Navigating the Complexities of Recovering Attorneys' Fees in Government Contract Disputes

A recent Court of Federal Claims decision highlights the difficulties of recovering legal fees in government contracts disputes with the federal government that involve subcontractor claims. On March 11, 2025, in The CENTECH Group, Inc. v. United States, Case No. 19-1752, the Court of Federal Claims confirmed that recovery for attorneys' fees is allowable in cases that involve pass-through claims by a subcontractor, but denied the contractor summary judgment for fees due to questions of fact regarding the nature of the legal services.

The Case Involving CENTECH and the U.S. Air Force

The prime contractor, CENTECH, pursued a breach of contract claim against the United States Air Force (USAF) related to the installation of communications infrastructure at Vandenberg Air Force Base. USAF approved CENTECH's ordering of materials, which were then ordered by CENTECH's subcontractor Iron Bow. USAF later refused to accept delivery or issue payment for the materials. USAF's actions resulted in lawsuits between CENTECH and Iron Bow and between Iron Bow and its material supplier.

Among the damages sought by CENTECH were attorneys' fees incurred by itself and its subcontractor during the period prior to the submission of the claim.

The Legal Framework: FAR 31.205-33

FAR 31.205-33 allows for the reimbursement of costs associated with professional and consultant services when they are reasonable and not contingent upon recovery from the government. These services are typically acquired to enhance legal, economic, financial, or technical positions, and must be utilized as part of contract administration. However, costs incurred in connection with the prosecution of claims against the federal government are deemed unallowable under FAR 31.205-47(f).

The Court's Analysis

The court granted summary judgment to CENTECH on its breach of contract claim, but denied the award of damages and attorneys' fees, citing issues of fact that prevented summary judgment. The crux of the attorneys' fees claim lies in distinguishing between contract administration costs and costs incidental to the prosecution of a claim. The court emphasized the importance of examining the objective reason for incurring such costs. If the costs were genuinely aimed at furthering negotiations, they could be considered contract administration costs and thus allowable. Conversely, if the underlying purpose was to promote the prosecution of a claim, the costs would be unallowable.

In this case, the court identified genuine issues of material fact regarding the purpose of the legal services acquired by CENTECH and Iron Bow. The invoices provided to the Court described services related to litigation and settlement strategies, but it was unclear whether these services were directed at negotiating a resolution with the USAF. As a result, the court denied summary judgment on the attorneys' fees claim, highlighting the need for further examination of the facts.

Takeaway

The CENTECH case underscores the complexities involved in claiming attorneys' fees in government contract disputes. Contractors and their attorneys must carefully document the purpose of legal services and ensure that they are genuinely aimed at contract administration rather than claim prosecution. This distinction is crucial for successfully recovering such costs under FAR 31.205-33. The CENTECH case serves as a reminder of the importance of clear documentation and the strategic management of legal costs in the context of government contracts claims and litigation.