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Settlement Agreement Barred Government Recovery

A government claim seeking the return of allegedly improper payments was summarily denied by the Civilian Board of Contract Appeals because the parties executed a settlement agreement that resolved all outstanding contract issues. The dispute arose from a contract to provide sales and customer service staff to market furniture products manufactured by federal prisoners to government agencies. The payment terms called for a monthly commission based on the percentage of sales. Following the award, the parties executed a bilateral modification to cover the contractor's costs for hiring a sales force. The modification specified a start-up payment schedule for the first four months of performance in lieu of the monthly commission. The contractor performed the contract during the base period and a portion of an option period before the parties agreed to terminate the contract for the government's convenience. The termination settlement agreement stated the parties resolved all outstanding issues under the contract and mutually released each other from any liability related to the contract. The government subsequently sought to withhold payments due the contractor under the settlement agreement. The government sought recovery of the monthly payments made under the modification, arguing the modification was not supported by consideration as no "goods or services" were provided in return.
Clear Language

On appeal, the parties filed cross-motions for summary judgment on whether the settlement agreement precluded the government from recouping the amount it paid the contractor for start-up costs. According to the contractor, the parties resolved all outstanding issues in the settlement agreement, which contained mutual releases. The government argued the payments should be construed as unauthorized contract financing under FAR 32.001, or, alternatively, as fixed monthly fees paid for services not rendered, in violation of 31 USC 3324. The government asserted the parties did not discuss the payments during the settlement negotiation and the contracting officer lacked authority to compromise debts created by erroneous payments. However, the plain language of the settlement agreement provided its purpose was to terminate the contract and to define all liabilities and fees associated with the termination. This language clearly showed the parties intended to bring the contract to an end and to enumerate the outstanding obligations of the parties. If the government believed the contractor owed it for allegedly improper amounts paid to the contractor under the modification, it should have raised that issue during the negotiation of the termination settlement agreement. (Government Marketing Group v. Dept. of Justice , CBCA, 92,389)


(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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