June 23, 1999

The Honorable John McCain

United States Senate

SR 241 Russell Senate Office Building

Washington, D.C. 20510-0303

Dear Senator McCain:

On behalf of the Section of Public Contract Law of the American Bar Association (the "Section"), I am submitting the following suggestion for a technical amendment to the pending Year 2000 legislation. The views expressed herein are those of the Section and have not been approved by the House of Delegates or Board of Governors of the American Bar Association and, therefore, should not be construed as representing the policy of the American Bar Association.

While the specific language we are suggesting has been drafted with particular reference to the House passed Bill (H.R. 775) the issue about which we are concerned is of equal significance for any Y2K legislation that the Senate may consider as discussed below. Depending on the specific language of a Senate bill, the amendment we are suggesting may or may not provide the exact language necessary. We would be happy to work with your staff to draft the specific provision necessary to address this issue in the Senate bill. We wish to make clear that the Section is neither advocating nor opposing passage of H.R. 775. However, should Congress approve this legislation, it needs to make a few minor adjustments to take account of the special rules that apply to government contract disputes. The Section is offering these comments in hopes of avoiding another layer of complexity and confusion for government buyers and sellers, particularly since many of the products and services purchased by the Government are the same as those available to the general public.

The Section consists of attorneys and associated professionals in private practice, industry and government service. The Section’s governing Council and substantive committees include members from each of these groups in order to insure the presentation of a balanced point of view. The Section seeks to improve the process of public contracting for needed supplies, services and public work.

The Year 2000 Readiness and Responsibility Act provides certain restriction on litigation arising out of Y2K related disputes. H.R. 775 presently covers claims arising out of government contracts, whether asserted as an affirmative claim or defense, and includes board of contract appeals proceedings in which Year 2000 claims are asserted. Specifically, Section 3 defines "year 2000 action" to include an agency board of contract appeals proceeding in which a year 2000 claim is asserted as well as actions brought in court under Federal law. Section 3 also defines "year 2000 claim" to include a claim brought by a governmental entity when acting in a commercial or contracting capacity. As presently drafted, however, there is apparently an unintended conflict between provisions of H.R. 775 and the provisions that apply to most government contracts disputes under the Contract Disputes Act and related provisions.

The Federal Government is the largest single purchaser of information technology and services, acquiring more than $20 billion in information technology products and services in FY 1998. The Government has placed growing reliance on information technology to streamline functions and reduce costs. Information technology is used in a wide variety of applications from tax collections to administration of Medicare and Social Security, to air traffic control, to operation of weapon systems. Many of these applications utilize commercial, off the shelf hardware, software, and services. Other systems have been specifically designed to a government specification. Because the Government is such a preeminent purchaser of information technology, it is inevitable that significant Y2K issues will arise between the Government and the contractors that have supplied information technology over many years.

In addition, in many cases prime contractors have purchased their software and other technology from subcontractors for use on government contracts. As drafted, the procedures and protections of H.R. 775 would apply to those subcontract relationships in any event. For this reason, it is particularly important that the statute provide the same procedures and protections to the relationship between the prime contractor and the government customer. Otherwise, the prime may find itself with obligations to its customer and limited rights against the subcontractors that provided the technology at issue. We are confident that Congress did not intend to have the statute create this anomalous situation.

As in the private sector, Y2K disputes between contractors and government customers will most likely concern who is at fault for Y2K failures and disruptions. Unlike the commercial world, however, where the purchaser of technology or services may be a plaintiff in the event of a Y2K failure, the Government will likely pursue its special contractual remedies. Government contracts have provisions that confer rights on the buying agency that are not available in the commercial sector. Further, government contracts are subject to statutory and regulatory requirements governing the disputes process that must be addressed within the proposed legislation.

The proposed legislation imposes on prospective plaintiffs alleging loss or harm from Y2K failures certain prelitigation obligations. The legislation would apply to actions brought in government contract cases before the U.S. Court of Federal Claims and the Boards of Contract Appeals. Although this would appear to have the effect of equalizing the remedies regardless of the forum, in actuality, the legislation would not operate as intended in the government contracts context, and may be the source for substantial confusion and significant additional litigation over the meaning of its requirements. As a practical matter, the role of the Government in a dispute over a Y2K failure or disruption would be that traditionally assumed by a plaintiff, i.e., the party suffering the loss or harm seeking to have it corrected or to be compensated. However, in the context of government contracts, where disputes and jurisdiction to adjudicate them are controlled by special statutes such as the Contract Disputes Act, the Government has unique powers and capabilities not available to a commercial buyer with a Y2K claim. It is, therefore, the view of the Section that H.R. 775 must be modified to recognize the unique aspects of contracting with the Government.

Pursuant to the Contract Disputes Act ("CDA"), 41 U.S.C. §§605(a), 609(a), "[a]ll claims by a contractor against the government relating to a contract shall be in writing and shall be submitted to the contracting officer for a decision," and "[a]ll claims by the government against a contractor relating to a government contract shall be the subject of a decision by the contracting officer," before the contractor may seek relief from the U.S. Court of Federal Claims or a board of contract appeals. Thus, for example, if a contractor alleges that a Y2K failure or disruption is the Government’s fault because the Government furnished defective software or technology to the contractor for use on the contract, the contractor must submit its claim to the contracting officer for decision. Similarly, if a government agency alleges that its contractor supplied technology that failed to recognize the year 2000, and seeks relief from the contractor, and the contractor disputes the agency’s claim, the contracting officer must decide the matter. In either case, assuming the contracting officer decides in favor of the Government, the decision is final unless the contractor contests the decision under the CDA.

Further, most government contracts contain clauses that confer on the Government the right to take unilateral action to obtain relief, such as terminating the contract for default, ordering the contractor to correct the problem, or setting off the cost of corrective action against payment due - - rights which are not available in the private sector. For example, the "Changes" clause allows the contracting officer to direct the contractor to perform extra work not specified in the contract, and the contractor must perform the extra work and recover its additional costs by seeking an adjustment to the contract price. One of the most common disputes in government contracting is whether the work ordered is the contractor’s responsibility or is extra work. In the case of a Y2K failure, if the Government orders corrective action, and the contractor believes it is not responsible for the Y2K problem, the contractor must nevertheless perform the corrective work and request a contracting officer decision on the contractor’s claim for the costs incurred in response to the order. The contractor cannot refuse to do the work.

The contractor has a right to appeal a contracting officer decision to a board of contract appeals within 90 days or file a direct action on the claim within one year in the Court of Federal Claims. 41 U.S.C. §§606, 609(a). In either case, if the decision is based on a Y2K failure or disruption, in most cases, the Government would likely have engaged in self-help remedies under the contract terms before the case was in a litigation posture.

Title I of H.R. 775 imposes on prospective plaintiffs alleging loss or harm from Y2K failures certain obligations such as notice to the defendant, a cooling off period, and mitigation of damages. Specifically, Section 101 requires a prospective plaintiff to send to a prospective defendant written notice that identifies with particularity material defects, harm or loss allegedly suffered, relief sought, and the individual with authority to negotiate a resolution on behalf of the plaintiff. This Section further prohibits the prospective plaintiff from commencing a court action until the expiration of 90 days after receipt of the notice by the prospective defendant. Section 102 permits the parties to extend the 90 day period if they agree to use alternative dispute resolution. Section 103 imposes specific pleadings requirements where Y2K claims are asserted, and Section 104 requires plaintiffs to mitigate damages by excluding from awards compensation for damages that could have reasonably been avoided.

Because the party claiming loss or harm from a Y2K failure in a CDA case would not be a plaintiff, and because the Government can direct the contractor to take corrective action, these protections in Title I would be unavailable for companies doing business with the Government. For example, in a CDA case, where the Government has directed the contractor to fix a Y2K problem for which the contractor may not be responsible, the contractor must incur the costs and claim them from the Government. If the contracting officer refuses to pay, asserting the contractor is responsible for the problem, the contractor must file an administrative appeal or sue the Government to recover its costs as damages. Similarly, if the Government issues a decision terminating the contract for default for Y2K noncompliance, and claims reprocurement costs, the contractor will be liable unless it files an appeal or an action under the CDA. Because the plaintiff is not the party injured by the Y2K failure, the Act’s requirements for pleadings and mitigation of damages by the plaintiff could not apply as intended.

Particularly problematic are the legislation’s provisions requiring notice to a prospective "defendant" and a 90 day cooling off period before a prospective plaintiff can file an action in court. These protections cannot apply to government contract disputes unless they also include notice to a contractor by a government entity before taking unilateral action or issuing a final decision. Otherwise, the 90 day cooling off period makes no sense in the context of a government contract dispute, because the Government will not be filing suit, so it need not provide notice to the contractor. Further, the contractor cannot use the procedural protections of H.R. 775 to stop the Government from taking unilateral action and forcing the contractor to litigate. Finally, once the Government issues a final decision, the contractor has only 90 days to appeal under the CDA. 41 U.S.C. §606. It is unclear from H.R. 775 whether this jurisdictional requirement of the CDA would be waived in the case of Y2K disputes. Thus, assuming, a contracting officer’s decision constitutes notice to the contractor, the parties could not engage in ADR and extend the pre-filing period without jeopardizing the contractor’s right to adjudication of the claim before the board.

To extend the provisions for pre-litigation resolution of Y2K disputes to government contractors, the legislation needs to add a provision that all requirements applicable to a plaintiff be met by the Government before taking unilateral action or issuing a final decision to resolve a contract dispute. The Section believes the addition of such express language is necessary to clarify Congress’ intent to extend the bill’s protections to government contract disputes.

June 23, 1999

The Honorable Thomas M. Davis

United States House of Representatives

Cannon Office Bldg., Room 224

Washington, D.C. 20515

Dear Congressman Davis:

Enclosed is a copy of a letter we have delivered today to Senator McCain dealing with the pending Year 2000 legislation. In this letter, the ABA Section of Public Contract Law recommends certain technical amendments to the Bill to accommodate the special rules that govern disputes (including Y2K disputes) involving the United States Government and federal government contractors.

We would be pleased to meet with you or your staff to explain our concerns in greater detail.

Best regards,