The Contract Disputes Act allows contractors seeking payment of
a claim arising from a contract with the federal government six
years from the date it accrued to submit the claim to the
contracting officer. Failure to do so will result in the claim
being rejected as untimely. Recently, the U.S. Court of Appeals for
the Federal Circuit was presented with a factually complex claim
scenario and used the opportunity to clarify when a claim is deemed
to have accrued. In Triple Canopy, Inc. v. Secretary of the Air
Force, 14 F.4th 1332 (Fed. Cir. 2021), the federal circuit
found the contractor’s claims for reimbursement of a foreign
government’s financial penalty accrued within six years of
submittal and were therefore timely.
Contractor’s Claims
Triple Canopy is a private security company. Its claims arose
out of six fixed-price contracts for security services that Triple
Canopy performed for the Department of Defense in Afghanistan. Each
of the contracts required the contractor to comply with local law
and incorporated FAR 52.229-6, Taxes—Foreign Fixed-Price
Contracts (“Foreign Tax Clause”). This clause provides in
relevant part that “the contract price shall be increased by
the amount of any after-imposed tax or of any tax or duty
specifically excluded from the contract price by a provision of
this contract that the Contractor is required to pay or
bear…”. The clause further requires in paragraph (i) that
the contractor must “take all reasonable action to obtain
exemption from or refund of any taxes or duties…”.
In February 2008, the Government of the Islamic Republic of
Afghanistan issued a directive reciting that the number of staff of
each private security company shall not be more than 500 people,
unless the Council of Ministers agrees to an increased number of
staff. This regulation did not provide for the imposition of any
fees or penalties on private security companies operating in
Afghanistan that exceeded the 500-person limit.
On August 13, 2010, the contracting officer, on behalf of the
DOD, sent a letter to the Afghan government informing it that
Triple Canopy’s staffing requirement in support of U.S.
military contracts would exceed 500 personnel. The letter requested
an exception from the maximum on allowable security staff. On
August 16, 2010, Triple Canopy submitted this letter to the Afghan
government in support of its request that it issue a formal
exemption as to the 500-person limit.
On March 15, 2011, the Afghan government issued a further
directive requiring that all private security companies operating
in Afghanistan pay a fee for each person over the 500-employee
ceiling and a higher fee for each foreign national working without
an Afghan visa. The Afghan government implemented this directive on
March 24, 2011 by assessing penalties for each individual Triple
Canopy employed over the 500-person limit. It instructed Triple
Canopy to pay the assessment within 15 days but also informed the
contractor that if it objected to the assessment, it could provide
its reasoning in writing within two weeks.
On March 27 and 28, 2011, the DOD again sent letters to the
Afghan government requesting that Triple Canopy be exempted from
the 500-person limit “to ensure there is no disruption to
Afghanistan’s reconstruction process.” Triple Canopy
formally appealed the assessment on April 8, 2011. Shortly
thereafter, on April 21, 2011, Triple Canopy informed the
contracting officer that it would submit requests for equitable
adjustments if its appeal of the March 24 assessment was
denied.
On July 6, 2011, the Afghan government sent a letter to Triple
Canopy reducing the total penalty assessed in its March 24 letter.
Within two weeks, on July 18 and 20, 2011, Triple Canopy paid the
reduced assessment.
Fast-forwarding several years, on June 6, 2017, within six years
of both the Afghan government’s letter of July 6, 2011, and
Triple Canopy’s payment of the reduced assessment on July 18
and 20, 2011, Triple Canopy submitted claims to the contracting
officer under each of its six contracts. These claims sought
reimbursement for the reduced penalty it had paid to the Afghan
government. The contracting officer did not decide these claims and
so they were deemed denied. Triple Canopy appealed the denial to
the Armed Services Board of Contract Appeals (ASBCA).
Appeal to ASBCA
The ASBCA denied Triple Canopy’s appeal on the grounds that
the asserted claims were time-barred because they were not
submitted to the contracting officer within six years of the date
they accrued. Accrual of a claim is defined by FAR 33.201, which
states that a claim is deemed to accrue —
…when all events that fix the alleged liability of either
the Government or the contractor and permit assertion of the claim,
were known or should have been known. For liability to be fixed,
some injury must have occurred. However, monetary damages need not
have been incurred.
Noting that there was “no dispute that the Afghan
government demanded payment of the assessment on March 24,
2011,” the board reasoned that Triple Canopy knew it was
obligated to pay the assessment when it received the Afghan demand
letter on March 24, 2011. Thus, in the board’s view, the claims
accrued on March 24, 2011, more than six years before they were
submitted to the contracting officer on June 6, 2017.
In its ruling, the board rejected Triple Canopy’s argument
that its claims did not accrue until it paid the reduced penalty on
July 18 and 20, 2011. Rather, the board agreed with the U.S.
government that Triple Canopy’s obligation to pay the penalty
was fixed on March 24, 2011, when the Afghan government assessed
the penalty. The board stated that once Triple Canopy became
legally obligated to pay the assessment, the costs were incurred.
The fact that the final amount could change did not matter, nor did
the fact that actual payment had not yet occurred.
The board also rejected Triple Canopy’s argument that its
claims under the contracts did not accrue until it exhausted its
appeal because it was required to seek an exemption to the penalty
under paragraph (i) of the Foreign Tax Clause. According to the
board, the process of appealing the assessment levied on Triple
Canopy was not mandatory, but was rather an optional process Triple
Canopy elected to undergo to potentially avoid the penalty.
Therefore, the appeal process did not delay the running of the
statute of limitations.
Subsequent Appeal to Federal Circuit
Triple Canopy further appealed the ASBCA’s denial of its
appeal to the federal circuit. As it did before the board, Triple
Canopy argued that no claims accrued under the Foreign Tax Clause
until it complied with paragraph (i), which required that it
“take all reasonable action to obtain exemption from or refund
of any taxes or duties.”
Tracking the ASBCA ruling, the U. S. government responded that
paragraph (i) of the Foreign Tax Clause did not set forth a
mandatory pre-claim procedure that prevented submission of the
claims as of March 24, 2011. The government maintained that
paragraph (i) only requires a contractor to take all reasonable
action to obtain exemption from any taxes or penalties, and it
states that this requirement is only triggered when the contractor
is exempt under the laws of the country concerned. In other words,
the U.S. government contended that because Triple Canopy could not
qualify for an exemption from the Afghan directive, paragraph (i)
did not apply and Triple Canopy was not required to appeal the
assessment. Finally, the U.S. government argued that the plain
language of FAR 52.229-6 does not dictate that a contractor must
take its “reasonable action” seeking an exemption prior
to submitting a claim under the Contract Disputes Act.
Fortunately for Triple Canopy, the federal circuit agreed with
the contractor that because it was seeking reimbursement of the
Afghan assessment pursuant to the Foreign Tax Clause, it had to
comply with the paragraph (i) requirement that it take all
reasonable action to obtain an exemption from the assessment. This
meant appealing the assessment. In the circumstances of this case,
the court viewed the appeal to the Afghan government as a mandatory
pre-claim procedure that had to be completed for Triple
Canopy’s claims to accrue and the limitations period to begin
to run.
As the court detailed, having been informed by the DOD that it
was considered to have a valid exemption from the 500-person limit,
Triple Canopy could not properly disregard the requirement in
paragraph (i) that it take all reasonable action and not appeal the
Afghan assessment, and then still be eligible for reimbursement for
the penalty under the Foreign Tax Clause. Moreover, the federal
circuit considered it reasonable for Triple Canopy to take the
position that it was exempt under the laws of the country concerned
pursuant to paragraph (i) because the DOD had repeatedly requested
an exemption and because Triple Canopy had not received notice from
the Afghans that its exemption request had been denied. While the
appeal to the Afghan government was not completely successful, it
did result in a substantial reduction of the assessment.
Based on this reasoning, the federal circuit held that Triple
Canopy’s claims under the six contracts did not accrue until
July 6, 2011, the date the Afghan government issued its decision in
response to Triple Canopy’s appeal of the assessment. Triple
Canopy’s submission of its claims to the contracting officer on
June 6, 2017 was therefore within the six-year limitations period
in the Contract Disputes Act.
Lessons to be Learned
Triple Canopy, Inc. v. Secretary of the Air Force
offers two useful takeaways to other contractors – one is a
legal ruling and the other a practical caution. The legal ruling is
the federal circuit’s interpretation of the accrual of claims
provision in the Contract Disputes Act in a manner favorable to
contractors. Specifically, it found that the liability of Triple
Canopy was not fixed until it had exhausted its effort to obtain an
exemption from the penalty imposed by the Afghan government. In
reaching this conclusion, the court rejected the board’s view
that liability was fixed when the penalty was first assessed and
thus extended the time available to Triple Canopy to submit a
timely claim. Contractors who have the opportunity to challenge an
adverse determination before bringing a claim to the contracting
officer may consider citing this case should the timeliness of its
claim become a concern. Of course, whether the federal
circuit’s reading of the accrual provision extends beyond the
Foreign Tax Clause remains to be seen.
The practical caution is that although Triple Canopy’s
claims were ultimately found timely, this contractor took an
unnecessary risk in waiting so long to submit these claims to the
contracting officer. As the federal circuit ruled, the liability of
Triple Canopy was fixed when the Afghan government imposed the
reduced penalty on July 6, 2011. Presumably, Triple Canopy could
have submitted its claims for reimbursement any time thereafter but
did not do so until June 6, 2017, five years and eleven months
after the claims accrued. The facts of this case do not disclose
the reason for this delay, but it was almost fatal to Triple
Canopy’s case. Had it not further appealed the ASBCA’s
denial of its first appeal and had the federal circuit not
construed the accrual provision favorably, Triple Canopy would have
been out of luck.
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