By: Timothy A. Furin
This article was prepared as course material for the American Bar Association Section of Public Contract Law Annual Meeting.
The Judgment Fund was established by Congress in 1956 to alleviate the need for specific legislation following every successful claim against the United States. The purpose behind the Judgment Fund was to eliminate the procedural burdens involved in getting an individual appropriation from Congress, allowing for the prompt payment of judgments and reducing the amount of interest accrued between the time the judgment was awarded and payment was made. Although the Judgment Fund successfully eliminated the need for legislative action in almost every case, and in most cases resulted in prompter payments to successful claimants, it also had the unintended consequence of incentivizing procuring agencies to avoid settling meritorious claims in favor of prolonged litigation. Specifically, an agency could avoid making payment from its own appropriated funds if it refused to settle a case and instead sought a decision from a court, subsequently providing it access to the Judgment Fund which draws money straight from the Treasury. Congress eliminated this problem when it passed the Contracts Disputes Act (CDA) of 1978, which requires agencies to reimburse the Judgment Fund with appropriated funds that are current at the time of the judgment against the agency. Although contracting officers are no longer incentivized to avoid settlement, the source and availability of funds can still impact whether or not they decide to settle a claim because there are differences between how a judgment is funded and how a settlement can be funded. This article will examine those differences to ensure that practitioners understand how something as simple as the funding source can impact the procedural outcome of a claim potentially resulting in higher costs and delays in payment.
This article begins by providing an overview of the Judgment Fund. It discusses the requirements necessary for an agency to access the Judgment Fund and then reviews the allowable costs an agency can pay from the Judgment Fund. Next, it examines the differences between how a judgment is funded compared to how a settlement is funded. Finally, it explores how those differences can impact a contracting officer’s decision of whether or not to settle a claim and the impact that decision can have on the government and a claimant in terms of time and money.