Takeaways

The Court of Federal Claims must determine liability on government counterclaims of fraud within six years of the alleged fraud’s occurrence.
The clock starts running on the six-year statute of limitations when the fraud allegedly occurs, not when the government discovers it.

Contractors often face the dilemma of whether they should appeal an adverse contracting officer final decision (COFD) issued under the Contract Disputes Act (CDA) to the cognizant Board of Contract Appeals or the Court of Federal Claims. One factor favoring the Boards is that the Court has jurisdiction over fraud counterclaims and the Boards do not. The Department of Justice (DOJ) (which represents the government at the Court) has asserted such fraud counterclaims with more regularity in recent years.  Contractors should know that when the government asserts a fraud counterclaim, the Court’s decision in Lodge Constr., Inc. v. United States, No. 13-499, 2021 WL 1418847 (Fed. Cl. Apr. 14, 2021), makes clear that the government must adhere to a hard deadline--perhaps with no exceptions.

In Lodge Constr., the Army Corps of Engineers (the Corps) awarded the contractor a fixed price contract to rehabilitate a levee in Florida. The contract required the contractor to submit a design premised on the Corps’ site inspection results. The Corps accepted the contractor’s design and the contractor proceeded with its performance. The contractor’s design eventually failed. The Corps then retroactively rejected the contractor’s design and requested that the contractor submit a new design. The contractor submitted a certified claim in 2012 challenging the rejection. After the contractor failed to produce a new design by the Corps’ deadline, the Corps terminated the contract for default.

The contractor filed an appeal at the Court. In 2017, a few years into the litigation, the government amended its answer to assert counterclaims alleging fraud for false delay costs, double-billing, and improper pass-through claims of a subcontractor. The parties filed cross motions for summary judgment with respect to the fraud counterclaims. 

The CDA requires that claims of fraud “be determined within 6 years of the commission of the misrepresentation of fact or fraud.” 41 U.S.C. § 7103(c)(2). The government argued that this language imposed a requirement on the government to both (1) determine whether or not fraud exists, and (2) file its counterclaim within six years. The government also argued that the Court should apply the “discovery rule” to the analysis—and thereby start the limitations period on the date the government discovered the misconduct rather than on the date the misconduct occurred. In rebuttal, the contractor argued that the plain language of the CDA requires the government to discover, plead, and reach a successful resolution of its fraud counterclaims within six years. Accordingly, since the alleged fraud occurred in 2012, the government’s fraud counterclaims were barred because the Court had not ruled on them in the government’s favor by 2018. 

Adopting the contractor’s interpretation, the Court held the government’s counterclaims were barred because the Court had not made a determination of fraud within six years of the alleged occurrence. The Court noted that the DOJ “may allege, claim, or assert liability, but only courts ‘determine’ liability. Otherwise . . . there would be no need for court adjudication of the matter.” With respect to the government’s argument that the limitations period began only on the day of its discovery of the alleged fraud (2017), the Court relied on a U.S. Supreme Court case that held the “discovery rule” does not apply to civil penalty enforcement actions. Since the Federal Circuit has described the monetary judgment awarded pursuant to the CDA’s anti-fraud provision as a “penalty,” the Court held that the limitations period begins when the fraud occurs, not when the government discovers it.

The Court’s decision underscores that the Boards and the Court strictly enforce the plain language of the CDA’s statute of limitations, whether the results disturb their interests or the contractor’s.

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