Recovery of Attorney's Fees by Government Contractors
When a government contractor prevails in a dispute with the government, the contractor wants more than the satisfaction of being right. It also wants to be compensated for the legal fees incurred in the dispute. Unfortunately, a government contractor's ability to recover attorney's fees from the federal government is limited both by the traditional American Rule that litigants bear their own legal expenses and by the doctrine of sovereign immunity, which allows recovery of claims against the government only if the government consents to be sued.
For smaller federal government contractors who prevail in litigation against the government the Equal Access to Justice Act (EAJA), 28 U.S.C. § 2412, provides an important exception to the general rule. Under EAJA, federal courts must award fees and other expenses incurred in any non-tort civil action against the United States to an eligible, prevailing party unless the government's position is found to be substantially justified or special circumstances make an award unjust. In short, fees are awarded when: (1) the claimant qualifies as an "eligible" party; (2) the claimant is "entitled" to a fee award; and (3) the fee petition is "timely" filed.
To be eligible for an award, a party must "prevail" and meet certain net worth limitations. A party "prevails" when its lawsuit "materially alters the legal relationship between the parties by modifying the defendant's behavior in a way that directly benefits the plaintiff." Farrar v. Hobby, 506 U.S. 103, 111-12 (1992). Eligibility also depends on satisfaction of statutory net worth limitations. Generally speaking, a prevailing party is eligible for award if, at the time the action was filed: (1) its individual net worth does not exceed $2,000,000 or (2) it is not an unincorporated business, partnership, corporation, association, unit of local government or organization with a net worth of more than $7,000,000 and with more than 500 employees.
An eligible party is entitled to award of attorney's fees under EAJA only if there is no "substantial justification" for the government's position and no "special circumstances" exist that make a fee award unjust. In this context, "substantially justified" means "justified to a degree that would satisfy a reasonable person" or having a "reasonable basis both in law and fact." Pierce v. Underwood, 487 U.S. 552 (1988). Thus, to defeat contractor eligibility, the government must prove both that the underlying agency action giving rise to the dispute was reasonable and that its litigation position was reasonable. Jones v. Lujan, 887 F.2d 1096, 1098 (D.C. Cir. 1989).
To be timely, applications for fees and other expenses must be filed "within thirty days of final judgment in the action." For EAJA purposes, final judgment means "a judgment that is final and not appealable, and includes an order of settlement." In other words, the 30-day EAJA period begins to run only after the time for any party to appeal the final judgment in the action has expired. Melkonyan v. Sullivan, 501 U.S. 89, 96 (1991).
Once eligibility is established, fee quantum is calculated based on "prevailing market rates for the kind and quality of the services furnished." Attorney fees are currently capped at $125.00 per hour with adjustments for cost-of-living (COLAs) or "special factors." The courts regularly grant COLA adjustments, but upward fee adjustments for such special factors as "the limited availability of qualified attorneys" rarely are allowed.
Another exception to the non-recovery of attorney's fees by government contractors is found in the Competition in Contracting Act (CICA), 31 U.S.C. § 3554(c)(1). Federal contractors of any size who prevail in bid protests against the government brought before the General Accounting Office (GAO) under CICA potentially may recover protest costs, including attorney's fees. However, because CICA is a permissive fee-shifting statute, GAO retains considerable discretion about whether to allow or disallow reimbursement of claimed protest costs. While GAO's Bid Protest Regulations provide for a fee recommendation where an agency takes corrective action in response to a protest, GAO policy is to make such a recommendation only where the agency unduly delays taking corrective action in the face of a "clearly meritorious protest" - i.e., when a reasonable agency inquiry into the protester's allegations would show facts disclosing the absence of a defensible legal position. See Encore Management, Inc., B-278903.2, 1999 WL 67780 at 4 (C.G. February 12, 1999); Department of the Army - Recon., B-270860.5, 96-2 CPD ¶ 23 at 3 (C.G. July 18, 1996). In deciding whether to recommend reimbursement, GAO balances "the competing policies of encouraging litigation of procurement conflicts" and controlling "litigation costs." Innovative Refrigeration Concepts - Claim for Costs, B 258655.2, 97-2 CPD ¶ 19 at 2 (C.G. July 16, 1997).
If GAO recommends that an agency pay the protester's costs, the protester has 60 days from the date of receipt of GAO's recommendation to file a claim for costs with the agency. 4 C.F.R. § 21.8(f)(1). If the agency and the protester cannot agree on the amount of costs within a reasonable time, GAO may, upon a protester's request, recommend the amount to be paid, including the costs of pursuing the claim for costs before GAO. As with EAJA claims, recovery of legal expenses in CICA bid protest actions also is capped on the attorney's hourly fees.
Recovery of attorney's fees under EAJA and CICA can be an important consideration for contractors weighing the costs and benefits of bringing a contract claim or bid protest action against the government. While a prevailing contractor is unlikely to recover all of its legal expenses, the fee shifting provisions of those statutes certainly can help to alleviate some of the down-side of a legal challenge to a government action.