Government Contracts Monitor

Don’t Forget the Impact of Outstanding Federal Tax Levies When You Settle Claims With the Government

August 25, 2014

A recent Armed Services Board of Contract Appeals (ASBCA) decision highlights the fact that even if a contractor settles a government contract dispute with an agency, the contractor may never actually receive a dime of the settlement proceeds. ASBCA Nos. 58214, 58215, 58216 & 59231

In Integrity Management Services, Inc., the contractor had a food services contract with the Puerto Rico National Guard. Integrity Management Services, Inc. (Integrity) made four separate claims against the Government arising from its food services contract. After denials or deemed denials of its claims, Integrity filed appeals with the ASBCA. Before the ASBCA could hear the disputes, Integrity and the Government settled all four claims in a formal settlement agreement, reached after participating in an ASBCA judge-facilitated Alternative Dispute Resolution proceeding.

The 2014 settlement agreement called for the Government to pay Integrity $150,000. In return, Integrity released all its government contracts claims. Instead of paying the settlement proceeds directly to Integrity, the Contracting Officer allegedly delivered a hard check for the full settlement amount to the Internal Revenue Service (IRS) – in order to satisfy a pre-existing federal tax levy that exceeded the settlement amount.

Integrity was upset that the Contracting Officer paid the settlement amount to the IRS instead of directly to Integrity. As a result, Integrity sought to have the ASBCA set aside the settlement agreement and reinstate its appeals.

The ASBCA made short work of Integrity’s arguments for summary judgment and granted the Government’s motion to dismiss. The ASBCA specifically held that (1) it had no jurisdiction over claims arising from intra-governmental transfers of funds and (2) the plain language of the release language in the settlement agreement barred Integrity’s attempts to reinstate its claims.

This case highlights the simple proposition that contractors should expect federal agency settlement proceeds to be applied to outstanding tax levies before any settlement proceeds are delivered to the contractor.