On March 2, 2012, the United States Court of Appeals for the Federal Circuit dismissed an appeal by The Minesen Company (“Minesen”) from a decision of the Armed Services Board of Contract Appeals (“ASBCA”) because “Minesen voluntarily waived its right to appeal to [the Federal Circuit] under its negotiated contract with the Fund [(United States Army’s Morale, Welfare, and Recreation Fund)].” This case has important implications for government contractors with respect to negotiating contracts with the federal government and appealing decisions of contracting officers pursuant to the Contract Disputes Act of 1978 (“CDA”), 41 U.S.C. § 7101 et seq., which provides procedures for handling claims related to federal government contracts.
Minesen and the Fund executed a contract, whereby Minesen constructed and operated a “transient lodging facility” that became known as the Inn at Schofield Barracks (“the Inn”). After a contractual dispute between Minesen and the Fund arose, Minesen filed claims for multiple breaches of contract with the Contracting Officer (“CO”), all of which were denied. Minesen then appealed to the ASBCA, and the ASBCA concluded that the Fund had breached the parties’ contract and that Minesen was entitled to damages. However, the ASBCA denied a separate breach of contract claim, and Minesen appealed that decision to the Federal Circuit.
In the Federal Circuit, the Fund argued that the court could not decide the merits of the appeal for two reasons: (1) the Federal Circuit lacked statutory jurisdiction under the CDA because the Fund is a nonappropriated fund instrumentality (“NAFI”)—an entity whose money comes from its own activities, services, and products, rather than from congressional appropriation; and (2) Minesen waived any right to appeal to the Federal Circuit in its contract with the Fund, which stated that ASBCA decisions “are final and are not subject to further appeal.”
In a 2-to-1 decision, the majority refused to decide whether the court had statutory jurisdiction under the CDA because it concluded that Minesen contractually waived its right to appeal to the Federal Circuit. The majority explained that enforcement of the waiver provision in the contract would advance the purpose of the CDA to encourage quick resolution of disputes through the agency boards of contract appeals. Although parties to a contract may not waive review of CO decisions, they may waive appellate review of ASBCA decisions to the Federal Circuit because “the ASBCA is a neutral tribunal.”
In contrast, the dissent concluded that Minesen could not waive its right to appellate review and that the Federal Circuit had statutory jurisdiction to hear Minesen’s claim against the Fund. The dissent explained that the contractual waiver of Federal Circuit review is unenforceable because it “conflicts with the CDA.” In Furash & Co. v. United States, 252 F.3d 1336 (Fed. Cir. 2001) (“Furash”), the Federal Circuit held that it lacks jurisdiction under the CDA to hear contract claims against NAFIs. Nevertheless, Slattery v. United States, 635 F.3d 1298 (Fed. Cir. 2011) (en banc) held that the Tucker Act provides jurisdiction over claims against NAFIs, and Minesen argued that the jurisdictional analysis in Slattery is equally applicable to the CDA. In accordance with the reasoning of the court in Slattery, the dissent found that the Federal Circuit has jurisdiction over contract claims against NAFIs under the CDA because the CDA applies to “‘any express or implied contract . . . made by an executive agency,’ irrespective of the source of funds used to carry out the contract.”
Implications for government contractors
This case has several important implications for government contractors with respect to negotiating contracts with the federal government and appealing contract disputes from final CO decisions. First, government contractors must be mindful of contract provisions that purport to waive appellate review of decisions of the agency boards of contract appeals.
Second, government contractors must carefully weigh the costs and benefits of different appeal forums available under the CDA before appealing CO decisions. Irrespective of its contract with the Fund, Minesen could have come before the Federal Circuit on appeal if it had appealed the CO’s decision to the Court of Federal Claims, pursuant to 41 U.S.C. § 7104(b), and received an unfavorable decision from that court. Instead, Minesen chose to appeal to the ASBCA, even though it had contractually waived its right to appeal a decision of the ASBCA to the Federal Circuit. Accordingly, government contractors that have similar waiver provisions in their contracts must exercise the more time-consuming and expensive review process of the Court of Federal Claims if they wish to preserve the option of appellate review in the Federal Circuit.
Third, and consistent with the dissent’s interpretation of the holding in Slattery, government contractors may be able to seek judicial review of contract claims against NAFIs in the future by claiming statutory jurisdiction under the CDA. Until Slattery, judicial review for such claims was foreclosed by the Federal Circuit’s decision in Furash. The dissent’s conclusion that Slattery “applies equally to claims brought under [the CDA],” although not binding in future cases, indicates that this jurisdictional issue is ripe for reconsideration by the Federal Circuit.