied to annual, single

fiscal year appropriations. The services provided under the contract were segregable. As a

result, although obligated funds for 2011 and 2012 were not fully expended, OST cannot rely

on the availability of those funds to pay for costs incurred in 2009, 2010, or 2013. The 2009,

2010, and 2013 obligated funds were fully dispersed years ago.

We recognize that, putting appropriations issues aside, one paragraph in the LOF

clause, read in isolation, might be interpreted as indicating that OST should be able to apply

2011 and 2012 obligated funds to pay for earlier years of its performance. The LOF clause

provides, in relevant part, that, “[w]hen and to the extent that the amount allotted by the

Government to the contract is increased, any costs the Contractor incurs before the increase

that are in excess of . . . [t]he amount previously allotted by the Government . . . shall be

allowable to the same extent as if incurred afterward, unless the Contracting Officer issues

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a termination or other notice and directs that the increase is solely to cover termination or

other specified expenses.” FAR 52.232-22(i). Precedent makes clear, however, that this

language, when read in conjunction with preceding paragraphs in the LOF clause, presumes

that, before the contracting officer obligated the additional funding, the contractor had

previously timely disclosed impending or actual cost overruns. TEM Associates, 93-2 BCA

at 128,180-81. Without that prior disclosure, the contracting officer cannot reasonably be

understood to have intended, when adding funding to the contract, that the new money would

be used to pay for past cost overages rather than for new work not yet performed. Id. at

128,181. Only with actual notice would the contracting officer need to include language in

the funding modification to limit how the added money could be spent. See id. Because

OST never provided FEMA with notice of impending cost overages for 2009 or 2010 (or, for

that matter, 2013), OST cannot rely on this provision in the LOF clause to gain access to

funding.

C.

OST’s Claimed Exception for Costs Unknown

There are exceptions to the requirement that the contractor must provide timely notice

of an impending cost overrun. One of these exceptions is that “the contractor had no reason

to know of[,] and could not have known of, an imminent overrun.” Ray Communications,

06-1 BCA at 164,916. Here, OST argues that it had no reason to know of AmeriTask’s

imminent overrun and that, as a result, its failure to provide notice is excused. It is OST’s

burden to show that the cost overruns were not reasonably foreseeable. International Science

& Technology Institute, Inc. v. United States, 53 Fed. Cl. 798, 806 (2002), aff’d, 95 F.3d 398

(Fed. Cir. 2004) (table).

Here, OST argues that it could not have reasonably known of the imminent cost

overruns from 2009 to 2013 because its subcontractor, not OST, was the source of the cost

tracking problem. Yet, in 2010, OST was informed of potential AmeriTask underbillings of

up to $950,000. A contractor has a “duty to maintain an accounting and financial reporting

system to secure timely knowledge of probable overruns before costs are incurred” and “to

properly evaluate the financial data” that the accounting system generates. Advanced

Materials, 108 F.3d at 311; see Consulting Services Corp., ASBCA 20288, 76-2 BCA

¶ 12,124, at 58,248; Industrial Technological Associates, Inc., ASBCA 16075, 72-2 BCA

¶ 9531, at 44,388. Although the cost tracking problem here rested with OST’s subcontractor

rather than with OST’s own accounting system, “prime contractors are ordinarily responsible

for the unexcused performance failures of their subcontractors.” General Injectables &

Vaccines, Inc. v. Gates, 527 F.3d 1375, 1377 (Fed. Cir. 2008). When OST became aware

of problems with AmeriTask’s cost tracking in early 2010, it did not take immediate steps

to expedite a solution to AmeriTask’s problem but, instead, directed AmeriTask to engage

auditors who took years to report their findings. During that time, OST never told FEMA

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about the cost overruns yet kept billing (or underbilling) FEMA until it reached cost estimate

funding ceilings. OST cannot claim ignorance of its subcontractor’s billing problems when

it had been told of them and was actively involved in attempting to direct a response.

OST also asserts that it could not report AmeriTask’s overruns until auditors had

completed their review of AmeriTask’s records—a review that took several years—and had

identified definite numbers that OST could relay to FEMA. Yet, OST knew in early 2010

that AmeriTask was underbilling and, by October 2010, that underbillings for 2009 and the

first part of 2010 were somewhere between $750,000 and $950,000. OST did not inform

FEMA of any underbillings until 2014, even though, between 2010 and 2014, it was

continuing to submit monthly payment requests that, from what AmeriTask had told it, it

knew were understated. “A contractor is not required to have exact knowledge of the extent

of the cost overrun before it is obligated to give notice.” Industrial Technological

Associates, 72-2 BCA at 44,388-89. “[N]otice is required when the contractor ‘has reason

to believe’ that it will exceed the estimated costs.” Titan Corp. v. West, 129 F.3d 1479, 1481

(Fed. Cir. 1997); see International Technology Corp., ASBCA 54136, 06-2 BCA ¶ 33,348,

at 165,365; J. J. Henry Co., ASBCA 13835, et al., 71-1 BCA ¶ 8898, at 41,347. OST has

identified no basis for eliminating the contracting officer’s ability to control costs or his

contractual right, in response to a notice of an impending cost overrun, to elect to stop certain

services.

In any event, even if OST could claim that it reasonably was unaware of the extent

of AmeriTask’s alleged underbillings, it would not matter in the circumstances here. We

recognize that the Court of Claims in General Electric Co. v. United States, 440 F.2d 420

(Ct. Cl. 1971), held that a contracting officer “abuses his discretion” under the cost limitation

clauses “if he refuses to fund a cost overrun where the contractor, through no fault or

inadequacy on its part, has no reason to believe, during performance, that a cost overrun will

occur and the sole ground for the contracting officer’s refusal [to fund the overrun] is the

contractor’s failure to give proper notice of the overrun.” Id. at 425. The Court of Appeals

for the Federal Circuit subsequently clarified in Advanced Materials, Inc. v. Perry, 108 F.3d

307 (Fed. Cir. 1997), however, that the Government does not have to waive the cost estimate

limitations following an untimely overrun disclosure if “the contractor’s failure to give

proper notice of the overrun was not ‘the sole ground’ for the contracting officer’s refusal

to fund it.” Id. at 311. That admonition is consistent with the fact that, even when a

contractor provides timely and proper notice of a projected overrun, it “does not require the

contracting officer to take any action.” Applied Theory, Inc., ASBCA 49725, 97-1 BCA

¶ 28,670, at 143,191 (1996), aff’d, 152 F.3d 944 (Fed. Cir. 1998) (table). Timely notice

“gives the contracting officer the opportunity to increase the estimated cost” but “does not

require him to do so.” Id.; see Advanced Materials, 108 F.3d at 310 (Timely notice “gives

the government the choice whether to incur additional costs for the contract or to have the

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contract terminated.”). It would be strange if, as OST appears to argue, contractors who do

not provide timely notice are automatically entitled to recover their excess costs when those

who do provide timely notice cannot unless the contracting officer affirmatively grants it.

Here, in his final decision, the contracting officer stated that he was denying OST’s

cost overrun claim not only because of the lack of notice but also because (1) OST did not

have sufficient data to show that the subcontract costs were allowable, reasonable, and

allocable under the FAR; and (2) OST had failed to monitor its subcontractor to ensure that

it had an acceptable accounting system that would report costs accurately during contract

performance. Exhibit 38 at 3-4. The lack of notice was not “the sole reason” for the

contracting officer’s denial of OST’s claim. Accordingly, the General Electric rationale for

waiving the notice requirement does not apply. See Advanced Materials, Inc., ASBCA

47014, 96-1 BCA ¶ 28,002, at 139,851 (1995) (approving cost overrun funding denial where

the contracting officer’s stated reason for denying funding was a lack of assurance that

overrun costs were reasonable, allocable, and allowable), aff’d, 108 F.3d 307 (Fed. Cir.

1997). OST cannot rely on a lack of knowledge to avoid the notice requirements of the LOF

and LOC clauses.

D.

Summary of Cost Limitation Clauses Issues

Based upon its unexcused failure to provide timely notice under the LOF and LOC

clauses, OST may not pursue claims for cost overruns in 2009, 2010, or 2013. The lack of

notice does not affect OST’s ability to seek costs incurred in 2011 and 2012, up to the

amount of whatever estimated costs for those years have not yet been expended, except to

the extent, as discussed below, that recovery of those costs is impacted by FEMA’s other

summary judgment arguments.

IV.

The Effect of the CDA Statute of Limitations

Under section 7103 of the CDA, “[e]ach claim by a contractor against the Federal

Government relating to a contract . . . shall be submitted within 6 years after the accrual of

the claim.” 41 U.S.C. § 7103(a)(4). The FAR defines accrual of a CDA claim as “the date

when all events, that fix the alleged liability on either the Government or contractor and

permit assertion of the claim, were known or should have been known.” FAR 33.201.

FEMA argues in its summary judgment motion that the entirety of OST’s claim is barred by

the CDA’s statute of limitations. It asserts that “AmeriTask and [OST] were both aware of

the alleged underbilling by May 26, 2011, at the latest” and that “[t]he earliest possible

‘claim’ submission date was more than six years later, i.e., by June 14, 2017.” Respondent’s

Summary Judgment Motion at 7.

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“[T]o determine when appellant’s claims accrued, and the events that fixed the alleged

liability, we start by examining the legal basis for each particular claim.” Crane & Co. v.

Department of the Treasury, CBCA 4965, 16-1 BCA ¶ 36,539, at 178,007 (quoting

Environmental Safety Consultants, Inc., ASBCA 54615, 07-1 BCA ¶ 33,483, at 165,984).

“[W]here a claim is based upon a contractual obligation of the Government to pay money,

the claim first accrues on the date when the payment becomes due and is wrongfully

withheld in breach of the contract.” Oceanic Steamship Co. v. United States, 165 Ct. Cl. 217,

225 (1964); see Alder Terrace, Inc. v. United States, 161 F.3d 1372, 1377 (Fed. Cir. 1998)

(“Generally, ‘[i]n the case of a breach of contract, a cause of action accrues when the breach

occurs.’” (quoting Manufacturers Aircraft Association v. United States, 77 Ct. Cl. 481, 523

(1933)). OST characterizes the Government’s “breach” as its failure to pay invoices that

were first presented to it with OST’s June 14, 2017, certified claim and then resubmitted with

the January 3, 2018, resubmitted claim. According to OST, its claim could not have accrued

before it submitted the invoices on June 14, 2017.

“[I]t cannot be true that one who has a claim against another which he can perfect and

make actionable by acts within his own power can keep the claim alive indefinitely by

merely refraining from doing those acts”—that is, by failing to submit the necessary

invoices. Systems Management & Research Technologies Corp. v. Department of Energy,

CBCA 4068, 15-1 BCA ¶ 35,976, at 175,791 (quoting Duhame v. United States, 135 F. Supp.

742, 744 (Ct. Cl. 1955)). As we discussed in Systems Management, when evaluating the

accrual date for a claim for unpaid money, we have to look at the language of the government

contract at issue to determine if it obligated the contractor to demand payment of costs

incurred by a particular deadline, a demand that would perfect the Government’s obligation

to pay. If the contract requires submission of an invoice for particular incurred costs by a

particular deadline, the statute of limitations generally starts “to run, depending on the

contract language, on or soon after [that] contractual deadline for invoicing.” Id.; see

Johnson v. Columbia Properties Anchorage, LP, 437 F.3d 894, 900-01 (9th Cir. 2006)

(where the contract required that the invoice be sent “at the conclusion of the project,” the

statute of limitations began to run well before the contractor submitted an invoice for

payment two-and-a-half years after the project conclusion). In certain circumstances, “a

claim can accrue before the contractor ever submits an invoice to the Government.” Systems

Management, 15-1 BCA at 175,789.

FEMA argues that OST was required to include all costs in monthly invoices as they

were incurred and that, when it was submitting its invoices, AmeriTask and OST should have

known that the invoices, all of which FEMA paid, were understated, triggering the CDA

statute of limitations. In considering FEMA’s argument, we must evaluate the specific

language of OST’s contract. Systems Management, 15-1 BCA at 175,790. Here, that

language obliges OST and AmeriTask to invoice all costs contemporaneously with their

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incurrence. Under the terms of its subcontract, AmeriTask was required to submit monthly

invoices in which it was to calculate the amount due “by multiplying the Fees by the Period

for work performed” during that period. Exhibit 41 at 68. OST, in turn, would submit to

FEMA “an invoice or voucher supported by a statement of the claimed allowable cost for

performing this contract.” FAR 52.216-7(a)(1). Because AmeriTask’s monthly invoices

were required to contain all costs that it had incurred during that period and because OST

was required to forward those invoices to FEMA for payment, the statute of limitations for

challenging the amount of the monthly payment in a pass-through claim like this one accrued

each time that OST submitted AmeriTask’s understated invoice and FEMA made the

payment (or, as OST now calls it, the underpayment). Cf. United Liquid Gas Co. v. General

Services Administration, CBCA 5846, 18-1 BCA ¶ 37,172, at 180,941 (finding that a

government claim for overbilling accrued when the Government made the overpayment and

could have, if it had tried, determined the overbilling from the base contract).

We reject OST’s argument that the CDA statute of limitations could not have

commenced until OST submitted the June 14, 2017, claim and invoices. It was only on that

date, OST argues, that it could calculate a “sum certain” for AmeriTask’s pass-through claim.

To support its position, OST relies on the Federal Circuit’s decision in Kellogg Brown &

Root Services, Inc. v. Murphy, 823 F.3d 622 (Fed. Cir. 2016), where the Court asserted that

“a ‘claim’ for ‘the payment of money’ does not ‘accrue’ until the amount of the claim, ‘a sum

certain,’ FAR § 2.101, is ‘known or should have been known,’ id. § 33.201.” Kellogg

Brown, 823 F.3d at 627; see id. at 628 (“Accrual in accordance with FAR § 33.201 does not

occur until [the contractor] requests, or reasonably could have requested, a sum certain from

the government.”). At least one court has held that the Federal Circuit’s discussion in

Kellogg Brown tying accrual to the ability to identify a “sum certain” was dicta and in

conflict with existing court precedent. Square One Armoring Services Co. v. United States,

162 Fed. Cl. 429, 437-38 (2022). Even if not dicta, the holding is irrelevant here.

AmeriTask should have known that its invoices were understated and by what amount when

it submitted them to OST. In fact, beginning in early 2010, OST was expressly informed that

AmeriTask was underbilling. Only OST and AmeriTask were in a position to prepare

accurate invoices, and they cannot defer claim accrual by reference to their own failed

accounting practices. See Raytheon Missile Systems, ASBCA 58011, 13 BCA ¶ 35,241, at

173,018 (“Accrual of a contracting party’s claim is not suspended until it performs an audit

or other financial analysis to determine the amount of its damages.”). Because OST’s

contract and AmeriTask’s subcontract, taken together, required AmeriTask to bill all costs

in monthly invoices as the costs were being incurred, OST cannot rely on Kellogg Brown to

excuse its and its subcontractor’s failure to satisfy that obligation and to avoid accrual of the

CDA statute of limitations.

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FEMA argues that, because OST was aware by early 2010 that AmeriTask was

underbilling and by October 2010 that the amount of the underbilling was substantial, the

entirety of OST’s claim for monies incurred in 2009 through 2013 is time-barred. Some of

the costs of services for which AmeriTask seeks reimbursement, however, were incurred less

than six years before OST submitted the claim at issue. As discussed above, when a claim

accrues depends on the language of the contract. Systems Management, 15-1 BCA at

175,791. OST’s contract provided that, after it submitted an invoice, FEMA would make

payment. Each payment was, according to OST, too low. For each underpayment, the

statute of limitations runs from the date of that underpayment. See Todd Pacific Shipyards

Corp., ASBCA 55126, et al., 11-1 BCA ¶ 34,759, at 171,087 (finding statute of limitations

ran from the date that the Government was required but failed to pay in response to the

invoice).

For the reasons discussed in the prior section, the only costs that remain available for

potential recovery are those incurred in 2011 and 2012. The parties’ briefing does not

identify the dates upon which FEMA made what OST would now characterize as

underpayments of AmeriTask’s incurred costs or when the costs that OST is claiming were

actually incurred. In further proceedings, the parties will have to calculate which costs in

OST’s claim are tied to each monthly underpayment and analyze whether they fall outside

the CDA statute of limitations.

V.

The Illegality of AmeriTask’s Subcontract

A.

The Nature of AmeriTask’s Subcontract

As another basis for summary judgment, FEMA argues that OST’s recovery is barred

because the subcontract between OST and AmeriTask is an illegal CPPC contract.

By statute, the Federal Government is precluded from using “[t]he

cost-plus-a-percentage-of-cost system of contracting.” 41 U.S.C. § 3905(a). That

prohibition extends to bar prime contractors from entering into CPPC subcontracts to support

their prime contracts: “Where a subcontract violative of the prohibition [on CPPC contracts]

is made—in whatever form or disguise—it is plainly invalid at least insofar as establishing

an obligation on the Government to make reimbursement of an amount representing the

subcontractor’s claimed costs plus a percentage of such costs.” Urban Data Systems, Inc.

v. United States, 699 F.2d 1147, 1151 (Fed. Cir. 1983) (quoting 33 Comp. Gen. 533, 536

(1954)). Here, applying that prohibition, OST’s prime contract incorporates the

“Subcontracts (Jun 2007)” clause from the FAR, which provides that “[n]o subcontract or

modification thereof placed under this contract shall provide for payment on a [CPPC]

basis.” FAR 52.244-2(g); see Exhibit 1 at 28.

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OST argues that its subcontract with AmeriTask is not actually a CPPC contract but

is instead a valid cost-plus-fixed-fee contract. The Federal Circuit has adopted the following

four general criteria, originally developed by the Comptroller General, for analyzing whether

a contract is a CPPC contract:

(1) payment is on a predetermined percentage rate; (2) the predetermined

percentage rate is applied to actual performance costs; (3) the contractor’s

entitlement is uncertain at the time of contracting and (4) the contractor’s

entitlement increases commensurately with increased performance cost.

Urban Data Systems, 699 F.2d at 1150 (citing 55 Comp. Gen. 554, 562 (1975)). Ultimately,

though, “any contractual arrangement where the contractor is assured of greater profits by

incurring additional costs will be held illegal.” United States ex rel. Patzer v. Sikorsky

Aircraft Corp., 571 F. Supp. 3d 979, 987 (E.D. Wis. 2021) (quoting John Cibinic, Jr.,

Stephen D. Knight & Ralph C. Nash, Jr., Cost Reimbursement Contracting 42 (4th ed.

2014)). “The reason Congress prohibited this type of arrangement in government contracting

is that it gives the supplier an incentive to drive up the government’s costs: because the

supplier’s profit is determined by a percentage of its future costs, the supplier has an

incentive ‘to pay liberally for reimbursable items because higher costs mean[ ] a higher fee

to him.’” Id. (quoting Muschany v. United States, 324 U.S. 49, 61-62 (1945)).

AmeriTask’s subcontract defines the “fixed fee” as an add-on of “8.0 percent of total

cost inclusive of general and administrative expenses.” Exhibit 41 at 76. That language

establishes a predetermined percentage rate, which (based upon the language of the

subcontract) applies to actual performance costs, with the cost amount uncertain at the time

of subcontracting and with AmeriTask’s entitlement increasing commensurately as its total

costs increase. That is the epitome of an illegal CPPC contract.

OST argues that, regardless of the language in the subcontract, the parties to the

subcontract actually calculated AmeriTask’s fee each year as a set figure approximately

equaling 7.5% of what they originally expected AmeriTask to bill. As a result, OST argues

(supported by a declaration from one of its fact witnesses) that the parties did not implement

the CPPC aspect of the agreement. In interpreting a contract, however, we look to its plain

language, as written, rather than to extrinsic evidence. Foley Co. v. United States, 11 F.3d

1032, 1034 (Fed. Cir. 1993). Interpreting the plain language of AmeriTask’s subcontract,

it is clear that the parties agreed to a fee based on a predetermined eight-percent rate, which

was to be applied to the total cost of the project, not to a predetermined “estimated cost” that

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OST now proposes.3 It is “[t]he theoretical contravention of the prohibition” that “make[s]

the arrangement illegal.” Urban Data Systems, 669 F.2d at 1151 (quoting Air Repair,

G.M.B.H., ASBCA 10288, 67-1 BCA ¶ 6115 (1967)). “No showing of [an actual] unfair or

inefficient increase in price or costs is necessary in order to render such a contract illegal.”

Id. Because AmeriTask’s subcontract is, on its face, plainly a CPPC contract, neither OST

nor AmeriTask, in seeking recovery from FEMA, is “entitled to enforcement of the

provisions of the express, written [sub]contract . . . since those provisions are invalid as

violative of the applicable procurement law.” Yosemite Park & Curry Co. v. United States,

582 F.2d 552, 561 (Ct. Cl. 1978).

B.

The Effect of the Illegality on OST’s Recovery

Contrary to FEMA’s position, the mere fact that AmeriTask’s subcontract with OST

is an illegal CPPC contract does not automatically dispose of OST’s claim. If a contractor

presents an otherwise valid claim under an illegal CPPC contract, the contractor “is entitled

to a quantum meruit recovery for the reasonable value of the services received by” the

Government. Yosemite Park, 582 F.2d at 560; see Urban Data Systems, 699 F.2d at 1154-55

(where the illegal CPPC contract was one for supplies, allowing for quantum valebant

recovery). “[T]he reasonable value of the benefit received by the [Government]” does not

necessarily equate with the costs that the contractor incurred and “may be shown to be less

than the amount claimed.” Yosemite Park, 582 F.2d at 561; see Cities Service Gas Co. v.

United States, 500 F.2d 448, 457 (Ct. Cl. 1974) (“[V]alue determined on a quantum meruit

basis . . . is not based on costs nor a reasonable return on investment of the seller, but on the

reasonable value in the marketplace of the property sold.”). If evidence shows that the value

of AmeriTask’s services to FEMA actually exceeded the “provable costs” that it incurred,

OST’s recovery on AmeriTask’s behalf would still be limited to those “provable

3

OST argues that dollar figures identified in an attachment to the subcontract,

see Exhibit 41 at 78, set forth the “fixed fees” that AmeriTask would be paid, regardless of

how many labor hour costs it incurred when performing. In reality, though, the dollar figures

are those that AmeriTask would recover only if OST ordered the maximum number of labor

hours that the subcontract permitted. See id. at 69 (“[I]n no event shall the fees payable to

the Subcontractor on any task order exceed the designated maximum amount specified in

each task order.”). AmeriTask was not guaranteed the maximum number of labor hours or

the maximum possible fee. For whatever labor hours AmeriTask billed, its fee was limited

to “8% of total cost inclusive of general and administrative expenses,” which is the epitome

of a CPPC contract. Id. at 76. To the extent that a reference to a 7.5% fee in the subcontract

attachment to which AmeriTask cites creates some kind of ambiguity in the subcontract, that

ambiguity would relate to the amount of AmeriTask’s fee markup entitlement, not the fact

that the fee amount would be a percentage of actual costs incurred.

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costs”—AmeriTask cannot recover more than it spent. Yosemite Park, 582 F.2d at 561; see

Alisa Corp., AGBCA 84-193-1, 94-2 BCA ¶ 26,952, at 134,218-19.

The dissent on this issue believes that we should seek briefing from the parties on an

issue that they did not raise. Specifically, it questions whether, because the contractorsubcontractor agreement at issue here contains a severability clause, the parties can avoid a

quantum meruit recovery by essentially reforming the subcontract to strike the percentage-ofcost fee payment obligation from that agreement and directing payment of the

subcontractor’s actual costs (plus OST’s markups) but not the subcontractor fee. It is not

clear that a pricing provision like AmeriTask’s can be severed by striking out the illegal parts

of the pricing scheme, even in a contract containing a severability clause. See, e.g., AMB

Property, L.P. v. MTS, Inc., 551 S.E.2d 102, 104 (Ga. Ct. App. 2001). At least in some

jurisdictions, “the severance of an essential term is not allowed, even where the contract

contains a severance clause,” Super98, LLC v. Delta Air Lines, Inc., 309 F. Supp. 3d 1368,

1378 (N.D. Ga. 2018) (internal quotation marks and citation omitted), and “[t]he general rule

is that price is an essential ingredient of every contract.” Echols v. Pelullo, 377 F.3d 272,

275 (3d Cir. 2004) (citation omitted). In any event, the rules of severance make no

difference here because “we have no jurisdiction to grant reformation of the terms of a

subcontract.” Acquest Government Holdings, OPP, LLC v. General Services Administration,

CBCA 413, 08-1 BCA ¶ 33,720, at 166,971 (2007); see MW Builders, Inc. v. United States,

136 Fed. Cl. 584, 589 (2018) (“The court’s equitable authority does not extend to reforming

contracts between [a prime and its subcontractor].”); George Hyman Construction Co. v.

United States, 30 Fed. Cl. 170, 175 (1993) (“Plaintiff has not cited, and the court has not

found, any instance where this court has exercised authority to reform a private contract”

between a prime and its subcontractor.), aff’d, 39 F.3d 1197 (Fed. Cir. 1994) (table).

Because we lack authority to reform AmeriTask’s subcontract in the manner that the dissent

envisions, we see no need to require the parties to devote time and effort to research and brief

a severability issue that they did not previously raise.

Accordingly, we grant summary judgment in FEMA’s favor on the issue of whether

AmeriTask’s subcontract is a CPPC contract, but we deny its request to bar OST from any

recovery because of the illegal nature of that subcontract. In further proceedings, OST will

have to show that, for services provided in 2011 and 2012, FEMA paid less than the

reasonable value of the services that OST and its subcontractor provided and that AmeriTask

(and OST) suffered damage because of the underpayment.

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CBCA 7077, 7103

23

Decision

FEMA’s motion for summary judgment is GRANTED IN PART. OST’s damages

are limited to the amounts identified in the invoices that it submitted on June 14, 2017.

Further, because recovery of costs incurred in 2009, 2010, and 2013 is barred by cost

limitation clauses in the contract, OST cannot recover those costs. OST may pursue a

quantum meruit recovery for services performed in 2011 and 2012 unless, in future

proceedings, FEMA is able to establish that claims relating to services provided in 2011 and

2012 are partly or fully barred by the CDA statute of limitations.

Harold D. Lester, Jr.

HAROLD D. LESTER, JR.

Board Judge

I concur:

Allan H. Goodman

ALLAN H. GOODMAN

Board Judge

VERGILIO, Board Judge, concurring in part and dissenting in part.

I would deny all but two portions of the appeals (relating to the performance years

nominally of 2011 and 2012) at this stage. I reach this result rather directly, without the dicta

and various conclusions along the way to resolution of the panel. On their faces, the claims

seek a sum certain. These claims have been properly certified and are properly before the

Board. In summary, the contract was funded on a yearly basis. The agency paid the

contractor the annually funded amount for all but the two years. The agency has no

obligation to pay the contractor in excess of the funded amounts, such that there is no legal

basis to award the contractor additional funds for the claims, except potentially years 2011

and 2012. Additional payment for those two years remains in dispute; resolution depends

upon the further development and finalization of the record.

The existing record shows that, with the claim in 2017, the contractor initially

invoiced (subsequently revised) for additional payment for the two years in question. The

agency’s failure to pay the amounts sought is the basis of the claim for payment. The

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CBCA 7077, 7103

24

existing record does not demonstrate that the referenced funding clauses of the contract (e.g.,

Limitation of Funds, Limitation of Costs) prohibit or impact payment for these two years.

Also, the claim filed in 2017, as applicable to contract years 2011 and 2012, satisfies the sixyear statute of limitations requirements.

The contractor-subcontractor agreement appears to contain a severability clause, such

that if a term is deemed to be invalid or unenforceable, the remainder of the agreement

remains in full force and effect. The parties do not address this clause or its potential impact

with respect to the alleged cost-plus-percentage-of-cost contract. I would not at this stage

limit relief to a quantum meruit basis for the two years in dispute nor preclude relief under

the actual terms and conditions of the contract and agreement. Moreover, if what the

contractor contends is true, that the subcontractor received a fixed fee for each year of

performance, there would be no basis to add a subcontractor fee amount to any relief

substantiated for actually incurred, but unreimbursed, costs under the contract.

The majority reads more into my position than is stated. In its comments, the majority

rejects the notion that the severability clause could potentially impact recovery under the

claim. It provides its own analysis preempting the parties from addressing the issue. As

stated above, I would not “at this stage limit relief” as does the majority. Moreover, I do not

attempt to alter the agreement between the prime and the subcontractor but note that the

agreement, with the severability clause, could be read to impact the agency’s obligations for

payment. That is, whatever the contractor may be obligated to pay the subcontractor under

its agreement can be different from what the agency may have to pay the contractor.

Joseph A. Vergilio

JOSEPH A. VERGILIO

Board Judge