Case 1:00-cv-00129-FMA
Document 87-2
Filed 07/01/2005
Page 1 of 11
Exhibit
A
Case 1:00-cv-00129-FMA
Document 87-2
Filed 07/01/2005
Page 2 of 11
LEXSEE
1999
ASBCA LEXIS
Corporation
71
Appeal
of-- Astronautics
of
America
ASBCA
Armed
Services
No.49691
Board of Contract
Appeals
99-1
B.C.A.
(CCH)
P30,390
1999
ASBCA LEXIS
71
May
18,
1999
CONTRACT:
JUDGES:
Under
All
CAS-Covered
Contracts
JACK DELMAN,
N.
Administrative Judge,
Judge. Vice
ALAN
M.
SPECTOR
Administrative
Judge,
Acting
Chairman,
MARK
STEMPLER,
Administrative
Chairman,
concur.
COUNSEL: APPEARANCE APPEARANCES
Esq., Trial
FOR THE APPELLANT:
Stephen
D.
Knight,
Esq.,
Kirkland
&
Ellis,
Washington,
.
Steven Gruenwald,
FOR THE GOVERNMENT:
Defense Contract
Kelly
T.
McCracken,
III,
Esq.,
Chief
Trial
Attorney,
Attorney,
Management,
Command,
Chicago
(DLA).
OPINIONBY: OPINION:
O [h
[h
Government comply
under with
the
DELMAN
[h [h
from Astronautics standards Corporation of
The
failure to
seeks
$13,260,912
cost
America
contracts as
("ACA")
and
based
upon
acts.
its
purported have claim
is
certain
accounting Act For
under U.S.C.
CAS
§ §
covered 601-613,
the
subcontr
We
jurisdiction
Contract and
Disputes
(CDA), 1[
reasons
stated
amended. The Government's
ni
before
us on
entitlement
quantum.
we
sustain
appeal.
nI
On
the
eve
of
trial,
both denied
parties as
filed
summary
judgment
motions.
In
view
of our
disposition
of the
performed covered
F B1
appeal,
these
motions
are
moot.
[h
I.
I.
During a
the years
ACA
performed
a
for
number of CAS-covered
prime type contractors and
prime contracted
price
contracts
for
DOD
agencies,
Its
and
number of CAS-covered
contracts
subcontracts
who
fixed
with
DOD
agencies.
CAS
prime
In
included
cost-reimbursement
contracts
contracts.
2.
accordance
with
CAS
its
requirements, accounting provided -[h
ACA
practices that
had
submitted,
for
and
the
Government
contracts
had
approved
ACA's
R4, over
tab
disclosure 234). of
statement Item
direct 4.1.0
which
of
the
disclosed
disclosure
cost
purposes
material
of these handling
at 9).
(app.
2nd
supp.
statement
L,
ACA's
overhead
4.2.0
was
allocated that
a base General
material
cost
(code
see
Part
Indirect
Cost,
Instructions
Item
provided
's[h
&
Case 1:00-cv-00129-FMA
99-1 B.C.A.
Document 87-2
(CCH) P30,390
1999
Filed 07/01/2005
* 71,
Page 3 of 11
Page 2
ASBCA LEXIS
Administrative
(G&A)
cost
was
cost
allocated
over
allocated
a
base over
of
cost
input of
(code
input
C,
i[
Development
included
(IR&D)
those
was
in the
also
a base
base.
cost
(
its
I
at 9,
10). cost
ACA's
input
Independent
base,
Research
The
being
more
inclusive,
costs
direct
material
cost
3. certain certain
In
1989,
DCAA
reports costs
initiated
an
incurred-cost of
costs
audit
of
ACA
the
for
fiscal
years
1985-1989.
Based
that
upon
a review omitted
the
of
overhead material of
and
schedules
direct
incurred
that
costs,
Government's been
in
auditor above
to
discovered
ACA
had
for
and
other
should and
have
the
referenced disclosed
rates
allocation
bases
determination
indirect costs.
material costs
handling
overhead, from been.
G&A
these
IR&D,
the
pursuant
method
of
allocating
these
Since
were omitted
have on had
bases,
actual
overhead
calculated
from
these
bases
were
materially higher
4. as
than
they should
audit
DCAA
401,
issued an
report
or
about
13
August
1990 with
cost
which
its
identified
this
problem. and
are
DCAA
in in
contended
that
a
result
of these 410,
omissions, 418, 420.
ACA
The
acted
inconsistently
disclosure
statement standards
was
noncompliance an
with
this
CAS
pertinent
portions
of these
accounting
provided
Appendix
to
opinion.
5.
The
audit
report
also
stated
that
's[h
on
the
noncompliance
resulted
in
excessive
charges
for fiscal
and
over-recovery
of
material
"potential
overhead,
G&A
the
and
IR&D
and
costs
risk,'
all
ACA
contracts
and
subcontracts
to
years 1985-1989.
to
Based
as
upon
as
government
for
exposure
auditor
estimated
impact
Government
contracts
be
much
$ 15,043,146
years 7
in question.
6.
By
letter
dated
May
1990
that
(R4, tab
the
1),
ACA
a
replied
It
to
a
DCAA
that
draft the
report
which were
provided
the that the result
the
above
findings.
In
short,
ACA
did
not dispute
to
omissions Limited,"
occurred.
stated
omissions of
of an
exclusion
of
amounts
to
invoiced
ACA
with
by "Astro Hughes
to
wholly-owned subsidiary
a
ACA
in Israel
all
performed
work
the
to
related
ACA's
subcontract
Aircraft
under
DoD
the
contract.
Instead of performing
its
work
under
subcontract,
ACA
had
its
agreed
transfer offset
a portion
of
work
to
subsidiary
in Israel,
at
Hughes'
request,
assist
Hughes
7.
in
meeting
letter In
commercial
requirements construed,
that
it
in Israel.
's[h
the
costs
of 7
the
May, reasonably
did
not dispute
the cost
that
these
rates for
omissions
for the future
constituted application, in question, contracts.
CAS
and
noncompliance. providing incurred
letter
ACA
the the
stated
had
corrected
overhead
contracts
was
its
Government
to
with
for
cost impact
under
's[h
period
price
revising
account 22
error.
ACA
stated
there stated
was no
that
impact
it
on
firm
fixed the
By
letter
to
the cost
Government
impacts and
dated
that
January matter
1991, has been
ACA,
again
had
provided
Government
with the
relevant
"this
corrected"
(R4,
tab
2).
8.
The Government
was not
satisfied
with
ACA's
response.
to
The
a
tab
DCAA
4)
recommended,
statement did
so, to
inter
a/ia,
all
that
the covered 1991 of
Administrative
contracts
Contracting subcontracts, reply
to the
Officer including
(ACO)
fixed
direct price
ACA
submit (R4, 1991
cost
impact
include
letter
CAS
the
and
7).
contracts.
The
tab
ACO
9),
by
dated
8 October
issue
(R4,
tab
By
Government
it
dated
its
4
December
(R4, the
ACA,
cost
again, to
did not dispute fixed
price
CAS
noncompliance.
However
reiterated
position
regarding
lack
of
impact finding
to
all
contracts.
9.
By
letter
to
ACA
420.
dated
Insofar
30
as
January
pertinent, in
1992,
the
the
Government
stated
issued an
that
initial
of noncompliance include
the
under
CAS
in
401,
the
410,418
appropriate
and
Government
ACA's
failure
questioned and
costs
allocation clauses. to
bases Per agree
resulted
overstated
overhead
rates
which
affected
ACA
the
contracts
subcontracts
containing 30 days
10.
CAS
FAR
30.602-2
"Noncompliance
the
with
CAS
requirements,"
findings.
Government
allowed
ACA
within Insofar
to
which
as
or disagree with 30.602-2
Government's
initial
pertinent, the
FAR
provided and
that the
if a
contractor of
the
agreed
with
the Government's on
its
initial
finding
contracts
it
was required
and
subcontracts. to
correct
FAR
the
1),[h )(3
contractor's as follows: position
noncompliance
submit
If the
impact
noncompliance with the
initial
CAS-covered
the
contractor
a final
disagreed
finding,
Government
was
required
review
and
make
determination
of compliance
or noncompliance.
FAR
(d)(2)[h
30.602-2
provides
Noncompliance
with
CAS
requirements
(2)
If the
ACO
the
makes
a
determination
the
of noncompliance, of
the auditor,
or
if the
contractor
the
fails
to
furnish
the
the
cost
impact
proposal,
ACO,
with and
assistance
shall
determine
cost
impact
of
noncompliance
on
contracts
subcontracts
containing
CAS
clauses.
The
ACO may
withhold
an
Case 1:00-cv-00129-FMA
99-1 R.C.A.
Document 87-2
(CCH) P30,390
1999
Filed 07/01/2005
*
Page 4 of 11
Page
3
ASBCA LEXIS
71,
amount not
covered
to
exceed
contracts,
10
percent
of each
subsequent
the
payment
request,
related the
to
the
contractor's
CAS
furnished
prime
contractor.
which contain
appropriate
provisions,
until
proposal
has been
by
the
I By
findings.
letter
to
the
Government
that certain
dated
costs
3
March
1992
(R4,
tab
14),
ACA
in rates,
replied
to
the
Government's overhead with
its
initial
ACA
this
reiterated to
were
not properly
to
gathered these
reporting
in
certain
rates,
and
that
had
made
corrections
action,
cost-reimbursement
that
contracts
correct
accordance
limited to
FAR
1).[h By
fixed
to price
ACA
taking
contracts.
we
find
ACA acknowledged
CAS
noncompliance,
albeit
cost-reimbursement
12. contracts
its
In
its
3
March
affected
letter,
ACA
these
reiterated
its
strong objection
stated that the
it
to
the
Government's separately
finding
that
ACA's
were
price
by
the noncompliance. budget
ACA
used
developed excluded,
budget and
figures the
negotiate had
fixed
contracts,
that
figures
contained
costs
that
ACA
had
Government
not been
prejudiced.
13.
By
letter
to
ACA
and
dated 420,
in
26 June
1992,
the
Government
issued
its
final
determination
stated
of noncompliance
that "the
with
in
CAS
your
401,
410,
418,
accordance
establishes that
with
that
FAR
the
30.602-2(d).
The Government
in the
data
that
provided overheads
inter alia,
][h
and
that
response support submit dated
clearly
costs
were not included
occurred."
all
appropriate
base,
were
overstated,
a determination
the cost
CAS
noncompliances on
The Government
contracts
requested,
subcontracts.
ACA
By
impact 1992,
to
its
of
the
noncompliance provided
written for
CAS
covered
and
14. the lack
letter
31
July
ACA
its
rebuttal
to
the
Government's
stated.
of any
satisfied
material
its
impact
ix
findings.
Again,
that tab
it
asserted
price
contracts the
reasons
previously
in
ACA
as
maintained follows (R4,
it
had
already
CAS
responsibilities
under
circumstances,
stating
pertinent
part
23):
11.
Therefore,
Astronautics
has:
a.
Corrected
the noncompliance
when
it
revised
the
overhead
calculation
in
May
1990.
b.
Implemented
a
corrective
action
reconciliation
plan
when
it
modified on
the
overhead
rate rate
calculation calculation
program
to
and
implemented
the
the annual statements.
of the
amounts
the overhead
the
amounts on
audited
c.
Prepared
and
submitted
a
cost
impact
their
its
statement. and impact
In
15.
The
at
parties
continued
request, fiscal
to
argue
positions
at
meetings of
cost
through based
written
exchanges. of
January
1993
contracts
DCAA,
and
that
the
's[h
for
provided
own
estimate
on
all
ACA's
rates
CAS
covered
the
subcontracts had
rates
years from
1985-1990.
the did
The
DCAA
bases,
auditor took
the
recalculated difference and
overhead
by including
rates
amounts ACA's on
cost
been
excluded
it
allocation
between
the
these
recalculated to
and
budgeted
all
which
assumed
not contain and (R4,
these
amounts,
for
applied years 1985 the
difference 1990
to
ACA's
to
incurred an
costs
CAS-covered
in the
Government
contracts
subcontracts
fiscal
through
citation
obtain
estimated
impact provided agreed
amount
that
of$ 6,474,587.
a
contractor's price
tab
26) Notwithstanding
shall
auditor's the
FAR
30.306(b),
the the contract
which
price
in part to
noncompliance
that that
be
"measured agreed within
that to" the
by
difference
the
between
and
the
contract any
would
or
have
been
price
absent period
noncompliance, review, her but
auditor
relied
did not
separately incurred
analyze of
particular
contract period. 2/10).
contract auditor
under up
rather
on
the the
costs
ACA
at
during
the
the
The
testified
she
came
with
best
estimate
based
upon
information
she had
time
(tr.
16. the
ACA
-
submitted
a
more comprehensive
fixed
cost
impact
study
in
January,
affected
1994.
ACA's
the
position,
however,
remained
35).
same
17.
the
Government's
priced
to
contracts
were not adversely
the next 1996,
the several the
by
matters
in issue
(R4, tab
differences.
The
to
parties so.
continued
letter to
meet over
dated
8
years
in
an
attempt
to
resolve
their
They
a
were unable
recovery 6,786,325
do
By
in
ACA
March
per
ACO
issued a contracting above,
plus
officer's interest
decision, in the
seeking
from
for
ACA
a
total
the
amount of$ 6,474,587,
(R4,
tab 76).
DCAA's
calculations
amount
of$
of$ 13,260,912
This appeal
followed.
II.
T
Evidence
at
Trial
The Government's
Case 1:00-cv-00129-FMA
99-1 B.C.A.
Document 87-2
(CCH) P30,390
1999
Filed 07/01/2005
ASBCA LEXIS
71, *
Page 5 of 11
Page 4
18.
The Government
auditor
called
three witnesses
the rates
and
none
were
offered
the
as
expert
witnesses.
The Government
testified that the
called
the
DCAA
that
who
performed overhead no
1989 used
audit for
which
its
uncovered under
excluded
price
costs. contracts
The
auditor
he
assumed
's[h
audit
budgeted he had
proposals
fixed
were
impacted
(tr.
by
inaccurate
overhead not
data
personal
pricing
knowledge
proposals.
of
's[h
and of other and
forward
rate
how ACA, in fact, prepared its budgeted rates He had no personal knowledge as to how ACA
overhead these data
to
1/102-03).
He
did
developed
relied
these
the audit
proposals
reports
whether
ACA
relied
upon
did
inaccurate
DCAA
historical
auditors rates
who
to
information
[
develop
to
these
his
proposals. view
that
He
on
audit
proposals
rates
(tr.
support
DCAA
used
historical
review
's[h DCAA
overhead
1/110-Il).
the
These
auditors
did not f[Ql[Q
cost
19.
The Government
negotiated overhead
fixed rates
also price
called contracts
the
auditor
who
The
were
developed
auditor's
Governments
proceeded no
estimated
impact
that
under
ACA's ACA's
2/10).
and
subcontracts. contracts to
estimate she
on
the
assumption of
the
on
its
firm
fixed
priced of
the
overstated any such
made
separate impacted
review contract
matter with
(tr.
Nor did she make
Instead, (finding
any
analysis on
extent incurred
which
overstatements incurred
prices
the
Government.
subcontractor
she
relied
's[h
costs
per
year,
whether
as
a prime
contractor
or
15).
20. officer's
The
Government
In
also
called the
the
ACO who
agreed with
issued
the
final analysis
determination
of noncompliance
and
the
contracting
decision.
essence,
there
ACO
and
DCAA's
and
accepted
costs price
DCAA's
the
recommendations.
material 12]
The
of
its
ACO
also
assumed
that
that
was a
relationship
between overhead not
ACA's
rates
historical
its
and
direct
portion
affected
budget, omitted
the
and
costs
ACA's
1/147,
budgeted
148, 157,
proposed
for
fixed
contracts
were
at
A
final 21.
by
he
the
(
158).
He was
1/142).
familiar
with
ACA's
notice
of noncompliance
(
budgeting
methodology
the time
issued
ACA
called
four
lines
fact
witnesses
and
two
expert
witnesses.
ACA's ACA's
president president
testified
generally provided
short,
about
the detail
corporate
the find latter that
product
issue,
and
how
budgeting
reports
was accomplished.
schedules
into to
vice
of finance
process. In affected
more
on
using corporate budgeting product
and
describe
all
ACA's
budgeting and
he
the
testified,
and
we
ACA's
methodology
line,
took
account
material
material cost sales to
costs, sales as
was not
by
subject
exclusions. information. adjusted used
to
in
For each
ACA
be and
determined applied
to
of
to
a percentage forecasted projected
rates as
of
sales
based
upon
historical
This percentage
would
levels
forecasted judgments
obtain up
material
total
cost,
which
cost
figure that
was
be
view
of inventory
business
come
with
material
would
develop
(finding auditors
ACA's
3)
overhead not used
rates
in
(tr.
2//l49-50, process pricing
176-77). The
inaccurate
found
by
DCAA
call
on
the overhead
to the auditors
reports
were
the
above
(
2/201).
ACA's
methodology
failed to
was explained
DCAA
as
who
audited
ACA's
forward
rate
proposals.
The Government
any of these
witnesses.
22.
ACA's November
incurred
intent
accounting 1986,
around
the cost the
by
its
I
define, result
its
manager generally reaffirmed ACA's vice president for finance
subsidiary separate
that the related to the
's[h
directed
budget
process. to
He
also
testified, direct
and
we
find
that
in or
him
remove
certain
cost
gathers,
including
ACA-Hughes
these
costs. for
Aircraft
subcontract,
from
overhead
computations place
in
with
to
better the
and
costs
reclassif remained
This a
reclassification
process
until
did not take
a
timely
fashion,
with
the
excluded
number of
years,
the
DCAA
discovered
the
omissions
during
1989
audit.
23.
Appellant's
to
manager of
contracts cost
analyzed impact.
the
ACA
of
fixed
price
work
he
authorizations
that
were
used
by
the to
Government
their
compute
prime
claimed and
As
part
his
analysis,
correlated contracts
work
he
authorization believed
numbers
respective and
contracts prices
subcontracts. definitized
He
eliminated outside
subcontracts, the
were exempt from
that
CAS,
small
contracts
whose
were
relevant
time
period.
He
concluded and
only be
a
subset
of those
contracts for cost
relied
upon
(ex.
by
the
Government
G).
were
CAS-covered
prime
contracts
could
subject
of any consideration
24.
impact
A-8,
Table Mr.
Appellant Group,
(tr.
called Deloitte
two expert witnesses.
Rodney
as
Mateer, expert expert
in
National
Partner,
Government
estimating
issues
Contracting systems and
to the this cost also
Consultant
& Touche,
195). that
was
qualified
an
his
CAS
compliance,
CAS
appeal. of
find sales
administration
3/135-36,
his
Mr.
Mateer
offered
opinion purchase
its
on a number of
materials
in
relevant using
We
find
persuasive above,
opinion
ACA's
cost
practice
of estimating standards
the
1985-90,
(tr.
methodology
persuasive 3/15
8).
complied
that a
with prime
accounting has
and
disclosure
the
statement
violations
3/136).
its
We
his
opinion
contractor
responsibility
for
CAS
of
subcontractors
(
Case 1:00-cv-00129-FMA
99-1 B.C.A.
Document 87-2
I[Q)[ P30,390
1999
Filed 07/01/2005
ASBCA LEXIS
71, *
Page 6 of 11
Page
5
25. contract
Mr.
cost
Nelson
Shapiro,
cost
CPA,
was
qualified
as
an and
as
expert
cost part as
in
accounting
with
particular
expertise
(tr.
in
Government
In
accounting,
accounting
the
standards
accounting of a
the
staff,
standards and
later retired this
if
administration
3/194-95).
1971, and Mr.
Mr.
Shapiro
was employed
In his
by
CAS
Board
15]
was promoted
in
to
is
project
director
executive Shapiro
that
secretary. also
1980
he joined
Touche
on a
Ross
& Co.
partner.
He
to
1991
and
now
a
consultant. his
offered
expert opinion and of based
number of
the
subjects
relevant
regulations,
appeal.
given
the circumstances and reporting
its
upon
costs, price
contract
and
there
was
its
We find persuasive a CAS noncompliance
under
its
opinion
in
ACA's
accumulation
contracts,
certain fixed
ACA
contracts
was only
(tr.
responsible
to
adjust
costs
flexibly
priced
but not under of a
firm
3/216-17).
the
26.
In
support and
his
opinion,
Mr.
Shapiro
relied
upon
CAS
clause, the
FAR
52.230-3,
related
the to
CAS
these
regulations, provisions,
FAR
which
Subpart
are set
30.3,
number of
below.
interpretations
of
the
CAS
Board and
Government
out
in detail
27.
The
CAS
clause,
FAR
in
52.230-3,
states
in
relevant
part:
n2
(a)
The
*
contractor,
connection
with
this
contract
shall:
*
Agree
to
(5) or a
an
adjustment
to
of
the
contract
price
or
cost
allowance, Accounting
in
subcontractor accounting adjustment thereon Stat
fails
comply
with
an
applicable such of
failure the
Cost
cost
practice shall
consistently
and recovery
results
Such
provide
at
for
increased
costs
i
as to the the
appropriate, or to
if
the
Contractor any
Standard,
costs
follow
paid
States
[h the United
together
to
.
161 L.
United Treasury
with Pub. 92-
interest
computed
the
rate
determined
by
the Secretary
of
pursuant
41,85
97....
(App.
2nd
supp.
R4,
tab
203
at
1 1-32
(emphasis
added))
n2 reviewed
The
the
in
standard
CAS
clause
in
the
FAR
went through
years,
a
number of
find that
revisions
during
is
1985-1990.
all
We
have
CAS
each
clause
during
each
of these
and
we
this
language
in
material
respects
contained
clause.
28, follows:
The
CAS
Board's
rules
and
regulations,
FAR
30.306(b),
define
"increased
costs
paid
by the United
States"
as
30.306
Interpretations.
In the
determining following
the
amounts
of increased apply:
costs
in the
clauses
at
52.230-3,
Cost
Accounting
Standards,..
considerations
d
(b) to the that
If the
contractor
under
contract
nerformance
Accounting and
cost the
Standards, contract
price
i
any
fixed
price his are
contract, cost
including
a
firm
fixed to
price
contract,
fails
t
follow
costs
accounting
practice the
or
comply
with
the
applicable
price
Cost
measured been
that
would
used
to
have during be
ar
by
to
difference
the
between
contract
in
ar
with
price
accounting have been
practices
contract to the
.[h
had (1980), where published
as
contractor
proposed
accordance
The determination
and
will
of the contract on
the
would
agreed
case.
will
left
contracting
parties
depend
circumstances
of each
(
at
133
(emphasis
added))
See
also
4 C.F.R.
§
331.70
this
language Preamble
is
repeated located
tab
essentially
verbatim.
29.
The CAS
Insofar as
Board's
pertinent,
comments
Preamble
on
this
regulation
were
under
(app.
M,
at4
at
CFR
§
331.10
(1989).
M,
of
para.
2 provided
fixed
follows
2nd
R4
,[h
the that
207
10870-71):
The question of adjustment
discussions paid [h
the
's[h
price the
contracts]
has been
since U.S.
1972. under
a
In
its
original
promulgations
fixed
Board recognized
[h
FFP
l[l
contract
during
the
accumulating
t [h
was
and
subject of extensive increased
cost
[
181
Case 1:00-cv-00129-FMA
99-I B.C.A.
Document 87-2
(CCH)
Filed 07/01/2005
71, *
Page 7 of 11
Page 6
,390
1999
ASBCA LEXIS
p
during
the price
the
contractor estimating
adopted
practices
that
reduced
his
cost
allocations
below
the
allocation
determined
the
.[h
concerning
is
added]
The
Board's requirements agreed about
to
at
fixed
priced
price
contracts that
constitute
a
recognition agreed
to
of
if the cost
the
fact
that
the
outset
higher change.
than This
the
would
have
been
Government
paid
had
known
the
accounting
constitutes
a constructive
increase
in the
by
the
United
States
.
30.
Mr.
Shapiro
also
relied
Working
fixed price
Group which
contracts
(tr.
provided
upon two working group opinions published by the DOD's of the Government's interpretation remedy One
such
interpretation 76-1:
DOD
for
Cost
Accounting
Standards under firm
CAS
noncompliance
3/203-05). Procurement
was provided
under
Defense
Procurement
Circular 75-6,
reissued
under
Defense
Circular
Increased
Costs
Paid
Under
CAS-Covered
Contracts
There
are
two
major
aspects
of"increased
costs
paid"
as
interpreted
under
the
CAS
clause..,
by the
CASB A
regulations
(a)
contractor
as
the
result 19]
is
of a paid
failure
to
follow
his
disclosed than
or established
accounting
at the
practices
used
during
contract
negotiations
more during
performance
was contemplated
time
the
was
negotiated.
Example: a
result
a
CPFF
plus
If to
all
fixed or
fee]
CAS
of
contract this
has $ 500,000
is
additional
costs
allocated
to
it
as
of
a
noncompliance. increased
cost
any
part
$500,000
paid
by
the
Government,
interest.
such
payment
constitutes
an
the
Government
and
must be recovered
with
(b)
T
contractor
allocates
less
cost
to
a
fixed-price practice
[h
prepared
than
would
have
been of
allocated the contract
to
the
contract
by
use of the established
or disclosed
on which
the
negotiation
was
based.
Example:
cost
A
FFP
fixed and
either
price]
proposal Cost
is
in
accordance
accounting
practices
applicable
Accounting
his
Standards.
practices results
D
or
with
the
contractor's
contract not
,[h
with being be requested
failed negotiations,
disclosed the
contractor applicable
to the
noncomplies Cost
Accounting than
[h
contract the the
p[
and and an
by
not following
Standards.
T
disclosed
by
complying
less costs
noncompliance had been
the
practices
.[h
the
in $
.000
the
allocated to to
The contractor
if
should
correct correct
noncompliance noncompliance
is
properly the
allocate
costs.
However,
firm
fixed
contractor
to as
Government
profit profit
paid
price this
agreed
during
result
then
the contractor
making
additional additional
of$
is
500,000
on
costs"
contract
the
a
of
the
noncompliance. recovered with
The $ 500,000
interest.
"increased
paid by
Government
and
must be
(App.
2nd
R4
supp.,
tab
211
at
8
tab
212
at
6087
(emphasis
as
added))
31.
DOD
Working
Group Item 76-4 provided
Increased
I,
follows
(app.
2nd
R4
supp.,
tab 209): Interim Guidance,
Determining
W.G.
76-4, October
1
Costs
to
the
Government
for
CAS
Covered
FFP Contracts
Background
Paragraph
costs" practices
4
CFR
33
1.70(b)
of
the
CAS
as
Rules
related
and
to
Regulations
discusses
i.e.,
the
concept
to
of"increased disclosed
on
firm
or
fixed-price
(FFP)
contracts
noncompliances,
failure
follow
cost
accounting on an
standards.
DoD
resulted practices
in
guidance 30] gave
less
"Increased
Costs
Paid
Under
CAS-Covered
contracts
Contracts"
contained
in
DPC
75-6
that
example
being
of increased
to the
costs
on FFP
contract
where
have
there
was
had
a
noncompliance
costs
allocated
FFP
than
would
been
the appropriate
been
followed.
Case 1:00-cv-00129-FMA
99-1 B.C.A.
Document 87-2
I[Q)[ P30,390
1999
Filed 07/01/2005
ASBCA LEXIS
71,
*
Page 8 of 11
Page 7
Discussion
1
other than
price
In
cases
the
noncompliance of
a
the
opinion
is
has been
increased.
expressed
that
no
increased cannot
costs
can
occur
unless
the
contract
as
FFP contract
actually
This concept
it
adequately under
less
protect
Government
was contemplated
or
by PL 9 1-379, because
adjust
provides so
a
as
situation to
which
costs to
a be
contractor
allocated
may
to
overtly
inadvertently
accounting
procedures
a windfall.
cause
FFP
contracts.
The contractor
in
all
may
thus receive
To
necessary
protect to
the
Government
the
situations that
where FFP when
33
contracts
are
involved
are
it
is
therefore due
to
is
recognize
phenomenon
occurs
in
cost
allocations
decreased of
this
accounting
the that
changes.
The
CAS
Board did so
4
CFR
1.70(b).
A
basic to
premise
the
paragraph
It is
that
amount of such
this
decrease extended
represents the
to
amount of
cases
increased
costs
Government.'
logical
when
I
Guidance
the costs
premise
be
apply
to
all
involving
FFP
contracts.
costs
to
the to
Government
the contracts
under
are
firm
less
fixed
price
contracts
should
allocated
be
[h
considered
the
to
exist
allocated
allocation
had
not been
.[h
Mr. than
if
than
would
have
been
method of
added]
testified the that
32. price
Based
upon
for
the
above,
Shapiro
the
Government
noncompliance
is
entitled
to
an
adjustment
under
its
fixed
contracts to the fixed
CAS
noncompliance
when
contractor's practices
during
contract
the
performance of be
allocates this to case,
k
also
g
's[h
sought
stated fixed
1.
price
contract
appropriate
in
had
been
followed.
rates,
Under
the effect
circumstances
purported
noncompliance
resulted
overstated
fixed price
actual
overhead
(tr.
of
which
to
would
Shapiro,
allocate
[h
to
to
contemporaneously
performed clause and
contracts
3/205). no
the
According under
Mr.
the
harm He
be
if
remedied
by
the
CAS
exists
regulations
simply data on
had
application
these
to
circumstances.
its
Government's
C
D
that
a contractor
supplies
inaccurate defective
overhead
pricing
which
(the
Government
in
relies
detriment
protect the
to
negotiate
priced
contracts, interests
there
legislation
Truth
Negotiations
Act)
to
(tr.
3/207).
The Government
did not
assert
a defective
pricing claim
here.
There
appears
to
be
no dispute
certain costs,
that cost
under accounts had
a
number of
in
its
CAS-covered
its
prime bases
contracts
for the
between
1
of
calculation
and
1989
ACA
overhead,
costs
did not gather
determining
allocation
allocation
material
G&A
IR&D
and
IR&D
and did
which
the
effect
of materially decreasing
Clearly, the cost input
the bases base
upon
for
which these overhead
the
were measured,
and
rates
increasing
these
the
overhead
"total
rates.
used
of the
G&A
not represent
activity
in
of
the
business
unit"
it
as
required of
by
the
CAS
410,420.
in
ACA
1990
it
did
not dispute (finding already
7).
DCAA's
in fact, the
finding of
CAS
in
noncompliance
this there
respect when
was advised
omissions
limited, that the
ACA
admitted
March
per
1992
that
was
CAS
this
noncompliance,
made
corrections
required under
as the also
FAR
-2(c[Q)
I
view
(finding
1 We
albeit
and
that
had has
are
persuaded need
Government
whether
shown
changed
CAS
its
noncompliance accounting
circumstances. contended
of
conclusion
we
not address
ACA
practices
by the Government.
I
or
A
its
as
Under
the
CAS
clause
fails to
the
contractor with
agrees
to
an
adjustment accounting
of
the
contract
price
or
contract
cost
if
the contractor a recovery
subcontractor
comply
period
applicable
cost
standards.
The
for the
Government Government
to as
seeks
from
ACA I
for
the relevant
also
of time
when work
that
ACA
as
performed
work
directly
a prime
contractor, a party.
and
when
the
ACA
for
performed argues
a subcontractor the
under
agreements
the
which
the
Government
contractor did
was not
and not have
essence,
directly
Government
any
under
CDA
its
it
may
bypass
Government
though the
prime
hold
privity
ACA
liable
CAS
noncompliance
subcontracts.
under
subcontracts
even
Government
of contract
with
ACA
under
these
The
U.S.C.
§
CDA
605.
makes
clear
that
is
the the
claims
entity here,
subject that the
to
the Act
into rule
is
are
those contract
between with
the
the
Government
and
i.e.,
the
contractor.
41
The contractor
entered general
the that
Government,
jurisdiction filed
the the
prime
contractor.
With
minor exceptions
claims
v.
not relevant
filed directly
we do
not have
under
CDA
over
subcontractor See United
against the
frols,
Government
F.2d 1541
or
Government
Cir.
claims
directly
against
a subcontractor.
States
Johnson Con
Inc.,
713
(Fed.
1983)
General
Dynamics
Corporation,
ASBCA
Case 1:00-cv-00129-FMA
99-1 B.C.A.
Document 87-2
(CCH) P30,390
1999
Filed 07/01/2005
ASBCA LEXIS
71,
*
Page 9 of 11
Page
8
No. 49339,
97-2
BCA
claim
,[h
BCA
expert
P29,167
at
145,031. No. 31148,
Inertial
Division,
ASBCA
all
87-3
We have BCA P
also
adhered
to
this
rule
in the
CAS
over
context. the
See
Systron
20,066
(Board
contracts also that
had
jurisdiction
Government's
to
CAS
the
noncompliance determination
under
of
appellant's
CAS-covered
its
prime See suggests
but appellant Corporation,
is
had
no
right
appeal
of
CAS
noncompliance
the
under clause
for
subcontracts).
Aydin
ASBCA
Mateer
also
No. 50301,97-2
for the
P 29,260.
Moreover, of
a
CAS
itself
strongly
contract
the contractor
(finding 27).
responsible
noncompliance testimony from
subcontractor
this effect settled
purposes
24).
of
adjustments
fails to cite
Mr.
gave
that
persuasive
to
(finding rule.
The Government
to
any persuasive
authority
id[h
warrant
departure
this
well
We
under
the
conclude
that
in
is
these
to
circumstances, say
that a
the
Government
may
not
file
a
CDA.
That
not
CAS
cost
covered
subcontractor contractor
to the
may
under
violate the
CAS claim directly against a subcontractor CAS with impunity. Rather, the
contract covered
in issue,
Governments
adjust
its
remedy
prime
is
against
the price
relevant or
CAS
as
prime
and
the
Government
has
failed to
may
meet
the
contract
appropriate
extent
a
CAS
subcontractor
CAS
obligations.
I
here.
A
There
as
is
no
its
dispute
flexibly
in
that
once
the
Government
to reflect fixed
discovered
the price
the
relevant actual
cost
account
rates. the
omissions, These
ACA adjusted
are
its
billings
under
priced here
contracts are the
corrected
contracts
overhead
contracts
not
the
at
issue
The
contracts period.
issue
firm
between
ACA and
Government
during
relevant
time
The Government
the
is
bound
by
the
regulations
and
implementing
the
contract
clauses
which was
provide
the
parameters
in all
of
contract covered
price
adjustment.
Under
FAR
n3
the
52.230-3, contractor such
standard
to a
CAS
clause
price
which
incorporated
if the
the or
its
relevant
CAS
fixed-price
is
contracts,
agrees
contract
in
adjustment
costs
contractor
CAS
covered
subcontractor
noncompliant
and
failure
results
any increased
paid
by the United
States."
n3
rests. that
it
The
Government
failed
to
introduce
into
evidence
any of
to
the
dozens
of
contracts
upon
it
which
does
its
claim
While
entered
ACA
into to
disputes a
the
applicability
of
CAS
prime
coverage
contracts the
a
number of these
the
contracts,
not dispute
23),
number of CAS-covered
that said contracts
during standard
relevant clause
time
in the
period
(finding
and
does
not appear
for the
dispute
contained
CAS
FAR.
We
shall
so
presume
purposes
of
this
opinion.
The
nature of these
increased
costs
under
a
contractor's that
fixed-price
contract
costs are
is
spelled
out
in
FAR
30.306(b),
fails "is to to
Interpretations.
This contract
cost
provision
provides standard
price the
these
increased
incurred and
that
where the contractor
the
follow
the
applicable
accounting
the
"during
to
contract
performance" contract
price
cost
differential
measured
the
by the difference
contractor
between
in
contract with
agreed
cost
and
the
that
would
have
been
agreed
had
proposed
into
CAS Preamble M the CAS standards,
M,
Para. "that to this 2
f
rules
it
accordance
accounting of
this
practices
used
during look
contract
performance."
to
explains and
the
the
nature
adjustment. Martin
We may
Corp., had
to
the
preamble 1134, 1139
provide
Cir.
insight 1995).
regulations.
Perry
v.
Marietta
47 F.3d
(Fed.
Preamble performance According negotiation
explains
his
need
for
a
remedy when below
been
relied the the
the contractor
allocation
adopted during of
practices the
during
contract process."
reduced
cost the
allocations
determined
this
estimating
allocation
reasoning,
to
had
Government would
have
aware
of
the
new
method
cost
cost
at the
time of
contract as
price price. a
prior
award,
upon
reduced from
allocation
to
obtain
a
better
Accordingly,
result
a
contract
price
adjustment during did
precludes contract
contractor
obtaining
any
contract
price
advantage
of
any
CAS
noncompliance
actions or inactions If 32).
performance.
cost allocations
Here,
's[h
contracts
not reduce
during
cost
the
performance
to
of any
of
its
fixed
priced performed
CAS-covered
fixed price the
prime
contracts. (finding
anything.
ACA's
omissions
is
increased
to
allocations
contemporaneously these contracts
in
The Government
and
regulations.
not
entitled
an
adjustment
under
accordance
with
relevant
CAS
contract
clause
D's
(findings 30,
long standing
31).
interpretation
is
of these
at
provisions
that
is
also
consistent the
with
the
conclusion
in this appeal.
we
have
reached
This
interpretation
odds
with
offered
by
Government
Case 1:00-cv-00129-FMA
99-1 B.C.A.
Document 87-2
(CCH) P30,390
1999
Filed 07/01/2005
ASBCA LEXIS
71,
*
Page 10 of 11
Page 9
In
view
of
all
the
foregoing, firm
we
conclude
price
that
the
Government
within the
has not established
it
is
entitled
to
a contract
price
adjustment
regulations.
under
ACAs
fixed
prime
contracts
meaning
of the
CAS
clause
and
related
CAS
The appeal
is
sustained
as
to
's[h
prime
contracts.
It
is
dismissed
as
to
's[h
subcontracts.
n4
n4 and
the
The
Government
fixed
also price
argues
that
it
relied
on
a
defectively of
action
calculated sounding
overhead
in
rates
when
pricing
it
negotiated of
awarded ACA's
Truth
here. in
contracts. that
This
is
cause
defective decision
in violation
Negotiations
Act
was not
to
asserted
by
the contracting a claim and
officers pass no
in the
Government's
merits.
claim
We
are
without
jurisdiction
consider
such
judgment
Division,
on
its
See 83-2
International
Telephone
&
Telegraph
Corporation/ElectroOptical
Products
ASBCA
No. 27802,
BCA
p 16,773.
Dated:
18
May
1999
JACK Armed
DELMAN
Judge Services
Administrative
Board
of Contract
I
c
Appeals
ALAN
Acting
M.
SPECTOR
Judge
Administrative
Chairman
Services
Armed
Board
of Contract
I
c
Appeals
MARK
Vice
N.
STEMPLER
Judge
Administrative
Chairman
Services
Armed
Board
of Contract
Appeals
APPENDIX
Government
Insofar
as
pertinent,
the
cost
accounting
standards
relied
upon
by
the
provide
as
follows:
401-40
Fundamental
requirement.
(a)
A
contractor's practices
practices
used
in
in
estimating and
costs
in pricing costs.
a
proposal
shall
be
consistent
with
his
cost
accounting
used
accumulating
reporting
4 10-40
Fundamental
requirement.
)[Q
cost
The
G&A
of
expense
that cost
pool of a business accounting
unit
for
a
cost
accounting
a
period base
shall
be
allocated
to total
final activity
objectives
period by means
omitted].
of
cost
input
representing
the
of the business
unit
exception
410-50
Techniques
for
application.
Case 1:00-cv-00129-FMA
99-1 B.C.A.
Document 87-2
(CCH)
Filed 07/01/2005
ASBCA LEXIS
71, *
Page 11 of 11
Page 10
,390
1999
(d) that
The
cost
cost input
input
base
used
to
allocate the total
the
G&A
expense
the
pool
shall unit.
include
all
significant
elements
of
which
represent
activity
of
business
***
Cost include
are
1[
input
shall
those not
expenses of
a
which
by operation
pool of
of
this
Standard and
are
excluded expenses
from
the
G&A
using
expense
the
pool and
allocation
part
combined
G&A
expenses
other
allocated
same
base.
418-40
Fundamental
Requirement.
(c)
Pooled
costs
shall
be
allocated costs to
to
cost
objectives
in
reasonable
proportion
to
the
beneficial
or causal
relationship
of the pooled
cost
objectives
418-50
Techniques
for
application.
(a)
Determination
* * *
of
direct
cost
and
indirect
cost
I)
(2)
...
In
accounting omitted]
for
direct
costs
a business
unit
shall
use
actual
costs
except
that
-
condition
420-50
Techniques
for
application.
(Q
The
cost as
of
I
and
to allocate
and
B&P
projects
accumulated
at a
business
unit
shall
be
allocated
to
cost
objectives
follows:
(1)
(2) shall
R
unit
applicable]
B&P
all
cost final
its
[Q1[
costs
which
objectives
are
not of
allocated
under
unit
subparagraph
(00)
the
of
this
subsection, used
be
allocated to
the
business
by means
in
of
same base
by
.
the
business
general
and
administrative
expenses
accordance
with
410-50]