Litigating against the United States can be costly, especially in construction disputes where extensive discovery and expert witnesses are the norm. Congress enacted the Equal Access to Justice Act (“EAJA”), 5 U.S.C. § 504 and 28 U.S.C. § 2412, in 1980 to diminish the deterrent effect of the cost of litigating against the United States. EAJA allows individuals, small businesses, and other entities who prevail against the federal government in judicial proceedings to recover certain costs and fees when the government’s position is not substantially justified. EAJA requires that the contractor meet certain size, net worth, and timing requirements to qualify for reimbursement. Further, the party seeking EAJA reimbursement must be the “prevailing party” and the government must fail to meet its burden of proving that its position was “substantially justified.” A recent decision by the Civilian Board of Contract Appeals shows that a contractor’s own behavior also affects EAJA recovery.
An EAJA application must include four things: (1) demonstration that the contractor prevailed; (2) proof that the contractor meets the net worth and size requirements of EAJA and is thus eligible for reimbursement; (3) the amount sought, including itemized statements from attorneys and/or expert witnesses showing the time spent and rate charged; and (4) an allegation that the government’s position was not substantially justified. A contractor must submit its EAJA application within 30 days of entry of final judgment.
First, the contractor must be the “prevailing party” in the action. A prevailing party is one who obtains some relief and whose legal relationship is materially altered with the government as a result of the action.
Second, the contractor must meet certain net worth or size requirements. Individuals with a net worth of no more than $2 million are eligible to recover under EAJA. Corporations with a net worth of no more than $7 million and no more than 500 employees are also eligible. Tax exempt organizations must have no more than 500 employees to qualify.
Third, an EAJA application must include the amount sought as well as itemized documentation of those costs. EAJA caps attorneys’ fees at $125 an hour, but courts have the discretion to make market adjustments to hourly rates. Even with that discretion, attorney hourly rates under EAJA remain significantly below actual attorney rates in many areas. Expert witness expenses may include the prevailing market rate, but cannot exceed the highest rate paid for an expert by the United States.
Finally, the tribunal must determine that the government’s position was not substantially justified. The government must prove that its position was clearly reasonable in view of the law and facts and that the government did not persist in pressing tenuous factual or legal positions. However, just because the party seeking EAJA fees is the prevailing party does not automatically make the government’s position not substantially justified. Instead, the tribunal will look to the entirety of the government’s conduct, including both litigation and prelitigation conduct, and the government’s overall position to determine whether it had a reasonable basis in law and fact.
A recent decision from the Civilian Board of Contract Appeals (“Board”) shows that when deciding an EAJA application a tribunal will look not just to the government’s position, but also to the contractor’s actions during litigation. In Hughes Group LLC v. Department of Veterans Affairs, CBCA 7857 (March 29, 2024), the Board partially granted the EAJA application submitted by the Hughes Group LLC (“Hughes”), but reduced recovery due to Hughes’ acts that protracted litigation.
After refusing to pay Hughes for several months during continued performance (and one day before the contract expiration date), the agency terminated Hughes’ contract for default in November 2017. The agency invited Hughes to participate in mediation six times between December 2017 and January 29, 2021, all of which Hughes rejected. Hughes later explained, on February 1, 2021, that the reason for rejecting mediation was based on its intention to revise and resubmit requests for equitable adjustment (“REA”) that, under the VA’s offer of settlement then on the table, would be barred.
On appeal before the Board, Hughes successfully challenged the termination for default, converting the termination into one for convenience. The Board found that the government’s position was not substantially justified. The government had breached the contract by refusing to pay Hughes for months and issuing a deficient termination notice that simultaneously directed Hughes to continue performing. The agency also issued a negative CPAR report for Hughes’ performance. On those facts, the Board determined that the VA could not justify its litigation position.
When considering the amount of fees due to Hughes, the Board considered whether Hughes’ conduct during litigation unreasonably protracted the dispute and warranted a reduction of its EAJA reimbursement. Hughes stated that it was hesitant to participate in mediation because the VA’s initial offer involved converting the default termination into a termination for convenience at no cost to the government. That settlement would have precluded Hughes from revising and submitting several REAs, which it made known to the VA on February 1, 2021. The Board held that once the VA made clear that it was willing to include those REAs in the termination settlement negotiations, Hughes’ refusal to mediate lost any merit. Further, Hughes continued to drive litigation costs by filing a motion for summary judgment that did not inform the Board’s decision, and continued to refuse to participate in mediation, despite knowing it could bring its REAs as part of the negotiation. The Board held that an unrestricted award of Hughes’ unnecessary costs and fees would be unjust, given that the litigation was protracted due to Hughes’ conduct, and instead decided to award a reduced amount.
Out of Hughes’ request of $157,733.62 in attorneys’ fees and expenses, the Board awarded $68,237.97, limiting the recovery of attorneys’ fees to those incurred between November 3, 2017 (the date of the contracting officer’s final decision terminating the contract) and February 1, 2021 (the date Hughes became aware that its anti-mediation stance lacked merit). Further, the Board removed all attorneys’ fees related to: (a) Hughes’ motion for summary judgment; (b) “catching up” entries after periods of dormancy; (c) change orders; (d) CPAR reports; and (e) discussions about other irrelevant contracts.
EAJA can take some of the sting out of litigating against the government. But the Hughes case highlights that contractors should pursue litigation in a way that paints them in a favorable light, ensuring that they can maximize their recovery to the fullest extent possible.
The author acknowledges and appreciates the significant contributions of Smith, Currie Oles legal intern Cortland Walton, in developing this article.
Smith Currie Oles provides comprehensive legal services to all parts of the construction industry across the nation. Smith Currie lawyers have decades of demonstrated success representing construction and federal government contracting clients “From the Ground Up,” including procurement matters, contract formation and negotiation, project administration, claims prosecution and, when necessary, in litigation and other forms of dispute resolution.
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