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GENERAL MEMORANDUM 11-059

GENERAL MEMORANDUM 11-059
Tenth Circuit Upholds Tribal Right to be Paid Full Contract Support Costs from BIA in Cap Years; Federal Appeals Courts now in Conflict

Earlier this week a divided Tenth Circuit Court of Appeals panel issued a 2-1 decision affirming the right of tribal contractors to receive the full contract support costs (CSC) funding due under their contracts even when Congress caps the total CSC appropriation. Ramah Navajo Chapter v. Salazar, No. 08-2262 (10th Cir. 2011). The May 9, 2011, decision, a copy of which may be viewed at http://www.ca10.uscourts.gov/opinions/08/08-2262.pdf, conflicts with that of the Federal Circuit just five months ago in the Arctic Slope case, which held that the caps protect the Government from liability. This conflict could result in the U.S. Supreme Court taking the case should one of the losing parties petition for review.

This decision is the most recent in a twenty-year court battle challenging the Bureau of Indian Affairs' (BIA) CSC policy and practice. The case has already resulted in class action settlements regarding indirect cost rate calculation, shortfalls in the "lump-sum" years—which for BIA were 1993 and before—and (non)payment of direct CSC. This segment of the case involved claims for full payment of CSC for the cap years (FY 1994 and later), when Congress has limited CSC spending to an annual total amount BIA is "not to exceed." Plaintiffs include the Oglala Sioux Tribe and the Pueblo of Zuni, and the case remains certified as a class action, potentially amplifying the magnitude of the ruling.

The district court in New Mexico, like several other courts, held that "the United States is not liable for shortfalls in contract payments when Congress has specified an insufficient 'not to exceed' lump sum appropriation." On appeal, the Tenth Circuit reversed.

The Tenth Circuit began by noting that it faced two competing interpretations of the Indian Self-Determination and Education Assistance Act (ISDEAA) provision making all funding, including that for CSC, "subject to the availability of appropriations." The Government argued that the phrase limits not only the aggregate (capped) amount the BIA can pay all contractors, but also the amount to which each contractor is entitled—i.e., a pro rata share of the capped appropriation. As long as the agency spends the entire capped amount in a rational manner—for instance, allocating each contractor the same percentage of its need, as BIA did—there can be no liability on any individual contract. The tribal plaintiffs argued that funds are "available" to pay full CSC so long as the capped appropriation is sufficient to fully pay the contract at issue, regardless of whether it is sufficient to pay all of the contracts in full.
The court ruled that the latter interpretation was compelled by federal appropriations law and the Cherokee decision. In Cherokee, the Supreme Court held that the Indian Health Service (IHS) could not escape liability for nonpayment of full CSC to tribal contractors based on aggregate limits on CSC spending suggested in congressional committee reports but not included in the appropriations acts themselves. In the absence of a statutory cap, the Cherokee court held, IHS should have reprogrammed other funds from its lump-sum appropriation to supplement those designated specifically for CSC. Although Ramah involved explicit statutory caps on CSC, the Tenth Circuit held that Cherokee still controlled. Specifically, the court noted that Cherokee cited with approval the Ferris case, an 1892 Court of Claims opinion holding that a contractor is not charged with knowledge of the Government's commitments to other contractors, so the risk of insufficient appropriations falls on the Government, and a capped appropriation does not excuse insufficient payment of any single contract. Following this reasoning, the Government was liable to Ramah (and presumably the rest of the class) for failing to pay their CSC in full, even though to do so for every individual contract would have caused BIA to exceed the statutory cap set by Congress. As the plaintiffs argued and the Tenth Circuit agreed, the caps limit the amount the Secretary can pay in a given year, but not the amount for which the United States is liable under the contracts.

The Tenth Circuit acknowledged that Congress did not likely intend this result—i.e., that the caps would not reduce total CSC liability because each tribe could sue to receive its shortfalls from the Judgment Fund. But the court said it was bound not by what Congress intended but by what it did: guarantee full CSC funding in the ISDEAA, yet appropriate insufficient funds to follow through on that guarantee, thus setting up BIA (and IHS) for inevitable, ongoing breaches of contract. The court advised Congress that it could avoid liability by either amending the ISDEAA to remove the guarantee of full funding or by capping the CSC appropriation for each individual contract.

Judge Hartz dissented, arguing that "congressional intent [to limit CSC obligations to the capped amount] is clear" and that the majority's decision rendered both the "availability" clause and the appropriations caps "futile" and "impotent." Judge Hartz noted that, in the Arctic Slope case, the Federal Circuit—"the court most conversant with federal contract law"—rejected the same arguments adopted by the Tenth Circuit majority. The Federal Circuit held that the ISDEAA limitation to "available" appropriations, combined with the appropriations acts' limitation of availability to a "not to exceed" amount, protected the Government from liability.

The Government could ask the Tenth Circuit panel and/or the full court en banc to reconsider its ruling. Alternatively, the Government could ask the U.S. Supreme Court to review the decision. Although the Supreme Court accepts only a small percentage of cases presented to it, the percentage rises greatly when there is a circuit split in need of resolution, as here with the Tenth Circuit disagreeing with the Federal Circuit (and the D.C. Circuit). In the meantime, the Federal Circuit decisions upholding the caps remain binding in the Court of Federal Claims and the Civilian Board of Contract Appeals, where most IHS CSC appeals are lodged, but the Arctic Slope decision could also be appealed to the Supreme Court.

Please let us know if we may provide additional information on this case.

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Inquiries may be directed to:
Geoff Strommer (gstrommer@hobbsstraus.com) or 503-242-1745
Joe Webster (jwebster@hobbsstraus.com) or 202-822-8282
Steve Osborne (sosborne@hobbsstraus.com) or 503-242-1745

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