Petition for Writ of Certiorari — Richlin Security Service Co. Co. v. Chertoff (No. 06-107)

s Court, U.8.

dl sti ia:abe

06-107 JUL 20 2006

No. 06-OFFICE OF THE CLERK

a nme

IN THE

Supreme Court of the United States

RICHLIN SECURITY SERVICE COMPANY,

Petitioner,

v.

MICHAEL CHERTOFF,

SECRETARY, HOMELAND SECURITY,

Respondent.

On Petition for Writ of Certiorari to the

United States Court of Appeals for the Federal Circuit

PETITION FOR WRIT OF CERTIORARI

GILBERT J. GINSBURG

Attorney and Counselor-At-Law

1250 24th Street, N.W.

Suite 350

Washington, DC 20037 -

Tel: (202) 776-7772

Fax: (202) 776-7773

Attorney for Petitioner

Richlin Security Service Company

PRESS OF BYRON S. ADAMS @ WASHINGTON, DC @ 1-806-347-8208

i

QUESTIONS PRESENTED

Whether the Court of Appeals for the Federal Circuit erred

by ignoring the plain meaning of the Contract Disputes Act (41

U.S.C. § 611) that interest shall be paid on “amounts found due

contractors on claims,” relying instead on the “strict

construction” of waivers of sovereign immunity and an excerpt

from the legislative history.

ii

RULE 29.6 STATEMENT

Pursuant to Supreme Court Rule 29.6, petitioner states that

it has no parent companies or subsidiaries.

ill

TABLE OF CONTENTS

Page

Ro gy 6g) ee rr i

RULE 29.6 STATEMENT ............ PS dame ii

Be RATT oo ba kt rcn tn ksaliervescaus ill

pe Be ag) 8 ee re iV

I TE Ch vcusveseresdoueeens ehaebree 1]

STATEMENT OF JURISDICTION .................- 2

STATUTORY PROVISIONS INVOLVED ............ 2

UPAR MORNE GE TERE GASD ove vcoavesvivsctcecs 3

SUMMARY OF ARGUMENT . 2... .-sccccvcvccesens 6

NE 5 5 vida Oks hoe cc cavence bse keun sin ci oes 6

I. THE FEDERAL CIRCUIT PANEL ESCHEWED

THE CARDINAL RULE OF STATUTORY

CONSTRUCTION BY ITS REFUSAL TO MAKE

THE MANDATORY INITIAL INQUIRY AS TO

THE PLAIN MEANING OF THE WORDS OF

MEANT RR he ahaa kon Ob eNews ae ens 6

Il. THE RICHLIN PANEL’S DEMOTION OF THE

PLAIN MEANING RULE IN FAVOR OF “STRICT

CONSTRUCTION” OF WAIVERS OF

SOVEREIGN IMMUNITY IS CONTRARY TO

THAT COURT'S OWN PRECEDENTS AND THUS

RENDERS THE FEDERAL CIRCUIT A COURT

DIVIDED AGAINST ITSELF IN MATTERS OF

STATUTORY INTERPRETATION .............. 9

Il.

IV.

iv

Page

THE PANEL’S ELEVATION OF “STRICT

CONSTRUCTION” OVER THE PLAIN

MEANING OF SECTION 611 YIELDS THE

ABSURD RESULT OF MONETARY AWARDS TO

ENTITIES WHO ARE PARTIES NEITHER TO THE

CONTRACT NOR THE DISPUTE 65 is cscscnccns

THE PANEL DECISION SERIOUSLY

UNDERMINES THE ESTABLISHED PRINCIPLES

AND PRECEDENTS OF THIS COURT AS WELL

AS THE FEDERAL CIRCUIT REGARDING

“PASS-THROUGH” CLAIMS OF

SUBCONTRACTORS AND OTHERS

“SPONSORED BY” THE PRIME CONTRACTOR .

V. THE PANEL SHOULD NOT HAVE CONSIDERED

V1.

THE LEGISLATIVE HISTORY OF THE CLEAR

AND UNAMBIGUOUS PROVISIONS OF

TEE 4.5 kc ki ode oR ed aew as

THE FEDERAL CIRCUIT DECISION WILL

AFFECT A LARGE NUMBER OF OTHER CASES;

INDEED, VIRTUALLY ALL BOARD OF

CONTRACT APPEALS CASES WILL BE

Fi yy : |) ee eee eee are er ey

STATEMENT OF RELIEF AND CONCLUSION

14

V

TABLE OF AUTHORITIES

Page(s)

CASES:

Barnhart v. Sigmon Coal Co., 534 U.S. 438 (2002) ...... 7

Brown v. United States, 547 F.2d 71 (8th Cir. 1976)..... 11

Capital Electricity Co. v. United States,729 F. 2d 743

SUI 5 Gan ducuuh oueua keuc eda ees tes 16

Connecticut Nat’l Bank v. Germain, 503 U.S. 249

Sg | EE PUT OT OT ONE, Ser ee Pe TOES 8, 10

Dixson v. United States, 465 U.S. 482 (1984) .......... 1]

E.R. Mitchell Construction Co. v. Danzig, 175 F. 3d 1369

SP SE cs ok cee esd awe i cedaec ieee 16

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

1379 (Fed. Cir. 1983), cert. denied, 464 U.S. 826

| BARRE ser eee ie ep pear oe aki my Fes 11, 12, 14

George Leary Construction Co. v. Leary, 63 Ct. Cl. 206

REN ec atin i ueaa i weecn uae 15

Hoechst-Roussel Pharms., Inc. v. Lehman, 109 F.3d 756

Se I RES were cc teh er eee ween 10

Merritt v. United States, 267 U.S. 338 ..........-0000e- 15

Miccosukee Tribe of Indians of Florida, 304 F.3d 1076

Cera EE 0 os Lcd vw ee ere ere 9

Norfolk Dredging Co. v. United States, 375 F.3d 1106

SE MEY IED sas Wc vac bce ae eee ee oes 10

Pneumatic Gun-Carriage and Power Co. v. United States,

A Ee TE, 8 ake haan ree ces ts 15

Raytheon v. White, 305 F.3d 1354 (Fed. Cir. 2002)....... 6

vi

Table of Authorities (continued)

Page(s)

Robinson y. Shell Oil Co., 519 U.S. 337 (1997) ......... 9

Sedina, S.P.R.L. v. Imprex Co., 473 U.S. 479 (1985) .... 12

Transamerica Ins. Corp., Inc. v. United States, 973 F. 2d

ere gi Ge UR -: Dassen Se mre rte 16

United States v. Blair, 321 U.S. 730 (1944), 321 U.S. 730,

64 S. Ct. 820, 88 L. Ed. 1039 (1944) ............. 14

United States v. Gonzalez, 520 U.S. 1 (1997) ....... 17, 18

United States v. LaBonte, 520 U.S. 751 (1997) .......... 8

United States v. Moore, 423 U.S. 122 (1975) .......... 11

United States v. Shreveport Grain & Elevator Co., 287

Stas BH ES 5.55 50 Es Cr de ohn Rrideeneuures 17, 18

Warren Bros. Road Co. v. United States, 128 Ct. Cl. 48

i) | ee nena sae es memaeapeR as Mrs ee reer a 16

STATUTES:

ERA R EUED os cod ch aeons e behead ei eucerorn 13

Ge Te Nb aoe es ve ona ddd teen ees 13

TE Le o~ UNE 6 ov. bcd Ccceee ede + Vanagon eeenee 13

OR ES oo aca vanes Codweca te veenes owes passim

We Se oa eae pave ae sae eek ead Oe oe 13

WE Ree NOD hind os vce adde sa bus Keer ss Senn ewes 13

Vii

Table .1 Authorities (continued)

Page(s)

OTHER AUTHORITIES:

Antonin Scalia, A Matter of Interpretation: Federal Courts

and the Law (Princeton Univ. Press, 1997) ......... 8

Decisions of the Federal Circuit: Do They Refiect An

Understanding Of The Realities Of Government

Procurement?, 20 No. 6 NASH AND CIBINIC REP. 86

GOED da hs ha pic eee ene tee ee =

Morell E. Mullins, Coming to Terms with Strict and

Liberal Construction, 64 ALB. L. REV. 9 (2000) .... 12

Norman J. Singer, Sutherland Statutory Construction

GSeGe? ii cs fei Fie 11,12

Cibinic & Nash, Administrai.on of Government Contracts,

TON SO 00S hi os ROA ss 16

Professor Ralph C. Nash, /nterest on Claims: A New

Wrinkle, Nash & Cibinic Report, March 2006 ...... 16

S. Report No. 95-1118, 95th Con., 2d Sess. (1978) at 16,

reprinted in 1978 U.S.C.C.A.N. 5235, 5250 ....... 16

OPINIONS BELOW

In re Richlin Security Service Company, BCA Nos. 3034 &

3035, 98-1 BCA § 29, 651 (DOTBCA 1997) (“Richlin I”)

Meissner v. Richlin Security Service Company, 155 F. 3d 566,

1998 WL228175 (Fed. Cir. 1998) (“Richlin IT’) (unpublished

table decision)

In re Richlin Security Service Company, BCA Nos. 3034 &

3035, 99-1 BCA ¥ 30,219 (DOTBCA 1999) (“Richlin IIT”)

In re Richlin Security Service Company, BCA Nos. 3034 &

3035, 99-2 BCA § 30,562 (DOTBCA 1999) (“Richlin IV”)

Richlin Security Service Company v. Rooney, 18 Fed. Appx.

843, 844-45, 2001 WL 744463 (Fed. Cir. 2001) (“Richlin V”)

(unpublished decision)

In re Richlin Security Service Company, BCA Nos. 3034 &

#035, 02-2 BCA § 31,876 (DOTBCA 2002) (“Richlin VI”)

In re Richlin Security Service Company, BCA Nos. 3034 &

3035, 03-1 BCA ¥ 32,301 (DOTBCA 2002) (“Richlin VII”)

Richlin Security Service Company v. Ridge, 99 Fed. Appx. 906,

204 U.S. App. LEXIS 9433 (May 14, 2004) (“Richlin VIII A”)

Richlin Security Service Company v. Ridge, 99 Fed. Appx. 906

(Fed. Cir. 2004) (“Richlin VIIIB”) (unpublished decision)

In re Richlin Security Service Company, BCA Nos. 3034 &

3035, 04-2 BCA 32,670 (DOTBCA 2004) (“Richlin [X”’)

Richlin Security Service Company v. Chertoff, 437 F.3d 1296

(Fed. Cir. 2006) (“Richlin X”’)

Richlin Security Service Company v. Chertoff, 2006 U.S. App.

LEXIS 12648 (Fed. Cir. April 21, 2006) (“Richlin XT’)

2

Equal Access To Justice Act (EAJA) Decisions:

Appeals of Richlin Security Service Company, BCA Nos.

3034E & 3035E, 04-2 BCA 32, 789 (DOTBCA 2004)

Richlin Security Service Company, Appellant v. United States

Department of Justice, Respondent, DOTBCA No. 3034E &

3035E, 05-2 BCA 433,021, (DOTBCA 2005) (The issue of the

proper measure of paralegal fees is on appeal to the Federal

Circuit).

STATEMENT OF JURISDICTION

The judgment of the court of appeals for the Federal

Circuit was entered on January 31, 2006. The judgment of the

court of appeals denying a rehearing and en banc review was

entered on April 21,2006. This Court has jurisdiction under 28

U.S.C. § 1254(1).

The board of contract appeals, that issued the original

decision denying Contract Disputes Act (“CDA”) interest

(“Richlin [X”’), had jurisdiction pursuant to 41 U.S.C. § 607

(d)(2) (1992 and 1999 Supp.). The Federal Circuit, which also

‘denied CDA interest, had jurisdiction over the appeal from the

board decision pursuant to 28 U.S.C. § 1295 (a)(10) and 41

U.S.C. § 607(g)(1)(A).

STATUTORY PROVISIONS INVOLVED

The Contract Disputes Act, 41 U.S.C. § 611, reads:

Interest 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. The interest provided for in this

section shall be paid at the rate established by the

Secretary of the Treasury pursuant to Public Law

92-41 (85 Stat. 97) for the Renegotiation Board.

3

STATEMENT OF THE CASE

In April of 1990 and August of 1991, petitioner Richlin”

Security Service Company (“Richlin”) entered into separate

contracts to provide security services for the Immigration and

Naturalization Service (“INS”). Due to a mutual mistake, the

contracts misclassified the guard service level, providing for

Guard I services when the correct job classification under the

Service Contract Act (“SCA”) was Guard II, which caused the

resultant underpayment of petitioner’s employees. After five

years, petitioner filed a claim for reformation of the contract

price to the price the parties would have agreed to if they had

known that services were to be Guard II.

The Department of Transportation Board of Contract

Appeals (“the board”) ruled that petitioner was entitled to

reformation. However, the board postponed granting a specific

amount for the reformation until such time as petitioner’s back

wage liability was “formalized by appropriate action of the

Labor Department”. Jn re Richlin Sec. Serv. Co., 98-1 LCA

{ 29, 651 (DOTBCA 1997) (“Richlin I’). The Government

appealed the board’s decision: the Federal Circuit affirmed.

Meissner v. Richlin Security Service Company, 155 F. 3d 566,

1998 WL228175 (Fed. Cir. 1998) (“Richlin II’).

Thereafter, petitioner entered into an agreement with the

Labor Department (“DOL”) agreeing on the amount of backpay

owed each of its employees and agreeing that all funds received

from the Government would be put into petitioner’s attorney’s

escrow account. Petitioner’s attorney, who was also a party to

the DOL-petitioner agreement, was to see to it that the

backwages petitioner owed its employees would be paid before

any other disbursements were made from the escrow account

for any other purpose.

Despite the DOL-Richlin agreement, the board refused to

complete the reformation, ruling that petitioner had to first pay

4

its employees before it could be awarded a specific amount of

reformation, in order to avoid a possible windfall for the

petitioner. In re Richlin Security Service Company, BCA Nos.

3034 & 3035, 99-1 BCA § 30,219 (DOTBCA 1999) (“Richlin

Il”) and In re Richlin Security Service Company, BCA Nos.

3034 & 3035, 99-2 BCA § 30,562 (DOTBCA 1999) (“Richlin

IV”). Petitioner appealed the board’s decisions to the Federal

Circuit. The court disagreed with the board’s conclusion that

payment of the reformation might constitute a windfall, noting

that “Richlin’s subsequent contract with the DOL, including the

escrow agreement with Professor Ginsburg, fully addresses the

company’s concern about a ‘windfall’.” Richlin Security

Services v. Rooney, 18 Fed. App. 843, 844-45, 2001 App.

LEXIS 15490 (Fed. Cir. 2001) (“Richlin V”).

The case was remanded to the board for determination of

the amount of reformation. The board denied petitioner

reformation in the amount the parties would have agreed to if

the true facts were known,’ Instead, the board simply awarded

reformation in the amount of the additional back wages owed

to petitioner’s employees and the associated payroll taxes and

workers compensation insurance premiums, without overhead

or profit to petitioner. Jn re Richlin Security Service Company,

BCA Nos. 3034 & 3035, 02-2 BCA 31,876 (DOTBCA 2002)

(“Richlin VI’) and Jn re Richlin Security Service Company,

BCA Nos. 3034 & 3035, 03-1 BCA § 32,301 (DOTBCA 2002)

(“Richlin VII’). Petitioner appealed to the Federal Circuit the

board’s denial of reformation to the price the parties would

have agreed to if the true facts were known or, in the

alternative, to add overhead and profit to the award of back

wages granted by the board. The Federal Circuit affirmed the

~

' Petitioner sought reformation to the unit price of a follow on

contract with the identical Guard II services and the identical SCA wages

rates.

5

board’s denial of reformation in any amount in excess of the

back wages. Richlin Security Service Company v. Ridge, 99

Fed. Appx. 906 (Fed. Cir. 2004) (“Richlin VIIIB”).

Thereafter, the amounts awarded by the board were paid

into petitioner’s attorney’s escrow ac~ount. However, INS paid

into the escrow account /ate the amount of the additional

payroll taxes. As a result, the IRS filed a tax lien against Linda

Santos, the owner of Richlin. All of the back pay owed was

distributed by petitioner’s attorney to the employees and the

additional payroll taxes were paid to the taxing authorities.

Although Contract Disputes Act (“CDA”) interest was

- ordinarily automatically added to the amount awarded by

boards or the U.S. Court of Federal Claims, the Government’s

attorney asked petitioner’s attorney to calculate the amount of

CDA interest due and put it into petitioner’s quantum request

to the board, so that it would be easier for the Government to

obtain it if it became necessary to obtain payment from the

Judgment Fund (in the U.S. Treasury). Petitioner’s attorney

did so, requesting the amount of CDA interest payable under

the statute (41 U.S.C. § 611). The Government then opposed

the granting of CDA interest, arguing that CDA interest was not

payable in this case.

_ The board denied CDA interest to petitioner on the

reformation amount awarded. In re Richlin Security Service

Company, BCA Nos. 3034 & 3035, 04-2 BCA 32,670

(DOTBCA 2004) (“Richlin IX’). Petitioner appealed the denial

to the Federal Circuit. The Federal Circuit affirmed the board’s

decision, Richlin Security Service Company v. Chertoff, 437

F.3d 1296 (Fed. Cir. 2006) (“Richlin X”’) and subsequently

denied a petition for reconsideration and rehearing en banc.

Richlin Security Service Company v. Chertoff, 2006 U.S. Appx.

LEXIS 12648 (Fed. Cir. April 21, 2006) (“Richlin XI”)

6

SUMMARY OF ARGUMENT

41 U.S.C. § 611 provides that interest shall be paid on

“amounts found due contractors on claims” against the U.S.

Government. The Federal Circuit panel noted that petitioner

had urged it to consider the plain meaning of the words of the

statute but refused to do so, focusing instead on the “strict

construction” of waivers of sovereign immunity and using the

legislative history-in spurious support of such a construction.

In cases of statutory interpretation, a court must first examine

the plain meaning of the text of a statute. If the text is clear and

unambiguous, then the judicial inquiry is complete and the

court is to enforce the statute as written. The panel’s emphasis

on the statute’s legislative history was unnecessary and

misguided. Moreover, the panel’s decision regarding the strict

construction of the -statute yields a meaning that requires a

result that is inconsistent with the intent of the lawmakers as

expressed in the plain language of the Act.’ The Federal

Circuit’s decision in this case has widespread effect, potentially

impacting every decision of any board of contract appeals.

ARGUMENT

I. THE FEDERAL CIRCUIT PANEL ESCHEWED THE

CARDINAL RULE OF STATUTORY

CONSTRUCTION BY ITS REFUSAL TO MAKE

THE MANDATORY INITIAL INQUIRY AS TO THE

PLAIN MEANING OF THE WORDS OF SECTION

611

The CDA interest provision is short and to the point:

Finally, contrary to the Federal Circuit’s decision in Raytheon v.

White, 305 F.3d 1354 (Fed. Cir. 2002), the panel erroneously equated “costs

incurred” with “costs paid.” However, petitioner is not raising this as a

ground for its petition for certiorari.

7

Interest on amounts found due contractors on claims

shall be paid to the contractor from the date the

contracting officer receives the claim . . . from the

contractor until payment thereof. The interest

provided for in this section shall be paid at the rate

established by the Secretary of the Treasury. . .

41 U.S.C. § 611. The provision is complete and can be read

and understood standing alone because it addresses each of the

four elements that make up any obligation to pay interest: (1)

the obligation itself, i.e., “interest shall be paid to the

contractor”; (2) the principal, i.e., “amounts found due on

contractor claims”; (3) the rate, i.e., “the rate established by the

Secretary of the Treasury” and (4) time, i.e., “from the date the

contracting officer receives the claim until payment thereof.”

The meaning of the provision is plain on its face.

The only issue before the Federal Circuit panel (“the

Richlin panel”) was “whether interest on the award to Richlin

is allowable under” 41 U.S.C. § 611. Richlin, 437 F.3d at 1299.

The mandatory first task of any court construing a statute is to

look at the text of the statute and determine whether that text

has a plain meaning. Barnhart y. Sigmon Coal Co., 534 U.S.

438, 450 (2002) (“As in all statutory construction cases, we

begin with the language of the statute.”). The Richlin panel

noted petitioner’s argument “that we must apply the plain

meaning rule in construing Section 611,” but never undertook

the task of determining what the plain meaning of the provision

might be, applying instead “the well settled principle” that the

government does not pay interest on claims in the absence of an

express statutory provision” and noting that, even where

Congress has explicitly waived sovereign immunity, the

8

waiver“must be strictly construed.” Richlin, 437 F.3d 1299,

1301. (emphasis added.)

The panel’s refusal to consider as its first order of business

whether the plain meaning of the words of Section 611 requires

payment of interest to Richlin contravenes the long-standing

cardinal canon of statutory interpretation, dispositively

enunciated by the Supreme Court some 25 years ago:

. .. Canons of construction are no more than rules of

thumb that help courts determine the meaning of

legislation, and in interpreting a statute a court should

always turn first to one cardinal canon before all

others. We have stated time and again that courts

must presume that a legislature says in a statute what

it means and means in a statute what it says there.

See, e.g., United States v. Ron Pair Enterprises, Inc.,

489 US 235, 241-242, 103 L. Ed. 2d 290, 109 S. Ct.

1026 (1989); United States v. Goldenberg, 168 US 95,

102-103, 42 L. Ed. 394, 18 S. Ct. 3 (1897); Oneale v.

Thornton, 6 Cranch 53, 68, 3 L. Ed. 150 (1810). When

the words of a statute are unambiguous then this first

canon is also the last: “judicial inquiry is complete.”

Rubin v. United States, 449 US 424, 430, 66 L. Ed. 2d

633, 101 S. Ct. 698 (1981); see also Ron Pair

Enterprises, supra, at 241, 103 L. Ed. 2d 290, 109 S.

Ct. 1026.

Connecticut Nat'l Bank v. Germain, 503 U.S. 249, 253-54

(1992) (emphasis added). See also United States v. LaBonte,

520 U.S. 751, 757 (1997) (“[W]e assume that in drafting this

> Justice Scalia has characterized the “rule that waivers of sovereign

immunity must be narrowly construed” as one of a group of “certain

presumptions and rules of construction that load the dice for or against a

particular result.” Scalia, A Matter of Interpretation: Federal Courts and

the Law (Princeton, 1997) at 27-28.

9

legislation, Congress said what it meant.”); Robinson v. Shell

Oil Co., 519 U.S. 337, 340 (1997) (“Our inquiry must cease if

the statutory language is unambiguous and the statutory scheme

is coherent and consistent.”); Miccosukee Tribe of Indians of

Florida, 304 F.3d 1076, 1087 (11th Cir. 2002) (“the plain

meaning rule still rules statutory construction.”)

In light of the Supreme Court’s admonition, “stated time

and again,” that courts must before doing anything else turn to

the plain meaning of the words of the statute, the Federal

Circuit panel erred in its insistence on first discussing a

“well-settled principle” without even considering the plain

meaning of Congress when it said in Section 611 that “Interest

on amounts found due contractors on claims shall be paid to the

contractor...” 41 U.S.C. § 611. Had the Richlin panel heeded

the Supreme Court’s admonition and simply read and applied

the provision in accordance with its plain and unambiguous

meaning then the panel would have had no choice but to direct

award of the required interest to petitioner. Its failure to do so

constitutes reversible error.

II. THE RICHLIN PANEL’S DEMOTION OF THE

PLAIN MEANING RULE IN FAVOR OF “STRICT

CONSTRUCTION” OF WAIVERS OF SOVEREIGN

IMMUNITY IS CONTRARY TO THAT COURT’S

OWN PRECEDENTS AND THUS RENDERS THE

FEDERAL CIRCUIT A COURT DIVIDED AGAINST

ITSELF IN MATTERS OF STATUTORY

INTERPRETATION

The Richlin panel’s refusal to annly 7 even consider the

plain meaning rule in deciding Rich » -ontravenes the Federal

Circuit’s own precedents regarding the primacy of that rule in

matters of statutory construction. Prior to the panel’s decision

in Richlin, the Federal Circuit repeatedly affirmed its

compliance with the Supreme Court’s oft-stated direction that

10

the plain meaning rule still rules statutory construction. Norfolk

Dredging Co. v. United States, 375 F.3d 1106, 1110 (Fed. Cir.

2004) (“If the language is clear and fits the case, the plain

meaning of the statute generally will be regarded as

conclusive.”); Hoechst-Roussel Pharms. v. Lehman, 109 F.3d

756, 760-61 (Fed. Cir. 1997) (affirming that when the terms of

a statute are unambiguous, “judicial inquiry is complete”). The

Richlin panel’s determined by-passing of the plain meaning of

section 611 constitutes a thus far successful attempt to abrogate

the primacy of the first rule of statutory construction in favor of

the lesser notion of “strict construction” of waivers of sovereign

immunity, thereby giving rise to a conflict between Richlin and

those Federal Circuit decisions that respect the rule’s primacy.

This conflict renders the Federal Circuit a court divided against

itself and “leaves [interested parties] in a quandary as to how

the court will interpret statutory language.” Decisions of the

Federal Circuit: Do They Reflect An Understanding Of The

Realities Of Government Procurement?, 20 NO. 6 NASH AND

CIBINIC REP. 86, 87 (2006).

This Court should resolve the Federal Circuit’s internal

conflict so that it will no longer be a court divided and can

consistently follow this Court’s direction to “turn first to one

cardinal canon before all others” and “presume that Congress

says in [Section 611] what it means and means in [Section 611]

what it says there.” Connecticut Nat'l Bank, 503 U.S. at

253-54.

1]

Ill. THE PANEL’S ELEVATION OF “STRICT

CONSTRUCTION” OVER THE PLAIN MEANING

OF SECTION 611 YIELDS THE ABSURD RESULT

OF MONETARY AWARDS TO ENTITIES WHO

ARE PARTIES NEITHER TO THE CONTRACT

NOR THE DISPUTE

As noted above, the panel never addresses the plain

meaning of Section 61 1 but instead undertakes to apply notions

of “strict construction” to Section 611, citing Fidelity

Construction Co. v. United States, 700 F.2d 1379, 1383 (Fed.

Cir. 1983), cert. denied, 464 U.S. 826 (1983), for the “well

settled principle” that “an allowance of interest on a claim .. .

requires an explicit waiver of . . . [sovereign] immunity by

Congress” and that such a waiver must be “strictly construed.”

Richlin, 437 F.3d at 1299. There is no question that statutes in

derogation of sovereignty are to be the subject of strict

construction. -3 Norman J. Singer, Sutherland Statutory

Construction, § 62.1, at 258-261 (2001); Brown v. United

States, 547 F.2d 71 (8th Cir. 1976) (“It is fundamental that

while . . . the sovereign has waived its immunity, no suit can be

maintained unless it is in exact compliance with the terms of

the statute under which the sovereign has consented to be

sued.””). However, the concept of ‘strict construction’ . . . does

{not} demand that a statute be given the ‘narrowest meaning’;

it is satisfied if the words are given their fair meaning in accord

with the manifest intent of the lawmakers.” United States v.

Moore, 423 U.S. 122, 145 (1975) (quoting United States v.

Brown, 333 U.S. 18, 25-26 (1948)); Dixson v. United States,

465 U.S. 482, 501 (1984).’

‘ Dixson was a criminal case as are the cases cited but the

discussions of the correct application of strict construction is generally

applicable.

12

The application of strict construction is subject to other

rules of statutory interpretation which may totally negate its

use. 3 Norman J. Singer, Sutherland Statutory Construction, §

58.1 at 87, § 62.2 at 272-273. “.. . [S}trict construction has a

subordinate status to plain meaning.” Morell E. Mullins,

Coming to Terms with Strict and Liberal Construction, 64 ALB.

L. REV. 9, 44 (2000); see also Sedina, S.P.R.L. v. Imprex Co.,

473 U.S. 479 (1985) (“. . . [t]he strict construction principle is

merely a guide to statutory interpretation . . . it only serves as an

aid for resolving an ambiguity ...””). And when statutes are to

be strictly construed, they must be read in their entirety so that

“each part or section [is] construed with every other part or

section so as to produce a harmonious whole.” 2A Norman J.

Singer, Sutherland Statutory Construction, at 154.

In Fidelity Construction the contractor urged the Federal

Circuit to disregard the certification requirement of the CDA,

arguing that “the language of the interest provision is

unambiguous in providing for interest on a claim submitted

under [41 U.S.C.§ 611] and that the certification requirement

is irrelevant.” Fidelity Construction Co., 700 F.2d at 1383.

Reviewing the CDA in its entirety, the court found that the

“entire statutory scheme” contemplates “that certification is not

a mere technicality . . . but is an unequivocal prerequisite for a

post-CDA claim being considered under the statute.” Fidelity

Construction Co., 700 F.2d at 1384. Thus the court “strictly

construed” the CDA as a whole and found that, while the

language of the interest provision is unambiguous standing

alone, the provision cannot serve to divorce interest from

certification when read in light of the statute in its entirety,

stating that “[s]uch a construction cannot possibly stand as

against the entire statutory scheme, “which is so obviously to

the contrary.” Fidelity Construction Co., 700 F.2d at 1383.

_ Unlike the contractor in Fidelity Construction Co., Richlin did

not ask the panel to disregard any provision of the CDA,

13

asking only that the panel apply the plain meaning of the CDA

interest provision set out in Section 611. In response, the panel

“strictly construed” the provision so as to affirm the board of

contract appeals denial of interest to Richlin in Richlin IX,

finding that since Richlin did not “actually pay” the back wages

and associated taxes it had acted “merely as a conduit”, thereby

implying that the true award was actual! made (through

Richlin) to the employees and the taxing auinorities. Richlin,

437 F.3d at 1299.

The Richlin panel’s “strict construction” of § 611

eliminates the contractor from the final step of the adjudicatory

process with the result that an award must be made and an

amount “found due” to former employees and taxing

authorities—entities who are not parties to the contract. Such

an outcome is impossible because the scheme of the CDA in its

entirety is explicitly geared to granting authority to the

contracting officer and conferring jurisdiction on the boards of

contract appeals and the courts to make a “monetary award” or

to find an amount “due” only to the contractor. 41 U.S.C.§

601(4) (“The term ‘contractor’ means a party to a government

contract other than the government”); 41 U.S.C. § 601(a) (“The

contracting officer shall... furnish a copy of the decision to the

contractor. The decision shall inform the contractor of his

rights . . .); 41 U.S.C. § 606 (“Within 90 days from date of

receipt of a contracting officer’s decision . . . the contractor

may appeal such decision to an agency board of contract

appeals. . .); 41 U.S.C. § 607(g) (“The decision of an agency

contract appeals board shall be final except that (A) a

contractor may appeal such decision to the United States Court

of Appeals. . .”); 41 U.S.C. § 612 (“Any monetary award to a

contractor by an agency board of contract appeals shall be paid

promptly ...);41 U.S.C. § 611 (“Interest on amounts found due

contractors on claims shall be paid to the contractor . . .”).

(Emphases in quotes added).

14

The panel’s “strict construction” of the CDA interest

provision yields a result that requires a monetary award to

entities other than the contractor, a result totally inconsistent

with the intent of the lawmakers as manifested by the plain

language of the thirteen sections of the CDA read both

separately and together. In the words of Fidelity Construction,

700 F.2d at 1379, 1384,“Such a construction cannot possibly

stand as against the entire statutory scheme, which is so

obviously to the contrary.”

IV. THE PANEL DECISION SERIOUSLY

UNDERMINES THE ESTABLISHED PRINCIPLES

AND PRECEDENTS OF THIS COURT AS WELL AS

THE FEDERAL CIRCUIT REGARDING “PASS-

THROUGH” CLAIMS OF SUBCONTRACTORS

AND OTHERS “SPONSORED BY” THE PRIME

CONTRACTOR

The Panel decision, in regarding the award as being to

entities other than Richlin, also implicates established

principles and precedents of the Supreme Court and the Federal

Circuit regarding “pass through” claims of subcontractors and

other entities. The law has long recognized, that for purposes

of the Government’s contract liability, the prime contractor is

deemed to be the entity that incurs any costs in performance of

the prime contractor’s obligations, regardless whether those

costs are those of the prime contractor, the prime’s employees,

or subcontractors (or subcontractor employees) at any tier. This

stems at least in part from the principle that, except in

extraordinary circumstances, there is no “privity” between the

government and any entity but the prime contractor. Only the

prime contractor may litigate, and be found due money on, a

contract claim against the U.S. Government. These principles

were enunciated, e.g., by the U.S. Supreme Court in United

States v. Blair, 321 U.S. 730 (1944):

15

Clearly the subcontractor could not recover this claim

in a suit against the United States, for there was no

express or implied contract between him and the

Government, Merritt v. United States, 267 U.S438.

But it does not follow that respondent is barred from

suing for this amount. Respondent [the prime

contractor] was the only person legally bound to

perform his contract with the Government and he had

the undoubted right to recover from the Government

the contract price ... [for extra work] whether that

work was performed personally or through another.

This necessarily implies the right to recover extra

costs and services wrongfully demanded of respondent

under the contract, regardless of whether such costs

were incurred or such services were performed

personally or through a subcontractor.

Id., at 737.

The U.S. Court of Claims repeatedly followed these

principles, holding that the prime contractor not only could

present “pass-through” claims, but was the only one that could

present such claims because only he had “privity” with the

Government. The Court of Claims regularly granted claims of

prime contragiors for increased expenses of subcontractors even

though the primes themselves had not paid the subs. Pneumatic

Gun-Carriage and Power Co. vy. United States, 36 Ct. Cl. 71,

89 (1901) (“We think defendant should answer at this time

without waiting for plaintiff to first pay the damages sustained

by the subcontractors....”); George Leary Construction Co. v.

Leary, 63 Ct. Cl. 206, 222 (1927) (“It is easy to forecast the

financial ruin of a Government contractor if the rule is to be

established that...[the prime] may not recover amounts due

from the Government under his contract until he established to

the satisfaction of the Government that he has paid his

16

subcontractor all he owes him.”); Warren Bros. Road Co. v.

United States, 128 Ct. Cl. 48, 83 (1952).

The Federal Circuit has similarly recognized “pass-

through” cases pursued by prime contractors when the

underlying claims were those of subcontractors. Transamerica

Ins. Corp., Inc. v. United States, 973 F. 2d 1572 (Fed. Cir.

1992); Capital Electricity Co. V. United States, 729 F.2d 743

(Fed. Cir.1984); E.R. Mitchell Construction Co. v. Danzig, 175

F. 3d 1369 (Fed. Cir. 1999).

It is beyond reasonable dispute that Congress did not

intend the use of “contractor’ in the CDA to alter the long and

well established principles that the term, in the context of

contract claims against the Government, means the prime

contractor or any other person or entity on whose behalf the

prime is sponsoring the claim. The legislative history of the

CDA contains express approval of the time-honored

“sponsorship” rules, saying that “It is expected that the present

sponsorship rules would remain in effect.” S. Rpt. No. 95-

1118, 95th Con., 2d Sess. (1978) at 16, reprinted in 1978

U.S.C.C.A.N. 5235, 5250.

The panel decision casts into doubt the continued viability

of “pass through” claims brought by a prime contractor on

behalf of its subcontractors and others not in privity with the

Government. This issue, also, is of critical importance-to-the

established “law” of Government contracts (see, e.g., Cibinic &

Nash, Administration of Government Contracts, (3rd Ed. 1995),

1255-1257). As Professor Ralph Nash wrote, in the March

2006 issue of the Nash & Cibinic Report, about the Richlin

panel decision:

What does this decision do to claims brought by a

contractor on behalf of a subcontractor? Generally,

such claims are based on the proposition that the

contractor will pay the subcontractor if the contractor

17

is successful on the claim. In addition, most

contractors probably don’t actually pay the

subcontractor until the money is received from the

Government. In such a circumstance, Richlin may

deny them interest on the claim.

In sum, we believe Richlin unnecessarily

complicates the issue. The plain meaning of the

statute is that an amount was found due to the

contractor and the Government owed interest on that

amount.

INTEREST ON CLAIMS, A New Wrinkle, set forth in Appendix

D.

Accordingly, the continued viability of “pass through”

claims, presented in the name of the prime contractor without

the prime having paid anything to the subcontractor, and the

applicability of CDA interest to such claims, is cast into doubt

by the panel decision. This is another important reason for

granting certiorari in this case.

V. THE PANEL SHOULD NOT HAVE CONSIDERED

THE LEGISLATIVE HISTORY OF THE CLEAR

AND UNAMBIGUOUS PROVISIONS OF SECTION

611-

Where the language of the statute is clear, the legislative

history need not and should not be considered. United States v.

Shreveport Grain & Elevator Co., 287 U.S. 77, 83 (1935)

(“Like other extrinsic aids to construction their use is ‘to solve,

but not to create an ambiguity.” (quoting Hamilton vy.

Rathbone, 175 U.S. 414, 421 (1899))); United States v.

Gonzalez, 520 U.S. 1, 6 (1997) (observing that with a

_ “straightforward statutory command, there is no reason to resort

to legislative history”). As argued above, the text of section

611 is clear and unam’\iguous—“Interest on amounts found due

18

contractors on claims shall be paid to the contractor. ...” The

panel’s invocation of the CDA’s legislative history was

unnecessary.

But the panel’s use of legislative history was worse than

unnecessary— it was mischievous because it created ambiguity

where previously there was none. Shreveport Grain & Elevator,

287 U.S. at 83. The panel claims that the legislative history

supports the view that interest is allowable only when the

contractor has incurred a “cost of money to finance [the]

additional work”so that, “[iJn keeping with the purpose of the

statute... the contractor can recover interest only on amounts

it actually paid’, noting. that if Richlin had advanced the

employees’ compensation using money out of its own pocket

then it “might have been entitled to interest,” Richlin, 437 F.3d

at 1301. (emphasis added.) The panel thus reads into the text

of Section 611 a condition precedent for payment of interest on

“amounts found due”, which is not there. The panel’s use of

the legislative history “only muddies the waters” — where the

text of Section 611 had one meaning it now has two. Gonzalez,

_ 520 U.S. at 6. The panel has replaced clarity with ambiguity.

Its action constitutes further grounds for granting this petition

for certiorari.

VI. THE FEDERAL _CIRCUIT DECISION WILL

AFFECT A LARGE NUMBER OF OTHER CASES;

INDEED VIRTUALLY ALL BOARD OF

CONTRACT APPEALS CASES WILL BE

AFFECTED

The CDA interest statute, 41 U.S.C. § 611, provides that

CDA interest is to be added to ali amounts found due on

contractors claims. Thus, whenever a contractor is successful

in a litigation at one of the many boards of contract appeals or

a Government contract litigation at the U.S. Court of Federal

Claims, he would also recover, at least until the Richlin X

19

decision, CDA interest on the amount awarded. Accordingly,

the Federal Circuit decision in question will affect virtually

every decision of a board of contract appeals and many

decisions of the Court of Federal Claims.

CDA interest is involved in many hundreds of cases each

year. Most Government contractors, large and small, are

affected by the Federal Circuit’s decision in the Richlin X case.

The Federal Circuit decision, in failing to apply the plain

meaning rule, has cast substantial doubt on the application of

CDA interest to judgments on Government contract claims.

The wide application of the Federal Circuit decision for which

review is being sought in this case is another reason why this

Court should grant the writ of certiorari in this case.

STATEMENT OF RELIEF AND CONCLUSION

Since the Federal Circuit’s decision has a very wide

application to Government contract cases, this Court should ~

select this case for review. -And, because the Federal Circuit

failed to apply the plain meaning rule to the Contract Disputes

Act interest provision, 41 U.S.C. § 611, and instead gave

primacy to a rule of “strict construction”, the petition for writ

of certiorari should be granted.

Respectfully submitted,

GILBERT J. GINSBURG

Attorney and Counselor-At-Law

1250 24th Street, N.W.

Suite 350

Washington, DC 20037

Tel: (202) 776-7772

Fax: (202) 776-7773

Attorney for Petitioner

Richlin Security Service Company

Dated: July 20, 2006

APPENDIX

la

APPENDIX A

United States Court of Appeals for the Federal Circuit

05-1085

RICHLIN SECURITY SERVICE COMPANY,

Appellant,

Vv.

MICHAEL CHERTOFF,

SECRETARY OF HOMELAND SECURITY,

Appellee.

DECIDED: January 31, 2006

Before MAYER, RADER, and DYK, Circuit Judges.

DYK, Circuit Judge.

Richlin Security Service Company (“Richlin”) appeals

from a decision of the Department of Transportation Board of

Contract Appeals (the “Board”) denying Richlin’s claim for

$284,193.85 in interest under the Contract Disputes Act, 41

U.S.C. §§ 601 et. seg. (“CDA”). In re Richlin Sec. Servs. Co.,

04-2 BCA 4 32,670 (DOTBCA 2004) (“Richlin IX’). We

affirm.

BACKGROUND

In April 1990 and August 1991, Richlin and the

Immigration and Naturalization Service (“INS”) entered into

two fixed-price contracts for private security guard services. As

a result of a mutual mistake, the contracts misclassified

Richlin’s employees as “Guard I” rather than “Guard IT” under

2a

the wage classification scheme of the Service Contract Act, 41

U.S.C. §§ 351, et seg. (“SCA”), resulting in underpayment of

Richlin’s employees. In February 1995, the Labor Department

determined that the employees were entitled to back wages

under the SCA. In March 1996, Richlin filed a claim for the

back wages (and associated taxes) with the contracting officer.

The contracting officer denied Richlin’s claim, and Richlin

appealed to the Board. In March 1997, the Board granted in

part and denied in part Richlin’s request for reformation of the

contracts, holding that while reformation was the appropriate

remedy, the Board would not specify the terms of the

reformation until Richlin’s back wage liability was “formalized

by appropriate action of the Labor Department.” Jn re Richlin

Sec. Serv. Co., 98-1 BCA § 29,651 (DOTBCA 1997) (“Richlin

I’). The Board was concerned that prematurely awarding

Richlin the underpaid wages could result in a windfall to

Richlin, as the passage of years since Richlin performed the

contracts might prevent Richlin from locating and paying all its

former employees. The Board thus invited Richlin to petition

for completion of the reformation “at such time as any liability

of Richlin for back wages becomes liquidated and satisfied.”

Id. We affirmed. Meissner v. Richlin Sec. Serv. Co., 155 F.3d

566, 1998 WL 228175 (Fed. Cir. 1998) (“Richlin II’)

(unpublished table decision).

On September 22, 1998, after a Labor Department audit,

Richlin and the Labor Department executed an agreement

specifying: (1) that Richlin’s employees were owed

$636,818.72 in back wages; (2) that the back wages were to be

paid into an escrow account administered by Richlin’s counsel;

(3) that any excess funds were to be remitted to the Labor

Department; and (4) that the Labor Department “agrees that, by

virtue of the obligations undertaken in this Agreement, the

obligations to the former employees of Richlin have been

liquidated and satisfied.” J.A. at 123. The Board denied

3a

Richlin’s request to complete the reformation based on this

agreement, holding that the agreement was not “the equivalent

of Richlin actually discharging its back wage liability to some

or all of its former employees prior to seeking reimbursement

.... In re Richlin Sec. Serv. Co., 99-1 BCA 4 30,219

(DOTBCA 1999) (“Richlin III’). The Board then denied

Richlin’s motion for reconsideration. /n re Richlin Sec. Serv.

Co., 99-2 BCA ¥ 30,562 (DOTBCA 1999) (“Richlin IV”).

We reversed and remanded, noting that “[i]t is not disputed

that INS owes Richlin’s employees the underpaid wages,” and

that “Richlin pointed out that its financial condition [was] such

that it ha[d] no funds to pay the former employees prior to

reimbursement, and thus that the employees will not be paid

absent a modification of the decision.” Richlin Sec. Serv. Co.

v. Rooney, 18 Fed. Appx. 843, 844-45, 2001 WL 744463 (Fed.

Cir. 2001) (“Richlin V’) (unpublished decision). We concluded,

in the light of Richlin’s financial troubles, that it was

unnecessary to make Richlin pay its employees before

receiving funds from the INS because the terms of the Richlin-

Labor agreement “assure[d] that Richlin will receive no benefit

from these payments.” /d.

On remand, the Board awarded Richlin the amount of back

wages specified in the Richlin-Labor agreement. Jn re Richlin

Sec. Serv. Co., 02-? BCA § 31,876 (DOTBCA 2002) (“Richlin

VI’). The Board t. -n rejected Richlin’s claim for additional

labor costs because Richlin presented no evidence that it

incurred any additional labor costs that were not fully

compensated by the unreformed contract price, and because the

Labor Department had determined that the amount specified in

the Richlin-Labor agreement was the full extent of Richlin’s

back-wage liability. The Board also held that Richlin was

entitled to payroll taxes incurred as a result of distributing the

back wages. Jn re Richlin Sec. Serv. Co., 03-1 BCA 4 32,301

(DOTBCA 2002) (“Richlin VII’). We affirmed. Richlin Sec.

4a

Serv. Co. v. Ridge, 99 Fed. Appx. 906 (Fed. Cir. 2004)

(“Richlin VII’) (unpublished decision). The escrow agent

distributed the back wages, and Richlin subsequently submitted

proof of its associated tax liability to the Board. The majority

of the taxes incurred as a result of distributing the back wages

were paid from the escrow account, and the Board found INS

liable for Richlin’s remaining tax liability. Richlin IX, 04-2

BCA 4 32,670. Presumably, INS will deposit the taxes into the

escrow account for disbursement to the taxing authorities by

the escrow agent.

Richlin requested interest pursuant to the CDA’s interest

provision, 41 U.S.C. § 611. The Board denied Richlin’s

request, concluding that “there is nothing upon which interest

could accrue” because “[t]he Board’s award [in Richlin VI &

VIT\ was not an amount found due [Richlin] but was an amount

found due [Richlin’s] former employees and the taxing

authorities,” and Richlin “did not advance its own funds to

pay” the back wages. Richlin IX, 04-2 BCA 4 32,670. This

appeal followed. We have jurisdiction pursuant to 28 U.S.C. §

1295(a)(10) and 41 U.S.C. § 607(g)(1)(A).

- DISCUSSION

I

The only issue here is whether interest on the award to

Richlin is allowable under section 611. We review the Board’s

conclusions of law without deference. 41 U.S.C. § 609(b)

(2000); West v. All State Boiler, Inc., 146 F.3d 1368, 1371

(Fed. Cir. 1998); EL. Hamm & Assocs., Inc. v. England, 379

F.3d 1334, 1338 (Fed. Cir. 2004).

The Supreme Court has long held that “interest cannot be

recovered in a suit against the government in the absence of an

express waiver of sovereign immunity from an award of

interest.” Library of Congress v. Shaw, 478 U.S. 310, 311

5a

(1986); see, e.g., United States ex rel. Angarica v. Bayard, 127

U.S. 251, 260 (1888) (applying the “well-settled ee Sigg that

the United States are not liable to pay interest on claims... in

the absence of express statutory provision”).

This principle is equally applicable to the sovereign

immunity waiver in section 611. That section provides

Interest 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. The interest provided for in this

section shall be paid at the rate established by the

Secretary of the Treasury pursuant to Public Law 92-

41 (85 Stat. 97) for the Renegotiation Board.

41 U.S.C. § 611 (2000). We have recognized that “[aJn

allowance of interest on a claim against the United States,

absent constitutional requirements, requires an explicit waiver

of sovereign immunity by Congress.” Fidelity Constr. Co. v.

United States, 700 F.2d 1379, 1383 (Fed. Cir. 1983), cert.

denied 464 U.S. 826 (1983), (citing United States v. N.Y. Rayon

Co., 329 U.S. 654, 658-59 (1947)). Such an explicit waiver,

where found, must be strictly construed. /d. (citing N.Y. Rayon

Co., 329 U.S. at 659). We have also recognized that, with

respect to section 611, “even a seemingly explicit [waiver] will

not be effective if the language used appears too sweeping and

contrary to the overall statutory-scheme... .” Jd.

We have previously considered the types of awards that

may accrue interest under section 611 as “amounts found due

contractors.” In Servidone Construction Corp. v. United States,

931 F.2d 860 (Fed. Cir. 1991), we addressed the question

whether section 611 allowed a contractor to collect interest on

an award of an equitable increase in the total contract price

when the contractor, at the time the initial claim was filed, had

6a

not yet incurred all the claimed costs, though all costs were

subsequently paid by the contractor. Relying on the plain

language and legislative history of the statute, we concluded

that section 611 “sets a single, red-letter date for interest on all

amounts found due by a court without regard to when the

contractor incurred the costs.” Servidone, 931 F.2d at 862

(emphasis added), Put simply, we held that interest was

available for costs “found due” the contractor, even though

payment had not been made by the contractor on the claim date,

because the contractor would ultimately be out of pocket for

some period of time. See also Caldera v. J.S. Alberici Constr.

Co., 153 F.3d 1381, 1383 (Fed. Cir. 1998) (relying on

Servidone to affirm an award of interest on the full amount of

an award of increase in the contract price made before the

contractor incurred all additional costs necessitating the

increase).

We next addressed the issue in Raytheon Co. v. White, 305

F.3d 1354 (Fed. Cir. 2002), where a contract to produce missile

guidance systems for the Army was terminated for convenience

by the government. The contractor filed a convenience

termination claim, and the Board awarded the contractor an

equitable adjustment to the total contract price plus interest on

costs incurred. The Board denied interest on the percentage of

the award representing estimated costs to complete. Raytheon,

305 F.3d at 1359, 1365. The contractor appealed to this court,

challenging the Board’s decision not to award interest under

section 611 on the award of costs that the contractor would

have incurred but for termination of the contract.

While we recognized the principle, established in

Servidone, that “interest may not be denied merely because

costs later found due had not been incurred at the time the

claim was filed,” id. at 1365, we distinguished Raytheon’s

claim because termination of the contract meant that the

contractor would never actually incur the prospective costs.

7a

Observing that “[i]n both Servidone and J.S. Alberici . . . the

contractors completed their contracts and thus actually incurred

the costs upon which interest was later awarded,” id.

(emphasis added), we affirmed the Board’s denial of interest on

the prospective costs because “[w]e have never held that

section 611 permits interest to accrue on costs that . . . were

never actually incurred by the contractor.” Jd.

‘ II

Richlin nevertheless insists that it is entitled to interest.

Richlin argues that we must apply the plain-meaning rule in

construing section 61 1, and that the plain meaning of “amounts

found due contractors” in section 611 includes any amount (1)

for which the contractor was liable and (2) that was “awarded”

to a contractor on a CDA claim.' We agree that Richlin was

obligated by the contract to pay employees the amount required

by the Service Contracts Act, and to pay related tax amounts to

' In this connection, Richlin relies on a provision of the Federal

Acquisition Regulation (“FAR”) that defines “compensation for personal

services” to include “all remuneration paid currently or accrued, in whatever

form and whether paid immediately or deferred, for services rendered by

employees to the contractor.” 48 C.F.R. § 31.001 (2003). Richlin asserts that

its liability for the back wages under the SCA constituted “accrued” or

“deferred” remuneration, and thus “compensation for personal services” that

constitutes a cost of the contracts under the FAR. See 48 C.F.R. § 31.103(b)

(2003) (“the contracting officer shall incorporate the cost principles and

procedures in subpart 31.2 . . . in contracts with commercial organizations

as the basis for . . . (4) Price revision of fixed-price incentive contracts”); 48

C.F.R. § 31.205-6(h)(1) (2003) (backpay is a form of “compensation for

personal services” constituting “a retroactive adjustment of prior years’

salaries or wages,” and is “unallowable except [that] [p]ayments to

employees resulting from underpaid work actually performed are allowable,

if required by a negotiated settlement, order, or court decree”).

8a

the appropriate tax authorities.” If Richlin had advanced those

amounts to the employees and the tax authorities pursuant to

the contract, Richlin might have been entitled to interest. But

that is not what occurred. Richlin did not advance a penny of its

own money, and indeed claimed that it lacked the resources to

make such advances. Rather, the government paid the amounts

awarded into an escrow account, and those funds were used to

pay the employees and the tax authorities. On the basis of these

facts, the Board denied Richlin’s request for interest on the

award because Richlin did not actually pay any of the back

wages out of pocket. Richlin LX, 04-2 BCA § 32,670.

We agree with the Board’s conclusion. As we have

previously recognized, the legisiative history of section 611

establishes that in providing for interest on CDA awards,

“Congress was concerned with fully compensating contractors

for additional costs incurred in a continuing performance under

a contract.” Fidelity Constr. Co., 700 F.2d at 1384. The Senate

Report accompanying the bill that enacted section 61 1 explains

The rights of Government contractors who prevail

upon claims against the Government are unique since

they have been required by language of the contract .

. . to perform the work directed by the Government

without stopping to litigate. .. . Since the contractor

has been compelled to perform the work with its own

money — in the total absence of contract payments or

progress payments -- there can be no equitable

adjustment to the contractor until the contractor

recovers the entire cost of the additional work. The

2

See Richlin I, 98-1 BCA § 29,651 (discussing provisions in the

contract that incorporate SCA requirements); 48 C.F.R. § 52.222-41(c)(1)

(obligating contractors subject to the SCA to pay wages in accordance with

SCA regulations); Richlin LX, 04-2 BCA 4 32,670 (discussing Richlin’s

payroll tax liability in detail).

9a

cost of money to finance this additional work while

pursuing the administrative remedy, normally called

interest, is a legitimate cost of performing the

additional work.

S. Rep. No. 118, 95th Cong., 2d Sess. 32 (1978) (emphasis

added).’ As the Board recognized, this legislative history

supports the view that interest is allowable only when the

contractor has incurred a “cost of money to finance [the]

additional work.” _

In keeping with the purpose of the statute, our prior

decisions are clear that the contractor can recover interest only

on amounts it actually paid. In Servidone, we held that interest

accrued to all awards representing compensation for costs

actually incurred by the contractor, even if not incurred until

after the claim was filed, because Congress had adopted a

bright-line rule for the computation of interest. Servidone, 931

F.2d at 862. But in Raytheon, we concluded section 611 did not

authorize interest on costs never actually paid by the contractor.

Raytheon, 305 F.3d at 1365.

The reasoning of Raytheon is directly applicable to this

case. The award of back wages did not compensate Richlin for

any past, present or future out-of-pocket expense. Indeed,

Richlin conceded at oral argument that it “was never out any

money.” The back wages and associated taxes were paid not by

. Contrary to Richlin’s contention, the portion of the Senate Report

relating to the general purposes of section 611 is not made irrelevant by the

fact that the text of the statute was later altered to require that interest accrue

from the date the claim is filed with the contracting officer. See Servidone,

931 F.2d at 862-63 (describing the alteration). The textual change did not

alter the purposes of section 611, and statements of legislative intent related

to those purposes remain relevant to interpreting the statute. Cf Fidelity

Constr. Co., 700 F.2d at 1385 (holding irrelevant legislative history

specifically related to effect previous version of the altered text).

10a

Richlin but by the government through the escrow mechanism.

Richlin acted merely as a conduit, and serving as a conduit did

not entitle Richlin to receive interest.

CONCLUSION

For these reasons, the decision of the Board is

AFFIRMED.

COSTS

No costs.

lla

APPENDIX B

Department of Transportation

Board of Contract Appeals

Washington, D.C.

APPEALS OF RICHLIN SECURITY SERVICES CO.

CONTRACT NO. WRO-06-90, WRO-03-91

DOCKET NOS. 3034, 3035

July 22, 2004

OPINION BY ADMINISTRATIVE JUDGE FENNESSY

These appeals were taken from decisions of a contracting

officer of the Immigration and Naturalization Service, United

States Department of Justice (INS), denying the claims of

appellant, Richlin Security Services Co., for the amount of

increased wages it owed its employees pursuant to the Service

Contract Act. The increased wages were due because of the

parties’ mutual mistake of misclassifying the positions of-

appellant’s employees at the time of contract formation. The

claims have been the subject of numerous decisions by this

Board and the Court of Appeals for the Federal Circuit.

Familiarity with these earlier opinions is presumed. We provide

below a brief summary of the prior proceedings as background

for this decision. [*2]

The contract in dispute was for guard services for alien

detainees. In our initial decision, we held that reformation of

the contract price was appropriate because the parties had

mistakenly classified appellant’s employees as Guards I rather

than as Guards IJ, which commanded a higher rate of pay.

However, we also held that, to prevent bestowing a windfall

upon Richlin, the reformation could not be completed until

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appellant had liquidated and satisfied its liability for the unpaid

wages. Richlin Security Services Co., 98-1 BCA P 29,651

(DOTBCA 1997) (Richlin I). The Court of Appeals affirmed.

Messiner v. Richlin Security Services Co., 155 F.3d 566 (Fed.

Cir. 1998) (Richlin II).

Thereafter, appellant entered into an agreement with the

Department of Labor (DOL) establishing that $636,818.72 was

the correct, gross amount of unpaid wages owed to the former

employees and that the employees identified in the agreement

were the only employees to whom wages were owed. Appellant

and DOL also agreed that the INS would make payment of that

amount to appellant’s counsel, Mr. Gilbert Ginsburg, as escrow

agent, for distribution to [*3] appellant’s former employees.

Alternatively, at the option of DOL, appellant’s counsel would

transfer the full amount paid by INS directly to DOL for

distribution to the former employees. The agreement stated that

it liquidated and satisfied appellant’s obligations to its former

employees. It was signed by a regional wage specialist for

DOL, appellant’s president, and appellant’s counsel as escrow

agent.

Following execution of this agreement, appellant requested

the Board to complete the reformation. The INS opposed the

request arguing that appellant’s agreement with DOL did not

liquidate and satisfy appellant’s obligations to its former

employees. The Board agreed with the INS and denied the

request to complete the reformation. Richlin Security Services

Co., 99-1 BCA P 30,219 (DOTBCA 1999) (Richlin III).

Appellant sought reconsideration of the Board’s decision

relying upon its original arguments. Alternatively, because

appellant lacked the funds to pay the increased wages,’

appellant requested the Board to amend its original decision by

1

This allegation had never been raised in any of the Board’s earlier

proceedings.

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eliminating the requirement for appellant to liquidate and

satisfy its obligations to former employees in order to [*4]

prevent a manifest injustice. The Board denied appellant’s

request. Richlin Security Services Co. 99-2 BCA P 30,562

(DOTBCA 1999) (Richlin IV).

Appellant appealed that decision and placed evidence

before the Court of Appeals that appellant could not afford to

meet its obligations to its employees without first obtaining the

funds from the INS. Based upon that evidence and appellant’s

contract with DOL, the Court reversed and remanded the

Board’s decision finding that the DOL contract liquidated and

satisfied appellant’s obligations. Richlin Security Services Co.

v. Rooney, 18 Fed. App. 843, 2001 U. S. App. Lexis 15490

(Fed. Cir. 2001) (Richlin V).

On remand, appellant posited three alternative methods for

computing the amount by which the contract price should be

reformed. Each method resulted in a price increase of

approximately $1.5 million inclusive of the $636,818.72 [*5]

in wages. However, because appellant wished to distribute the

unpaid wages immediately, it requested the Board to make a

partial award on quantum in the amount of the $636,818.72, the

gross amount due appellant’s former employees pursuant to

appellant’s agreement with DOL. The Board granted

appellant’s request. Richlin Security Services Co., 02-2 BCAP

31,876 (DOTBCA 2002) (Richlin VI). Thereafter, the Board

issued a decision finding that, in addition to gross wages of

$636,818.72, an award would be made for payroll taxes and

workmen’s compensation premiums in the amount for which

it may be liable once the unpaid wages were distributed. We

denied all other elements of quantum. However, we declined

issuing a final decision until appellant could prove the actual

amount of payroll taxes and workmen’s compensation

insurance for which it was liable. Richlin Security Services, Inc.

03-2 BCA P 32,302 (DOTBCA 2002). (Richlin VII).

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Appellant appealed that decision. The Court of Appeals

rejected the appeal and affirmed our decision. Richlin Security

Services v. Ridge, 2004 WL 1153349 (Fed. Cir. May [*6] 14,

2004). (Richlin VIII) Because the wages have now been

distributed, we decide the amounts of payroll taxes and

workmen’s compensation premiums for which the INS is

liable. Additionally, we find that appellant is not entitled to

interest pursuant to the Contract Disputes Act (CDA).

Workmen’s Compensation

The State of California has informed appellant that it no

longer has any legal liability to pay workmen’s compensation

premiums on the unpaid wages. Appellant has admitted this to

the Board. Therefore, we find that appellant is not entitled to

any amount for workmen’s compensation premiums.

Payroll Taxes

After several attempts to support the claimed amount for

outstanding payroll taxes, appellant has now put forth with

sufficient clarity enough probative evidence to permit the

Board to determine the amount due appellant from the INS for

appellant’s outstanding payroll taxes. Mr. Ginsburg has

submitted an affidavit with exhibits explaining the tax

calculations.

Appellant claims $67,339.14 in combined unpaid Federal

and state payroll taxes based upon the gross amount of wages

due appellant’s former employees. In order to explain our

decision on this issue [*7] it is necessary to set forth the details

of the tax liability associated with the wages due appellant’s

former employees.

As stated above, by our decision in Richlin VI, the Board

made a partial award in the gross amount of $636,818.70 to

permit Mr. Ginsburg, as escrow agent, to distribute the unpaid

wages. When issuing the checks, Mr. Ginsburg withheld

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amounts for Federal income tax, the employees’ share of Social

Security and Medicare taxes, as well as income taxes and

disability taxes due the State of California. Because of these

withholdings Mr. Ginsburg issued checks to the former

employees in the total net amount of $501,936.30. In

accordance with Internal Revenue Service Regulations (IRS) he

immediately caused the withheld Federal payroll taxes in the

amount of $110,264.70 to be deposited with the IRS. That

deposit was comprised of $64,197.45 for Federal income tax,

$36,833.31 for the employees’ share of Social Security tax, and

$9,233.94 for the employees’ share of Medicare tax. Mr.

Ginsburg also made a deposit with the State of California

taxing authority consisting of $20,427.31 for state income tax

plus $4,190.39 for state disability insurance taxes.

In our subsequent [*8] decision on quantum (Richlin VII),

we held that the INS would be liable for payroll taxes and

workmen’s compensation premiums subject to proof of liability

and the actual amount owed. The Board made clear that an

additional award for payroll taxes would be allowable based

upon.the gross amount of payroll checks actually cashed by

appellant’s former employees.

Mr. Ginsburg was not able to distribute all of the unpaid

wages. Some checks were returned and others were not cashed.

Appellant submitted a “Partial Final Report” explaining that the

gross amount of distributed wages actually was $608,428.60

rather than the $636,818.72 awarded by the Board, leaving a

gross undistributed amount of $28,390.10. Appellant also

asserted that the INS was liable for $67,339.14 for additional

payroll taxes. That sum was calculated using the gross amount

of our award rather than the gross amount of distributed wages.

Subsequently, appellant submitted a “Final Report”

reconciling Mr. Ginsberg’s escrow account; demonstrating that

Mr. Ginsburg had transferred the net amount of undistributed

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wages in the sum of $26,019.78 to the Department of Labor

(DOL); asserting the liability of INS for $67,339.14 [*9] as

computed in its “Partial Final Report;” and setting forth

calculations for Contract Disputes Act (CDA) interest.

In a Supplemental Submission to the Board, Mr. Ginsburg

set forth by affidavit the computations for the asserted amount

of unpaid payroll taxes. He explained that because the gross

amount of distributed wages was $608,428.60 rather than the

$636,818.70, the withholding for Federal taxes from the

employees wages should have been $108,092.85 rather than the

$110,264.70 actually withheld and deposited with the IRS. He

also admitted for the first time that the difference of $2,171.85

“should be and will be deducted from the amount due the

internal revenue service.” Supplemental Submission Regarding

[*10] Appellant’s Liability for Payroll Taxes, p. 4.

Similarly, Mr. Ginsburg acknowledged that the

withholding of state taxes from the distributed wages was based

upon the gross amount of wages reflected in the Board’s award.

He explained that, while $4,190.39 was deposited with the

State of California for disability insurance based upon the gross

amount of the Board’s award, the correct amount based upon

the checks actually cashed by appellant’s former employees

was $3,953.82. Again, Mr. Ginsburg finally admitted that “the

difference of $236.57 should be and will be deducted from the

amount of tax to be paid to the State of California.” Jd.

The total amount Mr. Ginsburg now admits should not and

will not be paid to the Federal and state taxing authorities is

$2,408.42. This sum is the difference between the gross

2

Mr. Ginsburg explained in a telephone conference that he

transferred to DOL the net amount of undistributed wages rather than the

gross amount because the payroll taxes applicable to the undistributed wages

had been withheld and were included in the deposits to the Federal and state

taxing authorities.

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undistributed wages and the net undistributed wages Mr.

Ginsburg transferred to DOL. It represents the taxes withheld

from the checks that were returned or not cashed. Because

$2,408.42 will be subtracted from the amounts to be paid the

taxing authorities, we find that appellant is entitled to the sum

of $64,930.72 for unpaid payroll taxes based upon the gross

amount [*11] of payroll checks actually cashed by appellant’s

former employees.’

This determination is consistent [*12] with amended

Federal and state tax forms submitted by appellant. These

documents show that the total Federal and state tax liability was

$199,813.10 and that appellant has paid combined total of

$134,882.40 in taxes. The difference between those sums is

$64,930.70.

Interest

Appellant seeks interest in the amount of $284, 193.85* on

the total amount awarded by the Board pursuant to the Contract

Disputes Act (CDA). 48 U.S.C. § 601 ef. seg. The INS objects

to the payment of CDA interest upon the grounds that appellant

> After this opinion had already been drafted finding that

$64,930.72 was the amount of outstanding payroll taxes owed by the INS,

Mr. Ginsburg credited the already paid taxes to appellant’s claim and

reduced the payroll! tax claim to the amount found due by the Board. This

concession came in appellant’s 7 submission to the Board attempting to

explain the pay: oll tax computation. Inexplicably, in his 6 prior submissions

Mr. Ginsburg had failed to credit the already paid taxes to the payroll tax

claim despite argument on the issue by the INS and inquiries by the Board.

Moreover, Mr. Ginsburg did not make this concession until his third

submission to the Board after the Board had issued an order directing

appellant to check the payroll tax calculations for accuracy and to explain

discrepancies. Appellant’s lack of diligence has resulted in an unnecessary

expenditure of time and effort by both the INS and the Board.

4

Appellant calculated interest through June 30, 2003.

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never performed any additional work pursuant to the contracts

nor advanced any of its own money to satisfy the monetary sum

the Board found due appellant’s former employees and the

taxing authorities. Consequently, the INS contends that there is

nothing upon which interest accrued.

The interest provision of the CDA is a waiver of sovereign

immunity and must be strictly construed. Brookfield

Construction Co. v. United States, 661 F.2d 159 (Ct. Cl. 1981).

[*13] It provides that

interest on amounts found due contractors on claims

shall be paid to the contractors 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. Appellant contends that this provision is

“self-executing” without the Board’s “imprimatur.” Thus,

appellant argues that the Board should not examine the interest

provision of the CDA to determine whether, properly

interpreted, it applies in this instance.

The courts have previously addressed the applicability of

CDA interest to certain CDA claims. In Servidone Construction

Corp. v. United States 931 F.2d 860 (Fed. Cir. 1991), the

contractor submitted a certified claim for increased costs

incurred as a result of a differing site condition. The contracting

officer denied the claim and Servidone commenced an action

in the Claims Court. The court awarded increased costs

- incurred by Servidone plus interest from the date the

contracting officer received the claim.

On appeal, the Government challenged the award of

interest on the total amount found due Servidone [*14] upon

the ground that, on the date the contracting officer received the

claim, Servidone had not yet incurred all of the costs the court

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found due. The Court of Appeals held that Servidone was

entitled to interest on the total amount found due accruing from

the date the contracting officer received the claim even though

Servidone had not then incurred some of those costs. The Court

explained that the legislative history of the CDA made clear

that Congress deliberately established “an objective bright-line

standard” for determining when interest should begin to accrue

so as to avoid confusion. /d. at 863. Accord, Caldera v. J. S.

Alberici Construction Company, 153 F.3d 1381, 1383 (Fed.

Cir. 1998).

In Raytheon Company v. White, 305 F.3d 1354 (Fed. Cir.

2002), the Court of Appeals addressed another issue concerning

the applicability of CDA interest. In that case, following the

termination of a contract, Raytheon filed a claim seeking to

increase the total contract price as a result of changes to provide

a basis for a later termination claim. The contracting officer

issued a decision granting the [*15] claim in part and denying

it in part. An appeal to a board of contract appeals followed.

One of the matters decided by the board was the amount of

prospective costs to complete the contract had it not been

terminated. However, although the board awarded interest on

the amount found due Raytheon for costs incurred, it did not

award interest on the amount determined as prospective costs

to complete. Raytheon appealed the adverse portion of the

board’s decision.

On appeal, Raytheon argued that the board’s failure to

award interest on the prospective costs contradicied Servidone

Construction Corp. v. United States, supra, and Caldera v. J.

S. Alberici Construction Co, supra. While the Court agreed

with Raytheon’s statement of the holdings in those cases it

distinguished Raytheon’s situation. The Court observed that in

both Servidone and J. S. Alberici

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the contractors completed their contracts and thus

actually incurred the costs upon which interest was

later awarded. We have never held that section 611

[of the CDA] permits interest to accrue on costs that,

because of the termination of the contract, were never

actually [*16] incurred by the contractor.

Raytheon Company v. White, 305 F.3d at 365. The Court

explained that the prospective costs to complete did not

constitute an amount found due Raytheon; rather, that sum was

determined only to help establish how much money, if any, was

due Raytheon for termination costs. Any amount ultimately

found due Raytheon as termination costs would be subject to

the interest provisions of section 611. In other words, the Court

held that section 611 of the CDA does not permit a contractor

to recover interest on money it never spent.

The decision in Raytheon is applicable to the facts of this

case. Here, an amount was not “found due” appellant upon

which interest could have accrued. The funds upon which

appellant seeks to collect interest were “found due” appellant’s

former employees and the Federal and state taxing authorities.

Appellant was not entitled to those funds in accordance with

the Service Contract Act clause of the contract. 48 C.F.R. §

52.222-41(k).

One purpose of the CDA interest provision is to

compensate contractors for advancing their own funds to

perform changed or extra work during contract performance:

The [*17] rights of Government contractors who

prevail on claims against the Government are unique

since they have been required by language of the

contract, for example, the changes article and the

disputes article, to perform the work directed by the

Government without stopping to litigate. Thus,

Government contractors must perform and then argue

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about the amount of the equitable adjustment at some

later time. Since the contractor has been compelled to

perform the work with its own money -- in the total

absence of contract payments or progress

payments—there can be no equitable adjustment to the

contractor until the contractor recovers the entire cost

of the additional work. The cost of money to finance

this additional work while pursuing the administrative

remedy, normally called interest, is a legitimate cost

of performing the additional work.

S. Rep. No. 95-118, at 32 (1978)

The legislative history of the CDA makes clear that the

interest provision was not intended to accrue on money not

spent by the contractor:

-

... we can make clear we are not intending to recover

interest on money that hasn't been spent. It is simple

justice that the contractor who has to remain working

[*18] rather than be free to leave, free to stop, but is

told to continue and file a claim later — if he spends

the money which ultimately turns out to be money for

which the Government is responsible and for which

the Government should be spendi’:g, part of the cost

is the cost of money.

So we are talking about the cost of money he used and

not any hypothetical interest. He either borrowed it or

used funds which were worth money because he

would have put them in something else that would

have given him a return, and he has been deprived of

that. And this is one cf the gross inequities of the

Government contract situation now, that a contractor

recovering 3 or 4 or 5 years later a large claim is

nowhere near made whole because the cost of money

has not been recognized.

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Contract Disputes: Hearings on H.R. 664 and Related Bills

Before the Subcommittee on Administrative Law and

Governmental Relation of the House Committee on the

Judiciary, 95th Cong., Ist Sess. 174 (1977) (emphasis added);

Accord pp. 159, 176.

In this case, there is nothing upon which interest could

accrue to appellant. Appellant did not advance its own funds to

pay the Guard II wages and associated payroll [* 19] taxes. The

Board’s award was not an amount found due appellant but was

_an amount found due appellant’s former employees and the

taxing authorities. The amount the Board found due was not

required to-be paid to appellant but was paid to an escrow

account for distribution. Thus we find that appellant is not

entitled to recover interest on the $636,818.72 in unpaid wages

owed to appellant’s employees or on the $64,930.70 in taxes

owed the Federal and state governments.

DECISION

The appeal is granted in part and denied in part. In addition

to the $636,818.72 already awarded, the INS is liable for

$64,930.70 for appellant’s unpaid payroll taxes. All other

elements of the claim, including CDA interest, are denied.

Eileen P. Fennessy

Deputy Chief Administrative Judge

Vice Chair

James L. Stern

Chief Administrative Judge

Chair

Jeri Kaylene Somers

Administrative Judge

Date: July 22, 2004

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APPENDIX C

UNPUBLISHED

United States Court of Appeals for the Federal Circuit

05-1085

RICHLIN SECURITY SERVICE COMPANY,

Appellant,

V.

MICHAEL CHERTOFF,

SECRETARY OF HOMELAND SECURITY,

Appellee.

April 21, 2006, Decided

April 21, 2006, Filed

OPINION: ORDER

A combined petition for panel rehearing and for rehearing en

banc having been filed by the Appellant, and the petition for

rehearing, having been referred to the panel that heard the

appeal, and thereafter the petition for rehearing en banc having

been referred to the circuit judges who are in regular active

service,

UPON CONSIDERATION THEREOF, it is

ORDERED that the petition for panel rehearing be, and the

same hereby is, DENIED and it is further

ORDERED that the petition for rehearing en banc be, and the

same hereby is, DENIED.

The mandate of the court will issue on April 28, 2006.

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APPENDIX D

Nash & Cibinic Report

March 2006

Disputes & Litigation

q¥ 13

INTEREST GN CLAIMS: A New Wrinkle

By Ralph C. Nash

The U.S. Court of Appeals for the Federal Circuit has just

cast a cloud over the interest provision of the Contract Disputes

Act, 41 USCA § 611, which provides that interest “on amounts

found due contractors on claims shall be paid to the contractor

from the date the contracting officer receives the claim.” In

Richlin Security Service Co. v. Chertoff, No. 05-1085, 2006

WL 224026 (Fed. Cir. Jan. 31, 2006) the court ruled that a

contractor could not recover interest on a successful claim

because it had not actually paid the claim. The contractor had

won its CDA claim for misclassification of its employees by

the Government under the Service Contract Act, 41 USCA §

351 et seq., resulting in a board decision that the Government

owed the contractor the back wages due the employees plus

applicable taxes. However, because of the poor financial

condition of the ¢ »ntractor, it was unable to pay the employees

and the Government had refused to pay in those circumstances.

The parties finally agreed that the Government would pay the

amount due into an escrow account and the escrow agent would

make the payments. The court concluded that in this

circumstance, the contractor was acting “merely as a conduit,”

which did not meet the test of 41 USCA § 611 that interest

must be paid on “amounts found due contractors on claims.”

The court did not discuss whether the term “amounts found due

contractors” had the plain meaning that it appears to have but

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instead relied on legislative history to reach its ruling. The court

stated:

As we have previously recognized, the legislative

history of section 61 1 establishes that in providing for

interest on CDA awards, “Congress was concerned

with fully compensating contractors for additional

costs incurred in a continuing performance under a

contract.” Fidelity Constr. Co. [v. U.S.], 700 F.2d

[1379] at 1384 [(Fed. Cir. 1983)]. The Senate Report

accompanying the bill that enacted section 611

explains

The rights of Government contractors

who prevail upon claims against the

Government are unique since they have been

required by language of the contract...to

perform the work directed by the

Government without stopping to litigate. . .

. Since the contractor has been compelled to

perform the work with its own money—in the

total absence of contract payments or

progress payments—there can be no equitable

adjustment to the contractor until the

contractor recovers the entire cost of the

additional work. The cost of money to

finance this additional work while pursuing

the administrative remedy, normally called

interest, is a legitimate cost of performing

the additional work.

S. Rep. No. 118, 95th Cong., 2d Sess. 32 (1978) (emphasis

added).

This ruling places a large cloud of uncertainty on § 611.

We know from Servidone Construction Corp. v. U.S.,931 F.2d

860 (Fed. Cir. 1991), that interest is due on costs incurred by a

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contractor later than the date a CDA claim is filed. See Jnterest

Under the Contract Disputes Act: It’s Not Related to the

Incurrence of Costs, 11 N&CR J 18. Presumably, this means

that the contractor could have recovered interest from the date

of filing the claim if it paid the back wages and taxes after the

final decision holding in its favor (years later). The decision

punishes the contractor for not having the financial resources

to do so.

What does this decision do to claims brought by a

contractor on behalf of a subcontractor? Generally, such claims

are based on the proposition that the contractor will only pay

the subcontractor if the contractor is successful on the claim. In

addition, most contractors probably don’t actually pay the

subcontractor until the money is received from the

Government. In such a circumstance, Richlin may deny them

interest on the claim. If the contractor pays the subcontractor

immediately after the contractor receives the winning decision

and receives the check from the Government a month later, will

interest then be owed for the full period specified in the statute?

In sum, we believe Richlin unnecessarily complicates the

issue. The plain meaning of the statute is that an amount was

found due to the contractor and the Government owed interest

on that amount. RCN