Stormy Skies: Internal Audit Delays
Contractors are getting tangled up in the perfect storm of red tape and agency personnel changes. The U.S. Government already struggles to cut through bureaucratic procedures even on its best day. When combined with agency personnel turnover from 2025 DOGE retirements, cuts, and firings, many contractors are waiting months or years to be paid for work already performed. After a Termination for Convenience (“T4C”) contractors submit a Termination Settlement Proposal (“TSP”) documenting costs incurred and associated with wrapping up the contract.
When short staffed agencies meet internal red tape it can leave totally blameless contractors adrift in a sea of uncertainty. In some cases, contractors have even had their TSP costs approved by an agency approved outside auditor. Still the agency tells them the TSP has to go through opaque internal reviews with no communicated deadline. The contractor waits. . . and waits. But payment still does not arrive.
Charting a Course out of the Storm
How should contractors navigate out of this perfect storm? One option is to declare that the negotiations have reached an “impasse” and submit a request for a final decision.[1] This means heading down the path towards litigation. That sounds very adversarial and expensive to most contractors. The good news is that declaring impasse can cut through some of the red tape associated with internal reviews. In many cases, escalating the TSP to the level of a claim can force the agency to act within statutory timelines. This might mean that your claim is suddenly resolved after months or years of waiting with no certain date for resolution.
Even if the agency does not approve and pay after declaring impasse and filing a claim, contractors aren’t stuck. Appealing a final decision denying or failing to respond to a claim means pushing the decision making to the Department of Justice (“DOJ”). The DOJ can settle claims through the judgment fund. This offers an off-ramp before full litigation. If all else fails, the contractor can pursue payment by litigating a simple claim focused on the amount disputed without getting bogged down in expensive questions of entitlement.
Negotiating the Storm
In normal circumstances when a contractor believes they are owed money during or after performance of a contract they can issue a Request for Equitable Adjustment (“REA”) to try to negotiate with the agency over delays or a change to the contract. If that fails, contractors often file a Certified Claim (“Claim”). Contractors may be familiar with this process, which is based on the requirements in the Contracts Disputes Act (“CDA”).
When a contract is terminated for the convenience of the government, the process is different. A TSP is considered somewhat analogous to an REA because it can be negotiated between the contractor and the agency. So long as negotiations are proceeding: meetings being held, offers and counter-offers being made, there is no obligation for the government to issue a final decision and resolve the REA. A TSP is the same. The agency can review it for two decades if they wish to do so with no practical mechanism preventing this outcome.
That’s why, when negotiations break down or the government is not being responsive in providing a timeline for resolution, contractors should consider converting their TSP into a Claim. The benefit is that the CDA statutory deadlines kick in and start a clock on the agency’s response. It also allows the contractor to appeal a final decision (or lack thereof) to the Board of Contract Appeal or the Court of Federal Claims (“COFC”).
How to Pursue an Impasse Claim
Contractors need to turn their TSP into a claim. Luckily the work is mostly done. The costs in the TSP are certain and the contractor only needs to say that they believe the negotiations over the TSP have reached an impasse. In other words, no progress has been made for a period of time. Contractors should be careful to include in their written request the Federal Acquisition Regulation 33.207 (“FAR”) required certification.[2] Many TSP Claims are denied because the contractor did not carefully convert it into a claim with the required language.[3] Contractors should also make sure that once they submit a written request for a final decision they do not continue to negotiate the TSP.[4]
When that point is reached contractors should tell the government that they want a final decision because negotiations are not progressing. The agency must respond within 60 days under the CDA or provide a reasonable date in the near future that they will render the decision. This is what is called a Contracting Officer’s Final Decision (“COFD”).
Here the best possible result is that the agency realizes that it is on a clock and that the contractor’s Claim has merit. In this situation, the agency can simply pay the contractor what it is owed. Alternatively, the agency can deny part or all of the Claim.
Let’s assume that the agency ignores the request for a COFD. Contractors can consider non-responsiveness by the agency to be a “deemed denial.” A deemed denial is the equivalent to a COFD that denies the entire Claim.[5] The agency cannot get away with uncertain deadlines and it cannot make the COFD contingent on completion of, for instance, an internal audit.[6]
In either case, the contractor can then proceed to litigation. That means under the CDA drafting a complaint alleging that the government owes the contractor a certain amount of money. Contractors can file at the Armed Services or Civilian Board of Contract Appeals (“ASBCA” or “CBCA”). Contractors can also take the appeal to COFC.
Settlement and Litigation
If the contractor is forced to litigate the case, the only consolation is that there is still one off-ramp. If appealing to COFC, the DOJ has ultimate settlement authority and can access the Judgment Fund, which is a separate fund from agency appropriated dollars. This has multiple benefits over litigating at the ASBCA or CBCA. The first is that the DOJ is uninterested in whatever acrimonious history may exist between the contractor and the agency. The DOJ can move to settle with the contractor using Judgment Fund dollars that aren’t tied to the agency’s budget. In the current climate, DOJ attorneys are over-worked and disposed towards settling to avoid litigating.
In the worst case scenario, the contractor is forced to litigate over its TSP costs. The silver lining is that with most claims there are often significant disputes that revolve around whether the contractor is even entitled to any dollars at all. That usually is not the case with a TSP. Typically the only question in this kind of litigation would be the exact dollar figure that the contractor is entitled to as a result of a T4C. This makes the litigation much less costly.
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Byline: David Timm
David is a Senior Associate with Burr & Forman, LLP. He helps contractors when their work with the Government goes wrong. His practice is focused on procurement litigation. David is the Chair of the Bid Protest Committee for the Federal Bar Association’s Government Contracts Section.
Burr & Forman recently expanded its government contracting and construction law practice. More info here.
[1] James M. Ellett Const. Co., Inc. v. U.S., 93 F.3d 1537, 1542 (Fed. Cir. 1996).
[2] HDR Marine, LLC v. United States, No. 3:23-CV-00062-JMK, 2024 WL 263094, at *4 (D. Alaska Jan. 24, 2024). Note that while the Boards of Contract Appeals and COFC have jurisdiction over most CDA claims, the federal courts have jurisdiction over maritime disputes under the Suits in Admiralty Act, 46 U.S.C. § 30901 et seq.
[3] The required certification language is: “I certify that the claim is made in good faith; that the supporting data are accurate and complete to the best of my knowledge and belief; that the amount requested accurately reflects the contract adjustment for which the contractor believes the Government is liable; and that I am duly authorized to certify the claim on behalf of the contractor.”
[4] Rex Sys., Inc. v. Cohen, 224 F.3d 1367, 1373 (Fed. Cir. 2000).
[5] The Contracting Officer must give a certain date in the future if it will not respond within 60 days. See e.g., Cubic Defense Applications, Inc., ASBCA No. 56097, 07-2 BCA ¶ 33,695.
[6] Inter-Con Security Systems, Inc., ASBCA No. 45749, 93-3 BCA ¶ 26,062.