Amicus Curiae Brief — Grumman Aerospace Corp. v. United States

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| Supreme Court,

US.

re | FILED

No. 90-1800 vVL 20 1997 |

IN THE

Supreme Court of the United States

OCTOBER TERM, 1991

GRUMMAN AEROSPACE CORPORATION,

Petitioner,

Ve

UNITED STATES OF AMERICA,

Respondent.

On Petition for a Writ of Certiorari to the

United States Court of Appeals

for the Federal Circuit

BRIEF AMICUS CURIAE OF THE

CHAMBER OF COMMERCE OF THE UNITED STATES

IN SUPPORT OF THE PETITIONER

Of Counsel: JAMES S. HOSTETLER

RoBIN S. CONRAD (Counsel of Record)

NATIONAL CHAMBER STEPHEN D. KNIGHT

LITIGATION CENTER BRIAN A. OCHS

1615 H Street, N.W. TERRY SMITH

Washington, D.C. 20062 KIRKLAND & ELLIS

(202) 463-5337 655 Fifteenth Street, N.W.

Washington, D.C. 20005

(202) 879-5000

Attorneys for the

Chamber of Commerce of the

United States of America

I

WILSON - Epes PRINTING Co., INC. - 789-0096 - WASHINGTON, D.C. 20001

Tee CLERK |

’

- —

TABLE OF CONTENTS

pv SOP Be Nip y s 2 yy) ee

INTEREST OF THE AMICUS CURIAE ..................

STATEMENT OF THE CASE ...W0202000..2.ccecceeeeeeeeeeeee

REASONS FOR GRANTING THE WRIT .................

I.

II.

THE QUESTION OF WHO MAY CERTIFY A

CLAIM HAS SPAWNED MORE THAN A

DECADE OF WASTEFUL LITIGATION,

CONTRARY TO CONGRESS’ INTENT ....._....

THE FEDERAL CIRCUIT DECISION IM-

POSES UNDUE RISKS AND BURDENS ON

CONTRACTORS, AND FIRMLY ESTAB-

LISHES CERTIFICATION AS AN OBSTA-

CLE, RATHER THAN AN EXPEDIENT, TO

iF hg y ||), ares

A. The Court Has Imposed A Restrictive And

Unworkable Rule Which Is Divorced From

The Realities Of Corporate Organization

And Government Contracting .......-.....0..00.......

1. There May Be No Appropriate “Senior

Company Official” to Certify under the

Federal Circuit’s Interpretation of FAR

tL Lh . , Se Aces celennen

2. Contractors Must Start the Process All

Over Again If the “Wrong” Official

I ae

3. The Federal Circuit’s Requirement That

the CEO or Its Equivalent Certify under

FAR § 33.207 (c) (2) (ii) Is Unreasonable

and Contrary to the Purposes of the

NN adi isa tlic acai sepadicanke Geetha tadce ce

11

ii

TABLE OF CONTENTS—Continued

B. The Court’s Decision Places A Special Bur-

den On The Large Number Of Small To

Moderate-Sized Companies Which Sell To

Tine GPO nctrecctticiccinnn

C. The Court’s Decision Unfairly Penalizes

Contractors Who Certified Claims According

To Pre-Existing Legal Requirements ............

III. THE FEDERAL CIRCUIT DECISION CRE-

ATES STRONG DISINCENTIVES TO DOING

BUSINESS WITH THE GOVERNMENT,

CONTRARY TO CONGRESS’ INTENT ......... :

CORTON cacinnicssnnivissliccieuntiuniitaletteandianiiiammmanaiaiiala

Page

15

16

20

iii

TABLE OF AUTHORITIES

Cases:

Al Johnson Constr. Co. v. United States, 19 Cl. Ct.

EEE

Ball, Ball & Brossamer, Inc. v. United States, 878

EE S|)

Board of Governors of the Fed. Reserve Sys. v.

Dimension Fin. Corp., 474 U.S. 361 (1986) .......

Bob Jones University v. United States, 461 U.S.

Teen a os i ainsseclecmacenevees

Boyle v. United Technologies Corp., 487 U.S. 500

SS

Brookfield Constr. Co. v. United States, 661 F.2d

Nee es eammumnanansne

Cox Constr. Co. v. United States, 21 Cl. Ct. 98

EE EE Ce

Fidelity Constr. Co. v. United States, 700 F.2d

1379 (Fed. Cir.), cert. denied, 464 U.S. 826

is sonceomenmners

Grumman Aerospace Corp., ASBCA No. 34665,

6.) eee

Ingalls Shipbuilding, Inc., ASBCA No. 38323, 91-2

Tec nmeersnecieas

KDH Corp. v. United States, 23 Cl. Ct. 34 (1991)..

M.A. Mortenson Co., ASBCA No. 39978, 91-1 BCA

AS SRT SR

Manning Elec. & Repair Co. v. United States, 22

Teens cddeemanenenee

McDonnell Aircraft Co., ASBCA No. 37346, 89-2

EE |

Newport News Shipbuilding and Dry Dock Co.,

ASBCA No. 33244, 91-2 BCA { 23,865 (1991)....

Northwest Marine, Inc., ASBCA No. 41702 (May

3, 1991) (Westlaw, FGC-BCA library) ..............

PCL Civil Constructors, Inc., ASBCA No. 41881,

Saas ee Cheer) ....................................

Peabody N.E., Inc., ASBCA No. 26410, 83-2 BCA

TE

Prism Constr. Co., ASBCA No. 42096 (May 21,

1991) (Lexis, PUBCON library) ................0.......

R.J. Lanthier Co., ASBCA No. 41350, 91-2 BCA

RE

Page

12, 16

13

8, 10

iv

TABLE OF AUTHORITIES—Continued

Page

Reliance Insurance Co. v. United States, 23 Cl. Ct.

BI ID incncectenssdois herons shieen permenant bab tas aceiien 12, 16

Sun Cal, Inc. v. United States, 21 Cl. Ct. 31

ERA eens xc DD SR Sake cl Te: 7

Tracor, Inc., ASBCA No. 29912, 87-2 BCA { 19,808

EF ¢ CE RIAA IRR Peni hae asd be en Pe LR 7

Triax Co. v. United States, 20 Cl. Ct. 507 (1990) ..6, 7, 9, 10

United States v. Grumman Aerospace Corp., 927

ig ge ei le es ae ee eenomeen passim

United States v. Newport News Shipbuilding and

Dry Dock Co., 655 F. Supp. 1408 (E.D. Va.

SE co eGiicbictink tnacehigaliineuaaesinclg cetera a Eiigie ans 2

United States v. Newport News Shipbuilding and

Dry Dock Co., 837 F.2d 162 (4th Cir. 1988)... 2

United States v. Westinghouse Elec. Corp., 615

F. Supp. 1163 (W.D. Pa. 1985), aff’d, 788 F.2d

Oe I I 2

W.M. Schlosser Co. v. United States, 705 F.2d 1336

Sls He II cores cata id scavindianemnndeeskundnebdbdanintise 11

Western Empire Constructors, Inc. v. United

peaeen, Be Ge. Ge Sle CES0S) ..................-.......... 7

Statutes:

48 C.F.R. § 38.207 (c) (2) (1990) ............................... 4

Contract Disputes Act of 1978 (1988)

OR a is sco seteccutse eens oeerennnctensens 2

aT 2

EEA cree RISER aE MO 3,5

a 12

Federal Acquisition Regulation (FAR)

ca) cashideinniniadatls 18

PEE TERE RS A AIR BOS ee 4, 6,9

yf 5d. hens ip téasddetiadend 4,7,8,9

Caen TT ee ccesesleunl 5, 7, 8,13

ee a ee 18

RRA Se SES en RE RES cent ee Ss 18

Ee all aR Staiger Anal 18

| eae ee Teena EWA ENE ne 18

v

TABLE OF AUTHORITIES—Continued

Page

Pub. L. No. 101-189, § 824, 103 Stat. 1504, re-

printed in 1989 U.S. Code Cong. & Admin.

RRR SEE AN Si 2 ae OE BAe Rae RS Be 19

10 USA. Geeeente? (1908 )...................................... 18

ee Eee eee Coney 18

Oe en. 18

10 U.S.C.A. § 2325 note (West Supp. 1984-1990) .... 19

eC IS UD cise 18

Legislative Materials:

Contract Disnutes Act of 1978: Hearings Before

the H. Subcomm. on Administrative Law and

Governmental Relations of the Comm. on the

Judiciary on H.R. 3668, 98th Cong., 2d Sess. 134

CE deciciliedadatlanhadsdicceichdbesniatintihietca daddies hsecacnanthooeghinn 6,14

Contract Disputes: Hearings Before the H. Sub-

comm. on Administrative Law and Governmen-

tal Relations of the Comm. on the Judiciary on

H.R. 664 and Related Bills, 95th Cong., 1st Sess.

Oe MN iakca ace cr 15

Defense Contractor Whistleblower Act of 1989,

Comments of the Chamber of Commerce on H.R.

2579, submitted to the House Committee on

Armed Services (July 10, 1989) 2.000000. 2

General Services Administration Proposed Rule

on “Procurement Integrity,” Federal Acquisition

Regulation (FAR) Case 89-23, Comments of the

Chamber of Commerce (Apr. 26, 1989) _............ 2

H.R. Rep. No. 331, i01lst Cong., 1st Sess., reprinted

in 1989 U.S. Code Cong. & Admin. News 977...... 19

Integrity of Department of Defense Acquisition

System and Its Impact on U.S. Nationa! Secur-

ity: Hearings Before the Full Comm. and the

Acquisition Policy Panel, Comm. on Armed Serv-

ices, 100th Cong., 2d Sess. 19 (1988) 14

S. Rep. No. 81, 101st Cong., Ist Sess. (1989) _...... 19

S. Rep. No. 1118, 95th Cong., 2d Sess. 1, reprinted

in 1978 U.S. Code Cong. & Admin. News 5235..2, 5, 7, 19

vi

TABLE OF AUTHORITIES—Continued

Other Authorities:

ASBCA Asks Selected Contractors to Address Ade-

quacy of Certifications, 55 Fed. Cont. Rep.

(BNA) 869 (Mar. 27, 1991) ..............00000000000...

DOD Fraud Investigations: Characteristics, Sanc-

tions, and Prevention, GAO Report No. B-224759

ERR yee oe ee Oa a

Gov’t Prosecuting Fraud Cases Based on Conduct

Once Viewed As ‘Noncriminal’, 44 Fed. Cont.

Rep. (BNA) 536 (Sept. 16, 1985) 0.000000...

SEC Form 10-K of General Dynamics Corp. for

the year ended December 31, 1990 ......00000000000....

Shirk, Greenberg & Dawson, Truth or Conse-

quences: Expanding Civil and Criminal Liability

for the Defective Pricing of Government Con-

tracts, 837 Cath. U.L. Rev. 935 (1988) —..............

The State of Small Business: A Report of the

President Transmitted to the Congress 1990

i a heltbeblene

Page

14

14

15

IN THE

Supreme Court of the United States

OCTOBER TERM, 1991

No. 90-1800

GRUMMAN AEROSPACE CORPORATION,

. Petitioner,

UNITED STATES OF AMERICA,

Respondent.

On Petition for a Writ of Certiorari to the

United States Court of Appeals

for the Federal Circuit

BRIEF AMICUS CURIAE OF THE

CHAMBER OF COMMERCE OF THE UNITED STATES

IN SUPPORT OF THE PETITIONER

With the written consent of the parties,’ the Chamber

of Commerce of the United States (the “Chamber’”) re-

spectfully submits this brief amicus curiae in support

of the petition of Grumman Aerospace Corporation

(“Grumman”) for a writ of certiorari to review the de-

cision of the United States Court of Appeals for the

Federal Circuit in United States v. Grumman Aerospace

Corp., 927 F.2d 575 (Fed. Cir. 1991).

INTEREST OF THE AMICUS CURIAE

As the nation’s largest federation of business and

professional organizations, the Chamber represents over

180,000 companies, many of which provide goods and

services to the United States through the federal procure-

ment process. The Chamber routinely represents the in-

terests of these members before the courts, Congress and

1 Letters of consent are on file with the Clerk of the Court.

2

the regulatory agencies on a wide variety of federal pro-

curement issues of national significance.*

The question presented to the Court in this case—who

may certify a claim under the Contract Disputes Act—

critically affects all companies, large and small, that do

business with the federal government. On behalf of a

large cross section of these companies, the Chamber re-

spectfully submits this brief to apprise the Court of the

practical harms wrought by the Federal Circuit in the

decision below.

The purpose of the Contract Disputes Act of 1978 (the

“Act” or “CDA”), 41 U.S.C. §§ 601-613 (1988), was to

establish an expeditious and even-handed system of legal

and administrative remedies for government contract

claims. S. Rep. No. 1118, 95th Cong., 2d Sess. 1, 4, re-

printed in 1978 U.S. Code Cong. & Admin. News 52385

(hereinafter cited as “S. Rep.”). For contractors, the

entry point to this system is the requirement that “the

contractor” certify claims over $50,000. 41 U.S.C. § 605

(c) (1).* Since the passage of the Act, the government has

2See Amicus briefs filed in Boyle v. United Technologies Corp.,

487 U.S. 500 (1988) (No. 86-492) (military contractor defense),

United States v. Westinghouse Elec. Corp., 615 F. Supp. 1163 (W.D.

Pa. 1985) (No. 11710), aff'd, 788 F.2d 164 (3rd Cir. 1986) (au-

thority to subpoena records), United States v. Newport News Ship-

building and Dry Dock Co., 655 F. Supp. 1408 (E.D. Va. 1987)

(No, 86-182-NN), and United States v. Newport News Shipbuilding

and Dry Dock Co., 837 F.2d 162 (4th Cir. 1988) (No. 87-3832)

(access to internal audit reports). See also Defense Contractor

Whistleblower Act of 1989, Comments of the Chamber of Com-

merce on H.R. 2579, submitted to the House Committee on Armed

Services (July 10, 1989); General Services Administration Pro-

posed Rule on “Procurement Integrity,” Federal Acquisition Regula-

tion (FAR) Case 89-23, Comments of the Chamber of Commerce

(Apr. 26, 1989).

3Section 605(c)(1) provides in relevant part: “For claims of

more than $50,000, the contractor shall certify that the claim is

made in good faith, that the supporting data are accurate and

complete to the best of his knowledge and belief, and that the

amount requested accurately reflects the contract adjustment for

which the contractor believes the government is liable.”

3

seized upon this requirement to block contractors at the

door, raising interminable questions and challenges over

who may certify. Contractors have thus been forced to

spend inordinate time and resources litigating a matter

which Congress intended to be straightforward. With its

decision in United States v. Grumman Aervspace Corp.,

927 F.2d 575 (Fed. Cir. 1991), the Federal Circuit now

stands four-square in support of this approach, which

deprives government contractors of the salutary effect of

the statute.

The decision below has had an ambush-like effect on

the government contracts industry and threatens the abil-

ity of contractors to transact business with the Govern-

ment on equitable terms and without being subject to

quixotic litigation. The Federal Circuit’s holding that Pe-

titioner’s Senior Vice President and Treasurer did not

qualify under the Act to certify a claim denies business

realities, and has left contractors mystified as to who,

besides a corporate contractor’s CEO, may safely certify.

The court’s holding places at risk government contractors’

statutory right to “expeditious and inexpensive resolution

of disputes” (see 41 U.S.C. § 607{e)), for contractors

who guess wrong must re-start the claims resolution proc-

ess—possibly after years of litigation—and forfeit the

statutory interest to which they are entitled.

The ‘Chamber’s government contractor members will

incur substantial financial loss and will be deterred from

doing business with the Government if Grumman re-

mains the law. In light of its strong interest in the out-

come of this case, the Chamber urges this Court to grant

Grumman’s petition for review.

STATEMENT OF THE CASE

This case arises out of the Federal Circuit’s determi-

nation that a senior corporate officer who was “among

the most knowledgeable and responsible in assessing . . .

a claim” * was not qualified to certify that claim on be-

4 Grumman, 927 F.2d at 583 (Plager, J., dissenting).

4

half of the corporation under the CDA. Specifically, the

court held that the officer who served as 1) Treasurer of

Grumman Aerospace Corporation, and 2) Senior Vice

President Finance of the Aircraft Systems Division of

the parent Grumman Corporation, and who 3) exercised

overall responsibility for Grumman’s financial affairs *®

was not qualified to certify a claim relating to employee

compensation costs.

The court premised its conclusion on an interpretation

of a regulation issued by the Office of Federal Procure-

ment Policy (“OFPP”) which purports to implement the

certification requirement of the CDA. That regulation,

Federal Acquisition Regulation (FAR) § 33.207(c) (2),°

provides:

If the contractor is not an individual, the certification

shall be executed by—

(i) A senior company official in charge at the con-

tractor’s plant or location involved; or

(ii) An officer or general partner of the contractor

having overall responsibility for the conduct of

the contractor’s affairs.

With respect to the first prong of the regulation, the

court required that a certifier must (a) have primary

responsibility for executing the contract, (b) be physically

present at the location of primary contract activity, and

(c) not report to anyone, especially with regard to the

filing of the claim. Grumman, 927 F.2d at 580. Although

the court found that Grumman’s Senior Vice President

and Treasurer was a senior company official, it concluded

that he did not qualify under § 33.207(c) (2) (i) because

he reported to another officer within Grumman’s organ-

ization and because there was no evidence that he was

physically present at the site of contract performance.

5Grumman Aerospace Corp., ASBCA No. 34665, 90-1 BCA

| 22,417 at 112,601 (1989).

648 C.F.R. § 33.207(c)(2) (1990).

5

The court below further concluded that Grumman’s cer-

tifier did not have overall responsibility for the contrac-

tor’s affairs under § 33.207(c) (2) (ii) because he was

only responsible for Grumman’s financial affairs. Jd.

Thus, over strong dissent, the court dismissed Grumman’s

claim, forcing Grumman to re-start a claims resolution

process that had lasted nearly five years to the date of the

Federal Circuit’s decision and to forfeit its statutory in-

terest. The court recognized that the purpose of the CDA

certification requirement is to discourage the submission

of unwarranted claims (see id. at 579), but did not

suggest that permitting Grumman’s Senior Vice President

and Treasurer to certify would have defeated this purpose.

REASONS FOR GRANTING THE WRIT

I. THE QUESTION OF WHO MAY CERTIFY A CLAIM

HAS SPAWNED MORE THAN A DECADE OF

WASTEFUL LITIGATION, CONTRARY TO CON-

GRESS’ INTENT.

The purpose of the CDA was to establish a fair, equi-

table and efficient system for the resolution of govern-

ment contract disputes. S. Rep. at 1, 4. Congress sought

to eliminate “executive branch fiat”; to “broaden[] the

scope of remedies available to the contractor”; and to

tear down “artificial” barriers which could defeat con-

tractor claims. Jd. at 2, 12, 19. A more expeditious

process was essential in Congress’ view because “|[t]he

way potential contractors view the disputes-resolving sys-

tem influences how, whether, and at what prices they

compete for Government contract business.” Jd. at 4.

To this end, the Act requires that an agency board pro-

vide “expeditious and inexpensive resolution of disputes.”

41 U.S.C. § 607(e).

Consistent with these purposes, Congress was concerned

that the submission of unwarranted claims “protracts dis-

putes and clouds the true issue in a case.” S. Rep. at

7. Certification was intended to deter the submission of

unwarranted claims. Grumman, 927 F.2d at 579. Thus,

6

in the context of Congress’ overall scheme, certification

served as an expedient—not an obstacle—-to the resolution

of claims. Congress surely did not intend through the

certification requirement to retract the benefits of equity

and efficiency that the Act as a whole was meant to

confer. See Triax Co. v. United States, 20 Cl. Ct. 507, 512

n.5 (1990) (interpreting CDA certification requirement

with view toward “avowed purpose of the Contract Dis-

putes Act... to foster the prompt, efficient resolution

of disputes between contractors and the government’’).

See also Bob Jones University v. United States, 461

U.S. 574, 586 (1983) (particular clause of a statute

must be interpreted in light of the whole statute and in

.. view of Congress’ policy concerns).

Indeed, in 1984 congressional hearings on the CDA,

the Department of Justice (“DOJ”) and the Department

of Defense (“DOD”) strongly defended the certification

requirement as being essential to the efficient and expedi-

tious resolution of government contract claims. These

agencies argued that certification eliminated ‘“‘gamesman-

ship” and “posturing” from the claims process; prevented

a “guessing-game”; and promoted “more timely” and

“swifter” resolution of contract disputes. See Contract

Disputes Act of 1978: Hearings Before the H. Subcomm.

on Administrative Law and Governmental Relations of

the Comm. on the Judiciary on H.R. 3668, 98th Cong.,

2d Sess. 134, 161, 173, 218 (1984) (hereinafter cited as

“1984 Hearings’). The DOJ and DOD assured Con-

gress, moreover, that substantial certification-related

litigation was “largely behind us.”’ Jd. at 134, 227.

The agencies did not give enough credit to the creativity

of their own lawyers. For the past 12 years, claims certi-

cation has engendered exactly the protracted, superfluous

litigation Congress sought to avoid. The vehicle for this

abuse has not been the CDA—which permits “the con-

tractor” to designate who will speak for it—but the regu-

lation which purports to implement the statute, FAR

§ 33.207(c) (2). Agencies have seized on the regulation

7

to erect preliminary obstacles to contractor claims.’ The

focus of this litigation has not been whether claims were

inflated or unwarranted, as was Congress’ concern.

Rather, the cases evidence a byzantine process of second-

guessing over who should sign for the company.

This kind of bureaucratic “gamesmanship” is the an-

tithesis of the fair and efficient dispute resolution system

which Congress intended to establish and which the Exe-

cutive branch, in 1984, assured Congress certification

would promote. Moreover, this litigation sideshow dis-

regards Congress’ concern in enacting the CDA that “the

Government has limited resources that can be devoted to

the resolution of claims disputes.” S. Rep. at 8.

Congress could not have expected nor intended that the

straightforward certification requirement it enacted

would become a source of collateral litigation having

7 See, e.g., Triax Co. v. United States, 20 Cl. Ct. at 513 (Gov-

ernment argued that all management-level personnel should sign

off on a certified claim, which would ensure that at least one

signatory would be the proper individual) ; Western Empire Con-

structors, Inc. v. United States, 20 Cl. Ct. 668, 671 (1990) (Despite

the fact that its interpretation would render the two parts of the

regulation indistinguishable, government argued that under section

(i) of the regulation, the certifier must be either an equity owner,

director, or officer of the contracting entity); Sun Cal, Inc. v. United

States, 21 Cl. Ct. 31, 34 (1990) (Although contractor’s President

validly delegated authority to Vice President pursuant to by-laws,

government argued that Vice President could not certify claim as an

officer having overall responsibility for contractor’s affairs) ; Mc-

Donnell Aircraft Co., ASBCA No. 37346, 89-2 BCA § 21,820 (1989)

(Government, without evidentiary support, contended that Vice

President and Controller of the contractor was not an officer having

overall responsibility for contractor’s affairs and thus could not

certify a claim under FAR § 33.207(c)(2)(ii)); Tracor, Inc.,

ASBCA No. 29912, 87-2 BCA 719,808 (198 (Government argued

that Tracor’s Director of Contracts could not properly certify

claim) ; Peabody N.E., Inc., ASBCA No. 26410, 83-2 BCA § 16,552

(1983) (Government, under Department of Defense provision

identical to FAR § 33.307(c)(2)(i), unsuccessfully argued that cer-

tification by the Presidents of the contractor and subcontractor did

not constitute certification by authorized individuals).

8

nothing to do with the requirement’s objective of prevent-

ing unwarranted claims. The Federal Circuit’s decision

in Grumman is a zenith in this process. This Court’s in-

tervention is necessary to restore the fair and efficient

system Congress intended to create. Twelve years of

mindless litigation is enough.

II. THE FEDERAL CIRCUIT DECISION IMPOSES

UNDUE RISKS AND BURDENS ON CONTRAC-

TORS, AND FIRMLY ESTABLISHES CERTIFICA-

TION AS AN OBSTACLE, RATHER THAN AN

EXPEDIENT, TO CLAIMS RESOLUTION.

A. The Court Has Imposed A Restrictive And Unwork-

able Rule Which Is Divorced From The Realities

Of Corporate Organization And Government Con-

tracting.

Despite the extremes to which agencies have gone to

get claims dismissed on certification grounds, the pre-

Grumman case law generally adopted a reasonable ap-

proach. Consistent with the CDA’s requirement that the

“contractor” certify, the cases permitted certification by

a broad class of persons who could be deemed to speak for

the contractor. Thus, the determination of whether a

certifying individual was “a senior company official”

within the meaning of FAR § 33.207(c) (2) (i) was based

largely on the individual’s authority to certify the claim.

See, e.g., M.A. Mortenson Co., ASBCA No. 39978, 91-1

BCA { 23,558 (1990) (certification valid where certifier

was authorized to, and did, execute modifications to the

contract); Al Johnson Constr. Co. v. United States, 19

Cl. Ct. 732, 738 (1990) (finding certification invalid be-

cause certifying individual was not authorized to make

the certification) ; Manning Elec. & Repair Co. v. United

States, 22 Cl. Ct. 240, 244 (1991) (claim properly certi-

fied where project manager had “full contract authority

to bind the company’”’).

Similarly, with regard to § 33.207(c) (2) (ii), the

boards and Claims Court held that a contractor’s cor-

9 ital

porate officers presumptively have overall responsibility

for the contractor’s affairs. See, e.g., Triax Co., 20 Cl.

Ct. at 511. See also McDonnell Aircraft Co., 89-2 BCA

| 21,820 (Vice President and Controller of the contractor

held to be an officer with overall responsibility for con-

tractor’s affairs) .*

The Federal Circuit’s decision in Grumman departs

dramatically from this reasonable approach, adopting in-

stead a restrictive interpretation of FAR § 33.207(c) (2)

that does not comport with the myriad ways companies

may be organized or contracts administered.

1. There May Be No Appropriate “Senior Company

Official” to Certify under the Federal Circuit’s

Interpretation of FAR § 33.207(c)(2)(i).

Under the Federal Circuit’s construction of § 33.207

(ec) (2) (i), the certifying “senior company official in

charge” at the plant or location involved must (a) have

primary responsibility for executing the contract, (b) be

physically present at the location of primary contract ac-

tivity, and (ce) not report to anyone, in particular with

regard to the filing of the claim. 927 F.2d at 580. The

court’s equation of “in charge” with not reporting to

anyone restricts certification to whomever is in overall

operational command of the relevant facility. The diffi-

culties with the court’s interpretation are manifold.

A contractor, for example, may be organized into sev-

eral different divisions, with each division performing

under a number of contracts. Each division, further, may

have facilities at several sites.° The only person who is

8 Indeed, some courts, recognizing that certification is not an end

in itself but is instead a check on inflated claims, held that where

there is no showing that a contractor is attempting to escape po-

tential liability, strict compliance with the certification regulation

is unnecessary. Cox Constr. Co. v. United States, 21 Cl. Ct. 98, 102

(1990).

9 See, e.g., SEC Form 10-K of General Dynamics Corp. for the

year ended December 31, 1990, pp. 1-12.

10

“in charge” of a division’s facility in the sense of not

reporting to anyone is the manager or executive who over-

sees the division. (Even that person, of course, would

report further up the corporate ladder.) The division

manager, however, could not be located at all of the facili-

ties, and may not be located at any of them. See, e.g.,

R.J. Lanthier Co., ASBCA No. 41350, 91-2 BCA {] 23,917

(1991) (contractor’s Operations Manager, although “a

senior company official” with “responsibility for all...

field office operations’, was located in contractor’s home

office rather than the field office set up to execute the con-

tract) (emphasis supplied). Further, the division man-

ager would likely have broad managerial responsibilities,

and would not have “primary responsibility” for execut-

ing any single contract.

Conversely, the person “in charge” at the relevant

facility may not qualify as a “senior company official.”

See M.A. Mortenson Co., 91-1 BCA {] 23,558 (citing cases

to illustrate the confusion among the boards and within

the Claims Court as to whether on-site Project Managers

are senior company officials). Even if a person on site

is “in charge” and qualifies as a senior company official,

he may not have “primary responsibility for execution of

the contract.” That role may fall to a program manager,

contracts representative, or director of contracts who

may, of course, “report to” the executive in charge of the

facility.

The question of what is the site of “primary contract

activity” has its own special problems. For instance, the

site of primary contract activity is unclear where the

contractor certifies its claim after demobilizing its work-

force at the location where the contract was executed.

See, e.g., Triax Co., 20 Cl. Ct. at 512 n.6 (suggesting

that when the contractor demobilizes its work force prior

to certification, its home office may be, considered the

“location involved’).

11

Moreover, the administration of government contracts

may take almost unlimited forms. It may be unclear

which of a number of sites performing under a contract

would be considered the site of “primary contract ac-

tivity.” For example, which is the site of “primary ac-

tivity” when one facility negotiates a contract, signs it,

and performs all assembly and shipment to the customer,

but a different facility manufactures 90% of the pa:ts?

If a contract is for development work, is the site of “pri-

mary activity” the laboratories where the computer mod-

els are generated, or the test range where the prototype

is tested? These types of questions are not susceptible to

clear-cut answers. Yet, under the Federal Circuit’s ap-

proach, the contractor must find the one “right” official to

certify a claim.

The Federal Circuit’s interpretation of the first prong

of the regulation thus assumes that a contract is per-

formed at one facility which is headed by a qualified

senior official who has. direct knowledge of and responsi-

bility for the contract. By superimposing this restrictive

paradigm on the multifarious corporate structures of gov-

ernment contractors, the court has engendered more con-

_ fusion than clarity. In deciding who should certify a

claim, contractors are forced to play a guessing-game

where, as described below, the penalty for guessing wrong

can be dismissal and loss of interest after years of liti-

gation.

2. Contractors Must Start the Process All Over

Again If the “Wrong” Official Certifies.

Because the Federal Cireuit has held the Act’s certifi-

cation requirement to be jurisdictional, once a claim is

found to be improperly certified, all proceedings concern-

ing that claim are nullified and the contractor must begin

the claims process again. Ball, Ball & Brosamer, Ine. v.

United States, 878 F.2d 1426, 1428 (Fed. Cir. 1989) ;

W.M. Schlosser Co. v. United States, 705 F.2d 1336, 1338

(Fed. Cir. 1983). Viewed as a question of subject mat-

12

ter jurisdiction, improper certification can be raised at

any time. Grumman, 927 F.2d at 580. The contractor is

thus placed at enormous risk because its claim can be

dismissed after years of expensive and time-consuming

litigation.'®

The potential for abuse in this process is manifest.

The government can delay payment of valid claims inter-

minably by ambushing the contractor with an improper

certification argument at the end of lengthy proceedings

and, if successful, force the contractor to start all over

again. This turns the CDA on its head, establishing a

carousel of litigation rather than the fair and efficient

system which Congress intended.

Further, because the Federal Circuit has held that no

interest begins to accrue until a claim is properly certi-

fied,'! forcing the contractor to start the dispute resolu-

tion process anew deprives the contractor of the statutory

interest to which it is entitled under the Act.'* This

effect is particularly ironic in light of Congress’ expecta-

tion that the allowance of interest would provide induce-

ment to expedite final disposition of claims. See Brook-

10 See, e.g., Grumman, 927 F.2d 577 (claim filed in 1987 and

dismissed more than four years later, after board proceeding and

appeal, because purportedly signed by wrong official) ; Ingalls Ship-

building, Inc., ASBCA No. 38323, 91-2 BCA © 23,904 (1991) (claims

certified in July of 1987, but government did not challenge certifica-

tion until 1989; claims dismissed in 1991); Reliance Insurance Co.

v. United States, 23 Cl. Ct. 108 (1991) (certification in April of 1986;

government did not challenge certification until 1990; claim dis-

missed in 1991).

11 Fidelity Constr. Co. v. United States, 700 F.2d 1379, 1384 (Fed.

Cir.), cert. denied, 464 U.S. 826 (1983).

12“Tnterest on amounts found due contractors on claims shall

be paid to the contractor from the date the contracting officer

receives the claim pursuant to section 605(a) of this title from the

contractor until payment thereof.” 41 U.S.C. § 611.

13

field Constr. Co. v. United States, 661 F.2d 159, 164-65

(Cl. Ct. 1981).

3. The Federal Circuit’s Requirement that the CEO

or Its Equivalent Certify under FAR § 33.207

(c)(2)(ii) Is Unreasonable and Contrary to the

Purposes of the CDA.

If contractors wish to avoid “guessing” who is the cor-

rect “senior company official” under the Federal Circuit

rule, they must resort to FAR § 33.207(c) (2) (ii), which

provides for certification by “[a]n officer or general part-

ner of the contractor having overall responsibility for the

conduct of the contractor’s affairs.” The Federal Circuit

found that Grumman’s Senior Vice President and Treas-

urer was not such an officer because he was responsible

for only the contractor’s financial affairs. 927 F.2d at

580-81. Thus, “[a]lfter Grumman... [only the] chief

executive officer, or one of equivalent status,” will satisfy

the second prong of the regulation. KDH Corp. v. United

States, 23 Cl. Ct. 34, 42 (1991).'"* For a number of

reasons, this approach is unworkable and at odds with

the CDA.

First, the Federal Circuit’s interpretation requires

certification by an individual who is unlikely to have

first-hand knowledge of the claim. The result is a lessen-

ing of corporate responsibility for the contents of claims,

a consequence contrary to what Congress intended.

Second, and relatedly, CDA certifications have often

provided the basis for civil and criminal actions against

13 The Federal Circuit denied that it required certification by the

CEO on the grounds that the correct “senior company official”

could also certify under the first prong of the regulation. 927 F.2d

at 581. The court’s analysis made clear, however, that, under the

second prong of the regulation, only a CEO, or its equivalent, may

certify.

14

government contractors.“ Certifications are especially

important to criminal! prosecutions because they help es-

tablish a statement, individual responsibility for that

statement, and intent.’® In an era of increasing criminal-

ization of the procurement process, '* it is unreasonable

and unfair to require certification by officers who do not

have direct knowledge of a claim.

Third, a “CEO or equivalent” rule imposes an un-

warranted administrative burden on contractors. For com-

panies with numerous contracts and disputes, the rule

requires an officer at the highest level to take large

amounts of time away from running the company in order

to study potential claims in depth and be in a position

to sign a certification. There is no basis in the CDA

or in logic for a rule which prevents reasonable delega-

tions of authority consistent with the contractor’s by-laws

or other governing provisions.

14 See 1984 Hearings at 217.

15 Jd. at 218.

16 See Integrity of Department of Defense Acquisition System

and Its Impact on U.S. National Security: Hearings Before the

Full Comm. and the Acquisition Policy Panel, Comm. on Armed

Services, 100th Cong., 2d Sess. 19 (1988) (testimony of R. James

Woolsey, member, Packard Commission) (noting increased number of

criminal prosecutions of government contractors); Gov't Prosecut-

ing Fraud Cases Based on Conduct Once Viewed as ‘Noncriminal’,

44 Fed. Cont. Rep. (BNA) 536 (Sept. 16, 1985) (reporting remarks

by then United States Attorney for the Eastern District of Vir-

gina); DOD Fraud Investigations: Characteristics, Sanctions, and

Prevention, GAO Report No. B-224759, pp. 3-4 (Jan. 20, 1988)

(reporting that DOD investigators more than doubled the number

of procurement fraud investigations between 1983 and 1986); Shirk,

Greenberg & Dawson, Truth or Consequences: Expanding Civil and

Criminal Liability for the Defective Pricing of Government Con-

tracts, 37 Cath. U.L. Rev. 935 (1988) (discussing “the vulnerability

of government contractors to the web of civil and criminal liability

for defective pricing and [the] significantly expanded .. . scope of

that liability’’).

15

B. The Court’s Decision [laces A Special Burden On

The Large Number Of Small To Moderate-Sized

Companies Which Sell To The Government.

Small businesses account for a substantial portion of

the products and services supplied to the Government

each year.’ The legislative history of the CDA reveals

that Congress was concerned that small businesses were

deterred from doing business with the Government for

fear that if a dispute arose their remedy would be cum-

bersome and expensive."®

Yet the Federal Circuit’s ruling falls perhaps most

harshly on small contractors. As the dissent in Grum-

man observed :

The Government’s position . . . sets a trap for the

unwary, requiring that claims falling short of its

technical trap be re-started, thus giving the Govern-

ment more years to avoid paying its just debts, if

they are ultimately found to be just, and to deny the

contractor the interest on the money due that the

statute requires be paid.

os * * *

It is the small companies who seldom do business

with the Government and who can least afford de-

layed payments with no interest paid for the delay,

who likely will be caught and most hurt by this con-

struction of the regulation. This court should not

countenance any such distortion of the remedial pur-

poses of the Contract Dispute Act.

17 Generally, in the area of government contracts, a business is

considered small if it has less than 500 employees. The State of

Small Business: A Report of the President Transmitted to the

Congress 1990, p. 188 n.1 (GPO publ. 1990). In Fiscal Year 1988,

small businesses provided approximately one-third of the $194.9

billion in goods and services contracted for by the Government.

Id. at 187-88.

18 See Contract Disputes: Hearings Before the H. Subcomm. on

Administrative Law and Governmental Relations of the Comm. on

the Judiciary on H.R. 664 and Related Bills, 95th Cong., Ist Sess.

68 (1977) (comments of Congressman Kindness on H.R. 3745).

16

927 F.2d at 583 (Plager, J., dissenting) (emphasis

added).

C. The Court’s Decision Unfairly Penalizes Contrac-

tors Who Certified Claims According To Pre-

Existing Legal Requirements.

The effects of the Grumman decision are neither hypo-

thetical nor overstated. In light of Grumman, the Armed

Services Board of Contract Appeals has begun a com-

prehensive review of pending cases to determine if dis-

missals for improper certification are required. See

ASBCA Asks Selected Contractors to Address Adequacy

of Certifications, 55 Fed. Cont. Rep. (BNA) 369-70

(Mar. 25, 1991). At least seven cases have already been

dismissed, many of them after years of litigation.”

The cases applying Grumman have already demon-

strated the irrational results that flow from the Federal

Circuit’s decision. For example:

* In Reliance Insurance Co. v. United States, 23 Cl.

Ct. 108 (1991), an Assistant Vice President’s certi-

fication was held improper although he was specifi-

cally authorized by the company to initiate prosecu-

tion of contract claims and to pay or compromise

claims, and notwithstanding that his authority in

connection with claims arising out of his region had

no upper dollar limit.

°* In R.J. Uanthier Co., ASBCA No. 41350, 91-2 BCA

23,917 (1991), the certifying individual, appel-

lant’s Operations Manager, was responsible for all

home office and field office operations and reported

directly to the President. Because the certifier was

19 See Reliance Insurance Co. v. United States, 23 Cl. Ct. 108

(1991) ; Newport News Shipbuilding and Dry Dock Co., ASBCA No.

33244, 91-2 BCA § 23,865 (1991) ; Ingalls Shipbuilding, Inc., ASBCA

No. 38323, 91-2 BCA § 23,904 (1991); R.J. Lanthier Co., ASBCA No.

41350, 91-2 BCA { 23,917 (1991); PCL Civil Constructors, Inc.,

ASBCA No, 41881, 91-2 BCA { 23,906 (1991); Northwest Marine,

Inc., ASBCA No. 41702 (May 3, 1991) (Westlaw, FGC-BCA li-

brary); Prism Constr. Co.. ASBCA No. 42096 (May 21, 1991)

(Lexis, PUBCON library).

17

not physically present at the contractor’s ad hoc field

office, however, his certification was held improper

and the contractor’s claim was dismissed.

* In Northwest Marine, Inc., ASBCA No. 41702 (May

3, 1991) (Westlaw, FGC-BCA library), the Board

held that a contractor’s Vice President and General

Manager could not certify, notwithstanding that he

1) was a senior company official, 2) had a physical

presence at the job site, and 3) possessed “unlimited

authority” to bind the contractor, because the com-

pany’s President was also actively involved in the

project at issue.

The Grumman decision has thus injected chaos into a

critical portion of the procurement process where Con-

gress intended to create equity, efficiency, and balance.

Where regulations have been applied so as to eviscerate

the intent of the very statutes on which they are based,

this Court has appropriately stepped in to restore the

intent of Congress. See, e.g., Board of Governors of the

Fed. Reserve Sys. v. Dimension Fin. Corp., 474 U.S. 361,

368 (1986).

Ill. THE FEDERAL CIRCUIT DECISION CREATES

STRONG DISINCENTIVES TO DOING BUSINESS

WITH THE GOVERNMENT, CONTRARY TO CON-

GRESS’ INTENT.

A major purpose of the CDA was to encourage com-

panies to compete for government business. The Federal

Cireuit decision has exactly the opposite effect.

A company which chooses to sell to the government

already must find its way through a broad spectrum of

statutory and regulatory obstacles. Acquisition regula-

tions comprise seven volumes in the Code of Federal Reg-

ulations. Government contractors assume numerous bur-

dens not encountered in the commercial sector. For

example:

* Subject to certain exceptions and threshold require-

ments, on all contracts other than those using sealed-

18

bid procedures, contractors must provide the govern-

ment with data supporting the costs that are antici-

pated in the contract, and the price proposed. This

requirement is stated in terms of the contractor’s

obligation to disclose all ‘cost or pricing data”—.e.,

“all facts that, as of the date of agreement on the

price of a contract . . . a prudent buyer or seller

would reasonably expect to affect price negotiations

significantly.” 10 U.S.C. 2306a(g) (1988); see also

41 U.S.C. § 254 (1988); FAR § 15.804.

* Contractors are subject to extensive and often over-

lapping audit requirements. Contracting agencies

perform audits with regard to contract costs claimed

or incurred and cost or pricing data submitted. See

FAR §§ 52.214-26, 52.215-2. Agency Inspectors Gen-

eral audit contractors pursuant to their overall au-

thority to audit agency operations and programs.

See 5 U.S.C. App. §§ 1-12 (1988). The standard

“Examination of Records by the Comptroller Gen-

eral” clause grants the General Accounting Office

audit rights over negotiated contracts in excess of

$10,000. FAR § 52.215-1.

* Regulations require the insertion in government con-

tracts of voluminous standard clauses, many subject

to particular interpretations developed through years

of regulatory and case law evolution. See FAR

Part 52.

* As noted above, government contractors are increas-

ingly subject to civil and criminal sanctions. In the

commercial sector, a contract dispute is a contract

dispute. For government contractors, however, the

prospect of criminal prosecution and treble damages

for civil fraud (31 U.S.C. § 3729 (1988)) always

lies just over the horizon.

While companies whose products can only be used by

the government (e.g., military hardware) may be captives

of this system, providers of commercial products and serv-

19

ices are not. Thus, Congress, determined to encourage

more commercial companies to sell to the government, re-

cently enacted legislation requiring that the Department

of Defense develop simplified contracts for commercial

products and that cost or pricing data requirements be

reduced.”

The CDA was similarly intended to effect a departure

from the unusual burdens visited upon government con-

tractors. Congress hoped to encourage companies to do

business with the government by providing a “fair, bal-

anced,” “equitable,” and “efficient” dispute resolution sys-

tem. S. Rep. at 1, 4. Such a system was necessary, Con-

gress found, because “[t]he way potential contractors

view the disputes-resolving system influences how, whether,

and at what prices they compete for Government con-

tract business.” Jd. at 4.

~ In the hands of the agencies and the Federal Circuit,

however, the portal to this system—the certification re-

quirement—has become yet another arcane and burden-

some rule imposed on contractors. Certification under the

terms of the OFPP regulation is now an obstacle to

claims resolution. This can only further discourage com-

panies from competing for government business, a re-

sult at odds with what Congress intended when it enacted

the CDA, and still intends today.

20 See Pub. L. No. 01-189, § 824, 103 Stat. 1504, reprinted in

1989 U.S. Code Cong. & Admin. News; 10 U.S.C.A. § 2325 note

(West Supp. 1984-1990); H.R. Rep. No. 331, 101st Cong., 1st Sess.

612-13, reprinted in 1989 U.S. Code Cong. & Admin. News 977, 1069-

70; S. Rep. No. 81, 101st Cong., Ist Sess. 194-97 (1989).

20

CONCLUSION

For all of the foregoing reasons, the Chamber urges

that the writ sought by Grumman’s petition be granted.

Respectfully submitted,

Of Counsel: JAMES S, HOSTETLER

ROBIN S. CONRAD (Counsel of Record)

NATIONAL CHAMBER STEPHEN D. KNIGHT

LITIGATION CENTER BRIAN A. OCHS

1615 H Street, N.W. TERRY SMITH

Washington, D.C. 20062 KIRKLAND & ELLIS

(202) 463-5337 655 Fifteenth Street, N.W.

Washington, D.C. 20005

(202) 879-5000

Attorneys for the

Chamber of Commerce of the

United States of America