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CFC Lacked Jurisdiction to Consider Surety's Claims



The Court of Appeals for the Federal Circuit reversed a Court of Federal Claims decision considering a surety's damages claims because the CFC did not have jurisdiction over an impairment of suretyship claim, and the Contract Disputes Act's jurisdictional prerequisites applied to a claim arising from a takeover agreement. The Federal Circuit ruled on two CFC decisions addressing the payment and performance bond surety's claims for alleged excess progress payments under a contract to repair and renovate military housing units and claims related to liquidated damages assessed under a takeover agreement. The court first affirmed the CFC's dismissal of the surety's equitable subrogation claim (49 CCF 78,452), agreeing the theory did not apply because the government made the progress payments before receiving notice of the impending default. However, the CFC subsequently held the government liable for impairment of suretyship damages on grounds progress payments in violation of contractual and Federal Acquisition Regulation provisions modified the contract and increased the surety's risk (54 CCF 79,221). In the same decision, the CFC also rejected the government's contention the takeover agreement was a procurement contract for purposes of the CDA.

Impairment of Suretyship


With regard to the impairment of suretyship claim, the Federal Circuit noted the surety did not assert the theory as a defense to a government claim under a bond, but as an affirmative cause of action based on the view the surety paid more than it owed and the government was unjustly enriched. Such a cause of action was based on noncontractual rights arising under state equitable principles or, at most, an implied-in-law contract theory to which the Tucker Act's waiver of sovereign immunity does not extend. Thus, if a surety concludes the government has improperly impaired its collateral, its remedy is to withhold payment on the bond --once a surety makes overpayments on its bond obligation, it has no right to recover against the government.

Takeover Agreement


The Federal Circuit also disagreed with the CFC's CDA analysis, finding the takeover agreement clearly was a contract for "the procurement of construction, alteration, repair or maintenance of real property." In addition, the surety entered the agreement as a "contractor," which the CDA defines as "a party to a [g]overnment contract other than the [g]overnment." Even though the agreement referred to "the [s]urety," it expressly incorporated the provisions of the defaulted contract and made clear the surety was bound to complete the defaulted contract by assuming the role of a prime contractor. The CFC therefore lacked jurisdiction over the takeover claim because the surety failed to submit a certified claim to the contracting officer. (Lumbermens Mutual Casualty Co. v. U.S., CA-FC, 55 CCF 79,632)


















































































































 






 

 

(The news featured above is a selection from the news covered in the Government Contracts Report Letter, which is published weekly and distributed to subscribers of the Government Contracts Reporter. )

     
  
 

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