“Educating the Government Contracting Community”

How to Lose $1Million Without Really Trying

A government contractor, McAllen Hospitals LP, dba South Texas Health System, (McAllen) provided general medical and hospital services to veterans in south Texas. During the course of the VA contract to provide those healthcare services, the McAllen believed that the VA had underpaid it by nearly $1 Million. McAllen's based its claim on the fact that the VA used a diagnostic-related group (DRG) reimbursement rate methodology rather than the case-mix group (CMG) reimbursement rate methodology as described in the contract. McAllen submitted a claim to the Contracting Officer to recoup the underpayment. The Contracting Officer denied the claim and McAllen appealed that Contracting Officer's decision to the United States Civilian Board of Contract Appeals (the CBCA). The CBCA dismissed the appeal because McAllen failed to certify its claim properly. By not properly certifying its claim, McAllen prevented the CBCA from even hearing its $1 Million  appeal.

All claims on federal contracts that seek payment of amounts of money above $100,000 must be certified. That certification must comply with the requirements of Contracts Disputes Act (CDA), 41 U.S.C.  7103(b)(2012). That statute requires a government contractor to certify that a) the claim is made in good faith; b) supporting data are accurate and complete to the best of the contractor's knowledge and belief; c) that amount claimed accurately reflects the contract adjustment for the Federal Government is liable; and d) the certifier has authority to certify the claim on behalf of the contractor. Nothing in the statute excuses a contractor from complying with these certification requirements. While government contractors may correct defective certifications after-the-fact, they cannot remedy a complete failure to certify a claim. The VA had rendered a decision on McAllen's nearly $1 Million claim without mentioning or even noticing that the lack of the required certification in its denial of McAllen's claim.

The CBCA, as part of determining if it had authority to hear the appeal, identified the certificate's absence. In an attempt to maintain its $1 Million claim, McAllen argued that the certificate had been supplied with the claim when it was initially submitted to the Contracting Officer but that it could not locate the original certificate and made the representation to the CBCA that the certification "may have" accompanied the claim in the box that conveyed the actual claim and other supporting documentation. The CBCA found McAllen's representation to fall well short of meeting its burden to prove by a preponderance of the evidence that its claim had been properly submitted and presented to the Contracting Officer with the required certification.

While the CBCA did not explicitly reject the representations made by McAllen's attorney, it reasoned that had the certification of the claim been made then there should have been more evidence to support its existence and submission than the mere statement that the certification "may have" accompanied the claim. The CBCA stated that it would have expected McAllen to be able to produce more substantiation for its contention. For example, the CBCA expected McAllen to have identified the person who signed the certification, the person who prepared the certification for execution, and other persons who actually saw the certification; as well as producing an unsigned copy of the certification that was prepared contemporaneously with the claim. Without those specific and obvious indications of the certification's prior existence and submission, the CBCA concluded that McAllen failed to meet its burden of proof and ruled that it lacked jurisdiction to decide McAllen's $1 Million claim.

This oversight by McAllen cost it not only the $1 Million claim but also the time and effort of its claim preparation and appeal. Substantively, McAllen's claim had merit. On another claim for less than $100,000, the CBCA ruled that the contract entitled McAllen to the application of the reimbursement rate methodology that it claimed on its dismissed claim, but McAllen had failed to adequately document the appellate record so that the CBCA could not issue a decision awarding McAllen even the smaller amount that it claimed. Regrettably, McAllen lost more than $1 Million in claims because it failed to ensure that it followed basic claims-presentation procedures for government contractors.

Avoid this result by having trained and experienced government contracting experts involved in the preparation, review, and documentation of your government contracting claims. THE FIRST THING a knowledgeable government contract claims person will look for is the inclusion of the proper supporting documentation, including the required certification. GCARL ensures that our GCARL Members' claims are not kicked out for failing to follow proper procedure.

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