The Government Had a Contractual Duty to Pay JCA

One of the government’s basic obligations in a contract for products or services is to timely pay the party providing such products or services, and the failure to make timely payment is a breach of the government’s “contractual obligation.” (See, e.g., TEM Associates, Inc., DOT BCA No. 2024, 89-1 BCA 21,266, at 107,221; Northern Helex Co. v. United States, 197 Ct. Cl. 118, 124, 455 F. 2d 546, 548 (Ct. Cl. 1972).) As shown below, the government clearly failed to timely pay JCA for services performed under the contract, thereby breaching the contract.

The Government Failed to Pay JCA

Every invoice submitted by JCA to INS for services performed under the letter contract contained (a) JCA’s name; (b) the invoice date; (c) the contract number; (d) description, quantity, unit of measurement, unit price and extended price of the services performed; and (e) JCA’s name and address. Thus, JCA’s invoices were prepared in the form required by FAR 32.905(e) (1995).

The government, however, failed to make payment within thirty days of the first invoice, and the extent of the government’s failure to make timely payment grew with nearly every passing invoice. The government did not pay JCA’s first invoice for nearly two months, and then did not attempt to pay the second for nearly three months after that. There was also a two-month gap in the government’s partial payment of Invoice No. 3. The INS did not attempt to pay JCA’s Invoice No. 4 until March 19, 1996—a gap of over four months. Finally, the INS did not make its final payment for services performed by JCA solely under Invoices 1–4 until November 18, 1996—more than a year after JCA had submitted the first of those invoices.

As JCA repeatedly notified the government, the INS’s slow payment of the invoices put a significant strain on JCA’s operations and imperiled its stability. Despite JCA’s communication of the urgent need for payment, the government repeatedly delayed payment of JCA’s invoices for prolonged periods of time—and when it paid, it did so only partially. Such failure to make timely payment is a breach of contract.

The Government Claims Dissatisfaction with JCA Performance

JCA’s contract required definitization, unless the government exercised its contract termination authority. The clauses provided that in the event the parties could not agree on a proper rate, the agency would unilaterally set the rate. The INS breached the contract when it failed to definitize the contract promised in the letter contract and required by law.

As an excuse, INS argued before the court that JCA’s contract was never definitized, because the INS was not satisfied with JCA’s performance and had questions about JCA’s pricing, which led to the INS hiring DCAA to conduct audits on JCA’s invoices and accounting system. Judge Horn addressed these two arguments heavily in reaching her decision. However, on the question of the INS being dissatisfied with JCA’s performance, there’s plenty of evidence to the contrary, which Judge Horn did not take into consideration when making her decision.

Joseph Garforth, senior INS contracting officer, testified that JCA did nothing wrong regarding performance, and when he asked the INS program staff to give him evidence of JCA’s poor work performance, the program staff could not provide any data. In addition, the INS never put in writing (either to the SBA or JCA) its dissatisfaction with JCA’s performance, which is required by FAR regulations. In fact, the INS approved and accepted all work presented by JCA without any complaints.

Garforth Deposition

Responding to JCA attorney’s questions:

Q: I’m curious. Do you recall any reason why INS would have been reluctant at this time to inform JCA about performance problems?

A: If there were problems, they should have been—I don’t know—I—all I can tell you is I heard the program office complained at times, and all they wanted to do was see the backup.

Q: You wanted to see the backup?

A: Right.

Q: You being the contracting official? You wanted to see the backup?

A: Right.

Q: Do you have any idea why the program officials were not providing the backup?

A: No, I don’t.

Q: So until the program officials could provide backup you really couldn’t say anything? You couldn’t provide any guidance to Cooper, is that correct?

A: Correct. I mean what are they doing wrong?

In the DOJ IG Investigative Report dated July 23, 1997, regarding the interview of Andrea K. Grimsley, INS contracting officer, Ms. Grimsley states: “…the Program Office was not happy with JCA’s work, which they felt was not professional. However, the Program Office never put JCA on notice of their disapproval with this work performance. Instead, the Program Office maintained signing off and approving these work invoices.” Carol Hall, INS program director, sent an e-mail dated September 19, 1995, to her staff advising that more money would be needed for JCA’s contract, because JCA was doing a lot of work. Nowhere in her email does she mention that JCA’s work performance was unsatisfactory.

The INS could not support its charges of JCA’s work as being “unprofessional.” The court should have admonished the INS for not following FAR regulations by putting in writing its complaints with JCA’s work performance. Logically, if JCA’s work was “unprofessional,” why would the government approve the work and pay for the service? These complaints were just another means the INS used to justify terminating its contract with JCA.

INS Was not Obligated to notify JCA/INS was using non-8(a) Firms

In her ruling, Judge Horn stated, “The plaintiff’s remaining claims that the government acted in bad faith by failing to notify JCA that it was using other contractors to fulfill needs described in the statement of work also are groundless. The government was under no obligation to inform JCA that other contractors were being used to satisfy INS needs. JCA was entitled only to the $250,000.00 minimum guarantee listed in the letter contract, regardless of the work tasked to other contractors.” The INS and the Court thus suggest that the INS lived up to its bargain by paying JCA in excess of $280,000. What Judge Horn failed to take into consideration is that the payments to JCA were late—late to the point that JCA was run out of business. By November 13, 1995, JCA had billed the INS $331,300 for services performed under the letter contract. Through March 19, 1996, the INS paid JCA a total of $230,991 under the letter contract, less than the minimum guarantee of $250,000 for the promised definitive IDIQ contract. It was not until November 18, 1996, almost four months after the letter contract had lapsed, that JCA received $49,936, a payment with which the INS finally satisfied the $250,000 minimum guarantee of the promised definitive IDIQ contract.

The fact that JCA had not acquired its full minimum guarantee of $250,000 before the contract lapse was for some reason not a concern of the court. According to FAR regulations and SBA policies related to SDB 8(a) contractors John Russo, senior contracting officer for INS makes it clear in his letter to the SBA dated May 16, 1996, that SBA policies and regulations required the INS to notify the SBA of any modifications to the JCA contract. He is also very specific in his deposition. The INS had an obligation to notify the SBA when they decided to satisfy its requirement through non-Section 8(a) contractors.

Russo Deposition

Responding to JCA attorney’s questions:

Q: Would you read that paragraph and tell me what you meant by it and what it was meant to do.

A: In my view it was intended to put the SBA on notice that our plan was to try to satisfy our requirements in some other way other than to rely on the Cooper contract, since we couldn’t go anywhere with it.

Q: Why did you feel you had to provide That notice to SBA

A: Our contract was with SBA.

The INS had an obligation to advise JCA, because JCA was part of the tripartite letter contract and the subcontractor to the SBA, who was the prime contractor to the INS. Russo was fully aware of the FAR regulations. Further, in a letter to Ms. Collins, SBA BOS, from Michelle Wall, INS contracting officer, dated July 7, 1995, the INS requests permission to negotiate an IDIQ contract directly with JCA. The SBA agreed to this request. Any modification that would have potentially affected the negotiations for the IDIQ contract, JCA should have been advised of.

Another senior contracting officer for the INS, Andrea Grimsley, was aware that the INS needed the SBA’s permission to use non-8(a) contractors for their requirement, as she states in the DOJ IG Investigative Report on July 23, 1997:

“INS had sent a letter to SBA dated May 16, 1996, informing SBA that it was INS intention to terminate its contract with JCA an 8(a) set-aside contractor.” She stated that she was advised by the SBA that it accepted the INS’s request and that a “written letter will be following their conversation.”

When pressed to produce the SBA letter, Grimsley stated she could not find a copy. She called the SBA and was informed that they could not find a letter giving the INS the authority to use non-8(a) contractors to meet the INS requirement.

When the INS informed the court that it had SBA “concurrence” to use non-8(a) contractors to implement its requirement, it was a lie. The court failed to require the INS to support its claim. The court decided that JCA was not telling the truth and ruled in favor of INS. Once again Judge Horn was misled in part because of her naive belief that government officials “Carry out their duties lawfully and in good faith.” Instead of asking INS to support its position with documents, she blindly accepted whatever the INS told her.

It’s Still Going On Today

One of the fundamental issues with my case was how the SBA was party to a tripartite contract, where undisputed facts demonstrate that the SBA absolutely failed to fulfill its statutory and contractual duties to JCA as a Section 8(a) contractor. SBA was obligated to serve as an advisor and counselor to JCA and the INS. The SBA in this case, for a period of over three full months, unreasonably and inexplicably ignored JCA’s repeated pleas for guidance and assistance.

Many government investigations and private studies conducted since 2003 have verified that hundreds of government contracts set aside for small businesses have instead been awarded to Fortune 500 corporations claiming  to be small businesses. They are awarded over $135 billion a year. As far back as I can remember the SBA has attempted to justify the diversion of billions in small business contracts to Fortune 500 firms as “miscoding.” This includes small business contracts to Italian defense giant Finmeccanica, Lockheed Martin, Raytheon, Citigroup, Walmart, Rolls Royce, British Aerospace (BAE), General Electric, and Ssangyong from South Korea. In 2006 the SBA issued a press release, claiming the diversion of federal small business contracts to large firms was a “myth.” During this same period, Karen Hontz, the SBA’s associate administrator for government contracting, stated, “we’re looking into…miscoding discrepancies. We will have an explanation, but it takes time.” Five years later the fraudulent activities committed by large government contractors are still going on.