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  • Writer's pictureDick Lieberman,Consultant

Don't Make the Mistake of Thinking a Claim Must Include All Costs Incurred to be Valid

Duncan Aviation sought $1.6 million for “over and above” costs incurred in connection with a Navy contract to overhaul landing gear systems for T-34 and T-44 aircraft. Over and above work were those items that were “ ‘over and above’ the requirements of the contract and for which the contractor recommended corrective action” In other words, these costs are classic requests for equitable adjustment (“REA”), and Duncan eventually submitted them as a $1.6 million certified claim to the Navy. However, Duncan did not include any labor costs or markups or fees on the parts or labor for installing the additional parts.

The Navy refused to issue a final decision on Duncan’s claim, asserting that the Board lacked jurisdiction because the claim certification was invalid (the Board held the certification was valid) and also arguing that the claim was invalid because Duncan did not seek recovery of all its costs.

The Board did short work on the Navy’s “failure to seek all costs in its claim argument.” It simply stated this argument was “without merit [because there is no] requirement in the Contract Disputes Act or the FAR that a contractor seek all possible costs in a claim in order for this Board to exercise jurisdiction. The Board noted the following statement from Duncan:

The Navy asserts that Duncan’s claim is not “proper” because Duncan could have requested additional costs in its claim but did not do so. Duncan, in its REA of June 1, 2009... did not seek reimbursement of direct labor costs, indirect costs or profit. Duncan decided to only request an equitable adjustment for direct material costs because the vast majority of the costs to which Duncan is entitled are direct material costs. The Navy would have the Board impose a requirement that a claim is only “proper” if it seeks all costs to which the company is entitled in an equitable adjustment. In effect, the Navy is asserting that since Duncan did not ask for reimbursement for all the costs that it was entitled to recover, it is not entitled to recover anything.

TIPS: You may ask for all, or only a part of your equitable adjustment claim, and the Board will consider that part. All other requirements of the Contract Disputes Act (specificity, submission requirements, and certification) continue to apply.

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