Some companies locked in litigation with the federal government have found a 1980 law to be a bonanza, but a recent ruling from the Federal Circuit Court of Appeals severly limits the usefulness of the statute for government contractors.
The law, the Equal Access to Justice Act, lets companies shift to the Treasury their lawyers' bills when they beat the government in a court battle. Related costs of winning--such as expert-witness fees and economic or engineering analyses--also can be repaid.
The rub for government contractors is that they have to go to court to take advantage of the law, according to the new appellate ruling. In fact, most disputes between the government and those who do business with it are settled out of court by contract appeals boards within the individual agencies.
These boards routinely hear requests from companies that, because of increases in component prices or other unforseeable expenses, they should get more for fulfilling a government contract than the price originally agreed upon.
The situation that brought on the new ruling is typical: Fidelity Construction Co. contracted with the Federal Aviation Administration to put in a new signal light system at Bradley International Airport (serving Hartford, Conn.) for $176,999.99.
Both parties knew that was merely an estimate, since 13 of the 20 items making up the final bid were merely guesses about the quantity that finally would be needed on the job.
Fidelity later asked for more than $300,000 for the work, and the contract appeals board at the Department of Transportation agreed that the construction firm had the money coming.
That victory may have cost Fidelity money, because its attempt to invoke the Equal Access to Justice Act to get paid for the expense of the appeal was turned back by the circuit court. "We hold that the board of contract appeals is without jurisdiction to award fees under this act," Judge Philip Nichols Jr. said flatly.
The irony is, had Fidelity lost before the board, it might later have gotten the government to pay the costs of that proceeding. That would have happened had it then taken the dispute to court and won there.
That's the case, Nichols said, because the way the judges read the statute, "the court may award fees for service before a board only when it also awards fees for service before itself."
Maurice J. Mountain, Fidelity's lawyer, argued that such a policy--making winners lose and holding out the hope that losers can win--makes so little sense that it could not conceiveably be what Congress meant in writing the 1980 law.
But the circuit court notes that the law does not mention contract appeals boards when it outlines who can stick the government with the other side's legal bills, and so there's no way for judges to read them into the statute.
Besides, the anomoly is not totally senseless: "It is at least possible," Nichols mused, "that Congress wrote this provision in this manner in order to deter the government from appealing board decisions adverse to it."
Even though the government won in the Fidelity Construction case on the issue of lawyers' fees, it is not ready to concede that the usual appeals route for contract disputes can lead to a demand for it to pick up the other party's costs if the claim is upheld. That's because the Justice Department thinks that the new Claims Court, which came into existence last October, does not have authority to award fees under the equal access law.
That issue has yet to be litigated, and the court in the Fidelity case was careful to leave that controversy to another day.
The authority to award fees, of course, does not translate automatically into an award of fees. The law applies only to small companies, although its definition of a small company--one with a net worth of less than $5 million--includes most businesses. More importantly, the law tells judges not to make the government pay up if doing so would be unfair, or if the government's position in the litigation was "substantially justified," even if it finally proved unsuccessful. Justice has racked up a fair amount of success in using those exceptions to fight off demands on the Treasury.
The Administrative Office of the U.S. Courts is going to report on how the fee-shifting law is working each June 30. Its first report covers only nine months, since the statute went into effect Oct. 1, 1981. Thirty cases were disposed of in that time, and in 17 of them, the government got out of paying. Most often Justice attorneys persuaded the judges that their position in the litigation was "substantially justified," but the fairness loophole come into play, too. One court turned down the bid for lawyers' fees because it had taken too long in settling the case; had it worked more efficiently, the court decided, it would have gotten rid of the case before the new law went into effect.
But for those litigants who got the government to pay their bills, the awards were worth the efforts. On the average, the judges set the figures at 89.4 percent of the amount the parties asked for--a very high ratio. And at least some of the dollar amounts are impressive: In one case against the Defense Department, they came to $200,000, and in one complex case involving three cabinet departments and one independent regulatory agency, the government was told to pay $435,999 for lawyers and related expenses.
The awards in less complicated cases came to a lot less--one was just $5,901--but in all it is a lucrative enough pot for government contractors to be distressed that it's now so hard for them to tap into it.