The Latest Clue to Solving the Maropakis Riddle: The Affirmative Defense of Offset
When must a party’s “defense” be asserted as a Contract Disputes Act (CDA) claim in order to raise that defense before a Court of Federal Claims or Board of Contract Appeals proceeding?
In Kansas City Power & Light Co. v. United States, the Court of Federal Claims moves us one step closer to solving this peculiar government contracts riddle called Maropakis. In this decision, the court held that the government’s affirmative defense of offset was not a claim under the CDA, and therefore, did not need to be asserted through a contracting officer final decision before it could be raised before the court. This decision is important because it further limits the applicability of the Maropakis doctrine and reinforces that Maropakis only applies to “defenses” that seek payment of money or the adjustment/interpretation of contract terms.
The Maropakis Puzzle
The Contract Disputes Act (CDA) permits a contractor to appeal a contracting officer’s final decision – that asserts a government claim or denies a contractor claim – to the Court of Federal Claims or the Boards of Contract Appeals. Stated in another way, the claim and final decision are jurisdictional prerequisites to court and board proceedings. So what happens when a party raises a “defense” during a court or board proceeding that could be construed as a CDA claim, but which was never the subject of a final decision?
In M. Maropakis Carpentry, Inc. v. United States, 609 F.3d 1323 (Fed. Cir. 2010), the Federal Circuit confronted this issue. There, Maropakis (the contractor) countered the government’s liquidated damages assessment by asserting a “factual defense” based on excusable delay. Maropakis argued that it could raise this defense without first submitting a claim and obtaining a final decision because the “CDA requirements that would otherwise apply to Maropakis’s affirmative claim for entitlement to time extensions no longer apply” to a defense. The Federal Circuit rejected this argument, finding that the contractor’s so-called defense was actually an affirmative contractor claim: a party “seeking an adjustment of contract terms must meet the jurisdictional requirements and procedural prerequisites of the [CDA], whether asserting the claim against the government as an affirmative claim or as a defense to a government claim.” Despite a spirited dissent, the Federal Circuit affirmed that Court of Federal Claims lacked jurisdiction to entertain such a “defense.”
In the wake of Maropakis, commenters and courts alike have routinely asked: when is a defense really a claim? For example, two years ago, the Court of Federal Claims concluded that Maropakis did not apply when a contractor challenged the facts underlying a government claim. See Total Engineering, Inc. v. United States, 120 Fed. Cl. 10, 14-16 (2015). Last year, the Civilian Board of Contract Appeals explained that defenses which do not seek “monetary relief” nor “any separate contract adjustment” do not require prior submission to the contracting officer. See Jane Mobley Associates, Inc. v. General Services Administration, CBCA No. 2878, 2016 WL 73878 (Jan. 5, 2016). In fact, the Federal Circuit also has repeatedly weighed-in on this question and related issues by issuing a number of decisions clarifying the margins. In Laguna Construction, the Federal Circuit noted that the government’s assertion of fraud as an affirmative defense was not a claim because it “plainly does not seek the payment of money or the adjustment or interpretation of contract terms.” Laguna Constr. Co., Inc. v. Carter, 828 F.3d 1364, 1368 (Fed. Cir. 2016). And in Raytheon, the Federal Circuit confirmed that the Maropakis rule applied to contractors and the government alike. Raytheon v. Co. v. United States, 747 F.3d 1341 (Fed. Cir. 2014).
The Latest Piece: Kansas City Power & Light
In Kansas City Power & Light, KCP&L filed a claim for indemnification under the CDA seeking the cost of settling a wrongful death suit that occurred on government-owned property. The contracting officer denied KCP&L’s claim and a lawsuit followed. In response to KCP&L’s complaint, the government asserted a number of affirmative defenses, including offset. Specifically, the government argued that KCP&L’s claim should be offset by the insurance money it received.
Because the offset defense was not raised by the government in the contracting officer final decision, KCP&L argued that the court lacked jurisdiction to review the defense, relying on Maropakis and its progeny. The court quickly rejected this argument. In the court’s view, the defense of offset did not fall within the definition of a CDA claim, i.e., an offset “is not an independent request for money ‘in a sum certain,’ the adjustment or interpretation of one of the electrical utility services’ contract’s terms, or other relief arising under the contract.” The court described an offset merely as a “defense that seeks to apply a monetary offset to a claim for reimbursement of monies previously paid.” Thus, the offset defense was not a “claim” and the government was not required first to assert it through a contracting officer final decision.
First, this decision concludes that the affirmative defense of offset is not subject to the Maropakis rule. As a result, parties should be able to raise this affirmative defense during a board or court proceeding without first having to obtain a contracting officer final decision on the offset. (Practitioner’s Note: This affirmative defense of offset is different than a government “set-off” claim. E.g., Placeway Constr. Co. v. United States, 920 F.2d 903 Fed. Cir. 1990).)
Second, and more importantly, this decision confirms the growing trend of decisions that limit the Maropakis doctrine to defenses that seek payment of money or the adjustment/ interpretation of contract terms.
Finally, despite this added clarity, contractors must remain vigilant when assessing whether Maropakis requires submission of “defenses” to the contracting officer prior to raising them before the court or board. A miscalculation in this regard could result in a viable defense being denied as time barred caused by jurisdictional delays. Because of these grave consequences, contractors should proceed cautiously when making this assessment, and should not attempt to package claims as defenses merely to avoid CDA requirements.
As the complete answer to Maropakis puzzle becomes clearer (or fuzzier), we will continue to provide updates on new developments.