Case 1:00-cv-00129-FMA
Document 86
Filed 06/23/2005
Page 1 of 2
ELECTRONICALLY FILED ON JUNE 23, 2005 IN THE UNITED STATES COURT OF FEDERAL CLAIMS
LOCKHEED MARTIN CORPORATION, ) ) Plaintiff, ) ) v. ) ) UNITED STATES OF AMERICA, ) ) Defendant. )
No. 00-129C (Judge Allegra)
PLAINTIFF'S MOTION FOR LEAVE TO FILE MEMORANDUM IDENTIFYING AND SUMMARIZING A DECISION INTERPRETING THE LANGUAGE IN CAS 9903.306(B) It became apparent at the June 20, 2005 oral argument in this case that the parties were interpreting the language of CAS § 9903.306(b), with neither having developed for the Court the reason for the creation of § 306(b), nor provided administrative interpretations or any decisions interpreting this regulation. There is an ASBCA decision that does this. Counsel for Plaintiff respectfully moves for leave to file a memorandum identifying and summarizing the relevant parts of a decision that interprets the language in CAS Reg. 9903.306(b). Counsel for Defendant has authorized undersigned counsel to state that she has no objection to the granting of this motion, provided she will be given an opportunity to reply to the memorandum. A courtesy copy of the memorandum is attached hereto as Exhibit 1.
Case 1:00-cv-00129-FMA
Document 86
Filed 06/23/2005
Page 2 of 2
Respectfully submitted, s/Clarence T. Kipps _________________________________ Clarence T. Kipps, Jr., Esq. MILLER & CHEVALIER Chartered 655 15th Street, N.W., Suite 900 Washington, D.C. 20005 Tel: (202) 626-5800 Fax: (202) 628-0858 Attorney of Record Lockheed Martin Corporation Of Counsel: Angela B. Styles, Esq. Kimberly R. Heifetz, Esq. MILLER & CHEVALIER Chartered 655 15th Street, N.W., Suite 900 Washington, D.C. 20005 Tel: (202) 626-5800 Fax: (202) 628-0858 David M. Christenson, Esq. LOCKHEED MARTIN CORPORATION 6801 Rockledge Drive Bethesda, Maryland 20817 Tel: (301) 897-6127 Fax: (301) 897-6333 Dated: June 23, 2005
2
Case 1:00-cv-00129-FMA
Document 86-2
Filed 06/23/2005
Page 1 of 15
Exhibit
1
Case 1:00-cv-00129-FMA
Document 86-2
Filed 06/23/2005
FILED
Page 2 of 15
ON JUNE _,
2005
ELECTRONICALLY
IN
THE
UNITED
STATES COURT OF FEDERAL CLAIMS
LOCKHEED MARTIN CORPORATION,
Plaintiff,
)
)
)
)
v.
)
No.
129C
Allegra)
)
(Judge
UNITED
STATES OF AMERICA,
)
Defendant.
)
PLAINTIFF'S
A
In
[h
and
[h
MEMORANDUM (b)[h
the are
IDENTIFYING
[h
AND SUMMARIZING LANGUAGE [h [h
No. 49691, 1999
[U)
ASBCA
LEXIS
71,
Astronautics
Corporation
erica
ASBCA
the
Armed
Services
Board of Contract
Appeals ("ASBCA")
interpreted
FAR (b).[h
changed
"his"
CAS
Reg.
03.
first
FAR
identical,
except
the
GAS
Reg.
to
"its"
in the
sentence.
A
copy of
decision
is
attached
hereto
as
Exhibit
A.
In
Astronautics,
the contractor
had estimated
the
costs
and negotiated
the fixed prices
on
the
basis
of a cost
allocation
methodology
that
complied with
GAS
and
the
contractor's
GAS
disclosure
statement.
1999
ASBCA
LEXTS
71,
*2..3.
During
performance
the
contractor
changed
its
allocation
methodology
to
one
that
failed
to
comply
with
GAS, and
the
noncompliance
resulted
in
allocations
of greater
cost to
fixed price
and cost type
contracts.
I
at
*35
The
contractor
agreed
to
an adjustment
of
its
cost
type contracts,
and
the
Government
sought
an
adjustment
under
§
(b)[
§
to
the
contractor's
fixed
price
contracts.
I
are
at
lo.
in the
The
reason
for
creating
([Qb
and
its
administrative
interpretations
outlined
decision.
I
to
at
*
17-22.
The
Board looked
to
DOD
Working
Group
Item
76-4
which,
in turn,
looked
DOD
guidance
on "Increased
Costs
Paid Under
GAS-Covered
Contracts."
I
at
*2o
22.
Working
Group
Item
76-4
provided:
Case 1:00-cv-00129-FMA
Document 86-2
Filed 06/23/2005
Page 3 of 15
should
I
Guidance
be contracts
allocation
costs
to
the
Government
to exist
considered
are less
than would
had not been
.
the
that the this
under
firm fixed
price
contracts
when
the costs
allocated to the
[h
have been allocated
the
method
of
I
at
.22[Q
The
Board
also
looked
to
CAS
stated:
Preamble accompanying
the
original
promulgation
of the
§
306(b)
language
Preamble M,
contractor reduced
the
Para.
2 explains
practices
need
during
the to
for
a remedy
when
the 'that
has
adopted
contract
allocation this
performance determined
his
cost allocations
process.'
below According
during
estimating
reasoning, of cost
it
had
the
at
Government
the
been aware of
negotiation
cost
new method
to
allocation
time
the
of price reduced
a
prior
upon
allocation
Accordingly,
contract
price
adjustment
from obtaining noncompliance
any contract
during
price
contract
,
award,
to
would have
contract
the
relied price.
obtain
a better
precludes
as
contractor of any
advantage
a result
CAS
.[h
at
*2728
The
Board held
the
contractor's
noncompliance
in
Astronautics
"did
not reduce
cost
allocations
during
the
performance
of any of
its
fixed
priced
CAS-covered
prime contracts"
and,
therefore,
the
Government
was
not entitled
to
an
adjustment
of those
fixed
price
contracts
under
§
306(b).
Id.
at
*28
Respectfully
submitted,
Clarence
T.
Kipps,
Jr.,
Esq. Chartered
MILLER
655 15th
& CHEVALIER
Street,
NW.,
Suite 900
Washington,
Tel:
D.C.
20005
(202) 626-5800 (202) 628-0858
Fax:
Attorney
of Record Martin Corporation
Lockheed
2
Case 1:00-cv-00129-FMA
Document 86-2
Filed 06/23/2005
Page 4 of 15
O
:
Styles,
Angela B.
Esq. Esq. Chartered
Kimberly R.
Heifetz,
MILLER & CHEVALIER
655
15th Street,
.,[
Suite
900
Washington,
Tel:
D.C.
20005
(202) 626-5800 (202) 628-0858
Fax:
David M. Christenson,
Esq.
LOCKHEED MARTIN CORPORATION
6801 Rockledge
Bethesda,
Tel:
Drive
Maryland
208 17
(301) (301)
897-6127 897-6333
Fax:
Dated:
June_, 2005
3
Case 1:00-cv-00129-FMA
Document 86-2
Filed 06/23/2005
Page 5 of 15
Exhibit
A
Case 1:00-cv-00129-FMA
Document 86-2
Filed 06/23/2005
Page 6 of 15
LEXSEE
1999
ASBCA
LEXIS
71
Appeal
--[ Astronautics
Corporation
of
America
ASBCA
Armed
Services
No.
49691
Board of Contract
Appeals
99-I
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
.[ SPECTOR
concur.
Administrative
Judge,
Acting
Chairman,
MARK
STEMPLER,
Administrative
Chairman,
COUNSEL: APPEARANCE APPEARANCES
Esq., Trial
FOR FOR
THE APPELLANT:
Stephen
D.
Knight,
Esq.,
Kirkland
&
Ellis,
Washington,
.
Steven Gruenwald,
THE GOVERNMENT:
Contract
Kelly
T.
McCracken,
Ill,
,[h
Chief
Trial
Attorney,
Attorney,
Defense
Management,
Command,
Chicago
(DLA).
OPINIONBY: OPINION:
O [h
[h
Government comply
under on 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
its
purported have claim
is
certain
accounting Act
under U.S.C.
CAS
§ §
covered 601-613,
the
subcontracts.
We
jurisdiction
Contract and
Disputes
,[h
41
amended.
nI
The Government's
before
us
entitlement
quantum.
For reasons
stated
we
sustain
appeal.
nI appeal,
On
the
eve
of
trial,
both denied
parties as
filed
summary
judgment
motions.
In
view
of our
disposition
of
the
F B
these
motions
are
moot.
OF
I.
1.
During
a
the
years
performed covered
number of
contracts
-cov
included
1986-1989
ACA
performed
a
for
number of CAS-covered
prime type
contractors
prime contracted
price
contracts
for
DOD
agencies,
Its
and
subcontracts
who
and
fixed
with
DOD
agencies.
CAS
prime
In
cost-reimbursement
contracts
contracts.
2.
accordance
with
CAS
its
requirements, accounting provided -[h
ACA
practices that
had
submitted,
for
and
the
Government
contracts
had
(app.
approved
ACA's
R4, over
tab a
disclosure 234).
statement Item
direct 4.1.0
which
of
the
disclosed
disclosure
cost
purposes
material
of these handling
at
9).
2nd
supp.
statement
L, see Part
's[h
overhead
4.2.0
was
allocated that
base
of
material
cost
(code
Indirect
Cost,
Instructions
Item
provided
ACA's
General
&
Case 1:00-cv-00129-FMA
99-1
Document 86-2
(CCH) P30,390
1999
Filed 06/23/2005
ASBCA LEXTS
* 71,
Page 7 of 15
Page 2
,A.[
Administrative and
(G&A)
cost
was
cost
allocated
over
allocated
a
base over
of
a
cost
input
(code
input
C,
Development
(IR&D)
those
was
in the
also
base
base.
of
cost
(
at its
I
9,
10). cost
ACA's
input
Independent
base,
Research
The
being
more
inclusive,
3.
In
1
included
costs
direct
material
cost
DCAA
reports costs
initiated
an
incurred-cost of
costs
audit
of
ACA
the
for
fiscal
years
1985-1989.
Based
that
upon
a review omitted
of
certain certain
overhead material
and
schedules
direct
incurred
that
costs,
and
other
should and
have
determination
indirect costs.
of material Since
costs
handling
overhead, from been.
G&A
these
were omitted
have
I
the
Government's
in the
auditor above
to
discovered
ACA
had
been
referenced disclosed
rates
allocation
bases
allocating these
for the
pursuant
method
of
these
bases,
actual
overhead
calculated
from
bases
were
materially higher
4. as
than
they should
audit
DCAA
401,
issued an
report
on had
or about acted
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
inconsistently
disclosure
statement
was
noncompliance an
with
this
CAS
pertinent
portions
of these
accounting
standards
provided
Appendix
to
opinion.
material
"potential $
1
5.
The
audit
report
also
stated
overhead,
G&A
the
and
I
and 1990
that
that
ACA's
on
the
noncompliance
all
resulted
in
excessive
charges
for fiscal
and years
over-recovery 1985-1989.
to
of
costs risk,"
ACA
contracts
and
subcontracts
to
Based
as
upon
as
government
for
exposure
auditor
estimated
impact
Government
contracts
be
much
years
7
in question.
6.
By
letter
dated
May
by
(R4,
the
tab
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
"Astro
wholly-owned subsidiary
a
ACA
in Israel
all
performed
work
the to
related
ACA's
subcontract
Hughes
to
Aircraft a
under portion
DoD
the
contract.
Instead
its
of performing
in Israel,
work
under
subcontract,
ACA
meeting
had
its
agreed
transfer offset
of
work
to
subsidiary
at
Hughes'
request,
assist
Hughes
7.
in
commercial
requirements construed,
that
it
in Israel.
ACA's
letter
of 7
the
May, reasonably
did not dispute corrected
the cost
that
these
rates
omissions
for future
constituted application, in question, contracts.
CAS
and
noncompliance. providing incurred
the costs
In
letter
ACA
the
stated cost
had
overhead
contracts
was
its
Government
to
with
for the
impact
under
ACA's was
for the firm
period
price
revising
account 22
error.
ACA
stated
there stated
no
that
impact
it
on
fixed the
By
with
letter
to
the cost
Government
impacts and
dated
that
January matter
1991, has been
ACA,
again
had
provided
Government
the
relevant
"this
corrected"
(R4,
tab
2).
8.
The
Government
was
not
satisfied
with
ACA's
response.
to
The
a
tab
DCAA
cost 4)
recommended,
statement did
so, to
inter
il
all
that
the
Administrative
contracts
Contracting
subcontracts,
Officer including
(ACO)
fixed
direct price
ACA
contracts.
submit (R4, 1991
impact
include
letter
CAS
8
covered 1991 of
and
7).
The
tab
ACO
of
cost
by
dated
dispute price
October
the issue
(R4,
tab
By
reply
to
the
Government
it
dated
its
4
December
(R4,
the
9),
ACA,
again,
did
to
not
CAS
noncompliance.
9.
However
reiterated
position
regarding
lack
impact
fixed
contracts.
By
letter
to
ACA
420.
dated Insofar bases Per agree
30
as
January
pertinent,
1992,
the
the
Government
stated
issued an
that
initial
finding of noncompliance
failure to
all
under
CAS
in
401,
the
410,
418
and
Government
's[h
include
the
questioned and
costs
appropriate
allocation clauses.
resulted
in
overstated
overhead
rates
which
affected
ACA
the
contracts
subcontracts
containing 30 days
CAS
FAR
30.602-2
'Noncompliance
with
the
with
CAS
requirements,"
initial
Government
allowed
ACA
within
which
as
to
or disagree 30.602-2
Government's
findings.
1
and required
Insofar to
pertinent, the
FAR
provided and submit
If the
that the
if
a contractor of
the
agreed
with
the
Government's on
its
initial
finding
contracts
it
was required
correct
noncompliance
impact
noncompliance with
the
initial
CAS-covered
the
subcontracts.
to
FAR
the
30.602-2(c)(1),
contractor's as follows:
(c)(3).
contractor a
final
disagreed
finding,
Government
was
.60
impact
review
position
and
make
determination
of compliance
or noncompliance.
FAR
provides
30.602-2
Noncompliance
with
CAS
requirements
(2)
If the
ACO
the
makes
a determination with and
the
of noncompliance, of
the auditor,
or
if
the
contractor
the
fails
to
furnish
the the
cost
proposal,
ACO,
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 B.C.A.
Document 86-2
(CCH) P30,390
1999
Filed 06/23/2005
ASBCA LEX1S
71,
*
Page 8 of 15
Page
3
amount not
covered by
the
to
exceed
contracts,
10
percent
of each contain
subsequent
the
payment
request,
related the
to
the
contractor's
CAS
furnished
prime
contractor.
which
appropriate
provisions,
until
proposal
has been
1. 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
ACA
had
made
corrections
action,
cost-reimbursement
that
contracts
correct
accordance
limited to
FAR
(l).[h By
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
fixed to
price
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
in
26
June
1992,
the
Government
issued
its
final
determination
stated
of noncompliance
that "the
with
in
CAS
your
401,
410,
418,
420,
accordance
establishes that
with
that
FAR
the
30.602-2(d).
The Government
in
data
that
provided overheads
inter al/a,
March]
and
response support submit
a the
clearly
costs
were not included
occurred."
all
the
appropriate
base,
were
overstated, that
determination cost impact July 1992,
to
its
CAS
noncompliances on
The Government
contracts
requested,
subcontracts.
ACA
By
letter
of
the
noncompliance
CAS
covered
and
14. the lack
dated material
its
31
ACA
fixed
provided
price
its
written for
rebuttal
to
the
Government's
stated.
findings.
Again,
that tab
it
asserted
of any
satisfied
impact
contracts the
reasons
previously
ACA
as
maintained follows (R4,
it
had
already
CAS
responsibilities
under
circumstances,
stating
in pertinent
part
23):
11.
Therefore,
Astronautics
has:
a.
Corrected
the
noncompliance
when
it
revised
the
overhead
calculation
in
May
1990.
b.
Implemented
the
a corrective
action reconciliation
plan
when
the
it
modified
the
overhead
rate rate
calculation calculation
program
to the
and
implemented
the
annual
of
amounts on the overhead
amounts on
audited
statements.
c.
Prepared
and
submitted
a
cost
impact
their
its
statement.
15.
The
at the
parties
continued
request, fiscal
to
argue
positions
at
meetings of
cost
and impact
through based
written
exchanges.
In
January
1993
contracts
DCAA,
and
ACO's
for
provided
own
estimate
on
all
of
ACA's
rates
CAS
by
covered
the
subcontracts
that
years from
1985-1990.
the did
The
DCAA
bases,
auditor
recalculated difference and applied years
the
overhead
including
rates
amounts ACA's
on
cost
had
rates
been
excluded
it
allocation
took
the
between
the
these
recalculated to
and
budgeted
all
which
assumed
not contain and (R4,
these
amounts,
for
difference through
citation
ACA's
to
incurred an
costs
CAS-covered
in the
Government
contracts
subcontracts
fiscal
1985
1990
to
obtain
estimated which
price
impact provided agreed
amount
that
of$ 6,474,587.
a
contractor's price
tab
26) Notwithstanding
shall
auditor's
FAR
30.306(b),
the the contract auditor relied
in part to
noncompliance
that that
be
"measured agreed within
that to" the
by
the
difference the
between
and
the
contract any
would
or
have
been
price
absent period
noncompliance, review, her but
did not on
the the
separately incurred
analyze of
particular
contract period. 2/10).
contract auditor
under up
rather
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 were
study
in
January,
affected
1994. by
ACA's
the
position,
however,
remained
tab 35).
same
17.
the
Government's
priced
to
contracts
not adversely
matters
in issue
,[h
The
to
parties
continued
letter to
meet dated
over
8
the
next 1996,
the
several the
years
in
an
attempt
to
resolve
their
differences.
They
a
were
unable
do
so.
By
in the
ACA
March
per
ACO
issued a contracting above, plus
officer's interest
decision, in the
seeking
recovery 6,786,325
from
for
ACA
a
total
amount of$
13,260,912
6,474,587,
tab 76).
DCAA's
calculations
amount
of$
ofS
,[h
This appeal
followed.
11.
T
Evidence
at
Trial
The Government's
Case 1:00-cv-00129-FMA
99-1 B.C.A.
Document 86-2
(CCH) P30,390
1999
Filed 06/23/2005
ASBCA LEXIS
* 7!,
Page 9 of 15
Page 4
18.
The Government
called
three witnesses
the rates
and
none
were
offered
the
as
expert witnesses.
costs. contracts
its
The
Government
testified that the
called
the
DCAA auditor who that ACAs budgeted
overhead not
audit
performed overhead no
1989 used
audit for
which
its
uncovered under
in
excluded
price
The
auditor
he
assumed
proposals
fixed
were
impacted
rates
(tr.
by
inaccurate
data
he
had
personal
pricing
knowledge
of
how ACA,
He
had no overhead
these
fact,
prepared
budgeted
as to
1/102-03).
He
these the
did
ACA's
and
forward
rate
proposals.
personal data
to
knowledge
develop
to
how ACA
view
developed
relied
proposals
reports
whether
ACA
relied
upon
did
inaccurate
1*11]
these his
proposals.
that
He
on
audit
of other and
DCAA
historical
auditors rates
who
to
audit
proposals
rates
(tr.
support
10-1
1).
DCAA
did
information
review
ACA's
overhead
1/1
These
auditors
&.
used
cost
historical
19.
The Government
negotiated overhead
fixed rates
also price
called contracts
the
DCAA
and priced
auditor
who The
were
developed
auditor's
the
Governments
estimated on
the
impact
that
under
ACA's ACA's
2/10).
subcontracts. contracts to
estimate proceeded she
assumption of
the prices or
on
its
firm
fixed
overstated any such
made
no
separate impacted
as a
review
contract
matter with
(tr.
Nor did she make
Instead, (finding
any
analysis
of
the
extent incurred
which
overstatements incurred
the
Government.
subcontractor
she
relied
on
ACA's
costs
per
year,
whether
prime
contractor
15).
20. officer's
The Government
decision.
also
called the
the
ACO
agreed
who
with
issued
the
final analysis
determination and accepted
costs price
of noncompliance
and
the
contracting
I
essence,
there
ACO
a
DCAA's
DCAA's
the
recommendations.
material 12]
The
of by
its
ACO
budget,
also
assumed
that
(tr.
that
was
relationship
between overhead not
ACA's
rates
historical for
its
and
direct
portion
affected
and
costs
ACA's
1/147,
budgeted
148, 157,
and
proposed
fixed
contracts
A
omitted
the final 21.
[
were
at the
the
.[h He was
(tr.
familiar
with
ACA's
budgeting
methodology
time he
issued
notice
of noncompliance
1/142).
ACA
issue,
called
four
lines
fact
witnesses
and
two
expert
witnesses.
ACA's ACA's
vice
president president
testified
generally
about
the detail
corporate
the find latter that
product
and
how
budgeting
reports
was accomplished.
schedules
into to
of finance
process. In
provided
short,
more
on
using corporate budgeting product
and
describe
all
ACA's
budgeting and
he
the
testified,
and
we
's[h
methodology
line,
took
account
material
cost sales
costs, as
was not
affected
by
subject
exclusions.
For each This
ACA
be and
determined applied
to
material forecasted judgments
of
to
sales
a percentage
forecasted
of
sales
based
information. adjusted used
to
in
percentage of inventory
would
levels
view
business
develop
(finding auditors
ACA's
3)
overhead not used
rates in the
(tr.
/[
to
reports
were
above
process
pricing
1
1*13] these excluded
obtain up
material
total
cost,
upon historical which figure was
cost that the to
to
come
with
projected
rates as
material
would
be
The inaccurate
2/201).
found
by
DCAA
call
on
overhead
the auditors
(tr.
ACA's
methodology
failed to
was explained
any of
DCAA
as
who
audited
ACA's
forward
rate
proposals.
The Government
these
witnesses.
22.
ACA's
accounting 1986,
around
the cost the
November
incurred
intent to
manager generally reaffirmed ACA's budget ACA's vice president for finance directed him
subsidiary separate
that the related the
process. to
He
also
testified, direct
and
we
find
that
in or
remove
certain
cost
gathers,
including
by
its
Israeli define, result
ACA-Hughes
costs. for
Aircraft
subcontract,
from process
until the
overhead did not
computations place
in
with
better the
and
costs
reclassi remained
This a
reclassification years,
take
a
timely
fashion,
with
the
number of
DCAA
discovered
the
omissions
during
1989
audit.
23.
Appellants
to
manager of
its
contracts cost
analyzed impact.
the
ACA
of
fixed his
price
work
he
authorizations
that
were
used
by
the to
Government
their
compute
prime
claimed and
As
part
analysis,
correlated contracts
work
authorization were
numbers exempt
that
respective and
contracts prices
subcontracts. definitized
He
eliminated outside
subcontracts, the relevant
he believed
from
a
CAS,
small of any
contracts
whose
were
relied
f* 14]
time
period.
He
concluded and
only be
subset
of those
contracts for cost
upon
by
the
Government
C).
were
CAS-covered
prime
contracts
could
subject
consideration
impact
cx
A-8,
Table Mr.
24.
Appellant Group,
(tr.
called Deloitte
two expert witnesses.
Rodney
as
Mateer, expert
in
National
Partner,
Government
estimating
issues
Contracting systems and
to the this cost also
Consultant
&
Touche, Mr.
was
qualified
an
his
CAS
compliance,
CAS
appeal.
administration
3/135-36,
his
195). that
Mateer
offered
expert opinion purchase
its
on
a
number of
in
relevant
We
find
persuasive above,
opinion
ACA's
cost
practice
of estimating standards
the
materials
1985-90,
(tr.
using
of
find
sales
methodology
persuasive
complied
that a
with prime
accounting has
and
disclosure
the
statement
violations
3/136).
its
We
/1
his
opinion
contractor
responsibility
for
CAS
of
subcontractors
(tr.
Case 1:00-cv-00129-FMA
99-1 B.C.A.
Document 86-2
(CCH)
Filed 06/23/2005
ASBCA
LEXIS
*
Page 10 of 15
Page
5
,390
1999
71,
25.
Mr.
cost
Nelson
Shapiro,
cost
CPA,
was
qualified
as
an expert and
as cost part as
in
accounting
with
particular
expertise
(tr.
contract Mr.
accounting,
accounting
the
standards
accounting of a
the
staff,
standards and
later
administration
Shapiro
was employed
In his
by
CAS
Board Touche
on
a
1
Ross
11
in
Government
In
1971, and Mr.
was promoted
in
to
is
project
director
executive Shapiro
that
secretary. also the
1980
he joined opinion based
&
Co.
partner. relevant
He
to
retired this
if
1991
and
now
a
consultant. his
offered
expert
number of
the contract
subjects
appeal.
given
circumstances and reporting
its
and of
upon
costs, price
and
regulations, to
there
was
its
We find persuasive a CAS noncompliance
under
its
opinion
in
ACAs
accumulation
contracts,
certain fixed
ACA
contracts
was only responsible
(tr.
adjust
costs
flexibly
priced
but not under of
a
firm
3/2
-1[
7).
26.
In
support and
detail
his
opinion, of
Mr.
Shapiro
relied
upon
the
CAS
clause, the
FAR
52.230-3,
related
the to
CAS
these
regulations, provisions,
FAR
which
Subpart
are set
30.3,
number
below.
interpretations
of
the
CAS
Board and
Government
out
in
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
an
adjustment
to
of
the
contract
price
or
cost
allowance, Accounting
in
a 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 by
the
costs
i
as to the the
appropriate, or to
if the
Contractor any
Standard,
costs
follow
the
paid by
States
United with
.
161 L.
United Treasury
together
to
interest
computed
the
rate
determined
Secretary
of
pursuant
Pub.
92-
41,85
97....
(App.
2nd
supp.
R4,
tab
203
at
131-32
(emphasis
added))
n2 reviewed
The
the in
standard
CAS
clause during
in the
FAR
of these
went through
years,
a
number of
find that
revisions
during
is
CAS
each
clause
each
and
we
this
language
in
all
1
material the
We
have
respects
contained
clause.
28. follows:
The
CAS
Board's
rules
and
regulations,
FAR
30.306(b),
define
"increased
costs
paid by
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
performance
Accounting and
cost the
Standards,
contract price
i
any
fixed
price his are
contract, cost
including
a
firm
fixed
price
contract,
17]
fails
t
follow
costs
accounting
the
practice difference the
or to
comply
with
the
applicable
price
Cost agreed with
price
measured by
been agreed
to
between
contract
in
that
would
used
to
have
accounting have
practices
during be
left
contract to the
.[h
had (1980),
contractor
proposed of
accordance contract
the
The determination
and
will
the
would
been of each
agreed
case.
will
contracting
parties
depend
on
circumstances
Id
at
133
(emphasis
added))
See
also
4
.R.[
§
331.70
where
this
language Preamble
is
repeated
essentially
verbatim. 331.10
29.
The CAS
Insofar as
Board's
pertinent,
comments
Preamble
on
this
regulation
were published
as
under
(app.
,[ located at4
tab
CFR
§
(1989).
M,
of
para.
2 provided
fixed
follows
2nd
R4
supp.,
207
at
-7[Q1[
The question of adjustment
discussions paid by
the
since U.S.
1
's[h
price the
contracts]
has been
that
the
In
its
original
promulgations
fixed
Board
[h
under
a
FFP
ri
recognized
the
contract
during
accumulating
t [h
subject
of extensive increased
cost 18]
was
and
Case 1:00-cv-00129-FMA
99-1 B.C.A.
Document 86-2
(CCII)
Filed 06/23/2005
ASBCA LEXIS
*
Page 11 of 15
Page
6
P30,390
1999
71,
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
.
fixed
priced
price
contracts that a
constitute
a recognition been agreed
in
of
if
the
fact
that
to
at
the
outset
higher change.
than This
the
would
have
to
the
Government
paid
had
known
the
accounting
constitutes
constructive
increase
the
cost
by
the
United
States
30.
Mr.
Shapiro
also
relied
upon
two working
interpretation
group of
opinions
the
published
by
the
DOD
for
Cost
Accounting
Standards under
75-6,
Working
fixed price
Group which
contracts
(tr.
provided
DOD's
Government's
remedy
under
CAS
noncompliance
firm
3/203-05). Procurement
One such
Circular
interpretation 76-I:
was provided
Defense
Procurement
Circular
reissued under
Defense
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 the
costs
allocated
to
it
as
of a noncompliance. an increased
cost
any
part
$500,000
paid by
Government,
interest.
such
payment
constitutes
the
Government
and
must be recovered
with
(b)
T
contractor
allocates the
less cost or
to
a fixed-price practice
[h
prepared
than
would
have
been of
allocated the
to
the
contract based.
by
use of
established
disclosed
on which the negotiation
contract
was
Example:
cost
A
FFP
Ifirm
fixed
price]
proposal Cost
is
in
accordance
accounting
practices
and
either
applicable
Accounting
his
Standards.
practices results in
D
S
the contract
with
the
contractor's
contract
,[h
being requested
failed negotiations,
disclosed
the
contractor applicable
to the
noncomplies Cost
by
not following
Accounting than
[h
Standards.
T
disclosed
or by not
complying with
less costs allocated to to
noncompliance had been
the
contract the the the
appropriate and and
practices
.[h
the
,000
The contractor
if
should
be
correct correct
noncompliance noncompliance
is
properly
the
allocate
costs.
However,
firm
fixed
contractor
to as the
Government
profit profit
paid
price this
agreed
during
result
then
contractor
making
5 500,000
an
additional additional
of$
is
500,000
on
costs"
a
of
the
noncompliance. recovered with
The
"increased
paid
by
Government
and
must be
interest.
(App.
2nd
R4
supp.,
tab
1[h
at
8
tab
212
at
6087
(emphasis follows
added))
31.
DOD
W.G.
Working
Group Item 76-4 provided
Increased
1,
as
(app.
2nd R4
supp.,
tab
209): Contracts Interim Guidance,
Determining
Costs
to
the
Government
for
CAS Covered FFP
76-4, October
1976.
Background
Paragraph
costs" practices
4
CFR
331.70(b) (FFP)
of
the
CAS
as
Rules
related
and
to
Regulations
discusses
i.e.,
the
concept
to
of "increased disclosed
on
firm
or
fixed-price
contracts
noncompliances,
failure
follow
cost
accounting on an
standards.
DoD
resulted practices
guidance 30] gave
in less
"Increased
Costs
Paid
Under CAS-Covered on FFP
contracts
Contracts"
contained
in
DPC
75-6
that
example
being
of increased
to the
costs
where
have
there
was
had
a
noncompliance appropriate
costs
allocated
'[h contract than
would
been
the
been
followed.
Case 1:00-cv-00129-FMA
99-1 B.C.A,
Document 86-2
(CCH)
Filed 06/23/2005
ASBCA
LEXIS
71,
*
Page 12 of 15
Page
7
,390
1999
Discussion increased cannot occur
In
cases
the
other than
price as
noncompliance of a
the
opinion
is
has been
increased.
expressed This
it
that
no
costs
can
unless
the
contract
FFP
contract
actually
concept
a as
adequately under
less
protect a
Government
was contemplated
or
by
PL
-37
thus
because
provides so
situation to
which
costs to
contractor
allocated
may
to
overtly
inadvertently
adjust
accounting
procedures a
windfall.
cause
be
FFP
contracts.
The contractor
in
all
may
receive
To
protect to
the
Government
the
situations that did so
where FFP when
33
contracts
are
involved
are
it
is
therefore due
to
is
necessary accounting
the that
recognize
phenomenon
occurs
in
cost
allocations
decreased of
this
changes. of such be
The
CAS
Board
4
CFR
1.70(b).
A
basic to
premise
the
paragraph
It is
that
amount
this
decrease extended
represents
to
the to
all
amount
cases
of "increased involving
costs
Government.'
logical
when
I
Guidance
the costs
premise
apply
FFP
contracts.
costs
to
the to
Government
the contracts
under
are
firm
less
fixed
p
been
contracts
should
allocated
be
considered
[h
to
exist
allocated
than
allocation
had
not been
.[h
Mr. than
if
would
have
been
the
method of
added]
testified the that the
32. price cost
Based
upon
for
the
above,
Shapiro
Government
noncompliance had
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,
ic
g
ACA's
sought
stated fixed
I.
price
contract
appropriate
in
followed.
rates, 3/205).
Under
the effect
circumstances
purported
noncompliance
resulted
overstated
fixed price
actual
overhead
(tr.
of
which
to
would
Shapiro,
allocate
[h
to
to
contemporaneously by
the
performed clause and
contracts
According under
Mr.
the
harm
be
if
remedied
a
CAS
regulations
simply
data
had
no
the
application
these
to
circumstances.
its
He
also
Government's
C
D
that
contractor
supplies
exists 3/207).
inaccurate defective
overhead pricing
on which
(the
Government
in
relies
detriment
protect the
to
negotiate
priced
contracts, interests
there
(tr.
legislation did
Truth
Negotiations
Act)
to
The
Government
not
assert
a defective
pricing claim
here.
There
appears did
to
be
no
dispute
certain costs,
that cost
under accounts had
a
number of
in
its
CAS-covered
its
prime bases
the
contracts for the
between
allocation
1986 of
and
1989
ACA
overhead,
costs
not gather and
determining
allocation
material
G&A
lR&D
IR&D
and
which
the
effect
of materially decreasing
Clearly, the cost input
bases
upon
for
which
the
these
overhead of
the
were measured,
and
rates
increasing
these
the
overhead
"total
rates.
base
as
used
calculation
G&A
(finding
did not represent finding of
activity
in
of
this
the
business
unit"
it
required of
by CAS
the
410,
420.
in
ACA
1990
it
did
not dispute
7).
DCAA's
In fact, the
CAS
noncompliance
in
respect
when
was advised
omissions
limited, that the
ACA
admitted
March
per
1992
that
there
was
CAS
this
noncompliance,
11).
albeit
and
that
had has
already
made
corrections
required under
as the
FAR
-2(c)(l
In
(finding
We
are
persuaded need
Government
whether
shown
changed
CAS
its
noncompliance accounting
circumstances. contended
view of
conclusion
we
not address
ACA
practices
also
by the Government.
I
or
A
its
as
Under
the
CAS
the also
clause
fails to
the
contractor with
agrees
to
an
cost
adjustment accounting
of
the
contract
price
or
contract
cost
if
the
contractor
a
subcontractor
comply
period
applicable
standards.
The
for the
Government Government
to as a
seeks prime
recovery
from
ACA
In
for
relevant
of time
when work
that
ACA
as a
performed
work
directly
contractor,
and
when
the
ACA
for
performed argues
subcontractor
the
under
agreements
the
which
the
Government
contractor
did
was not
and not have
a
party.
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 claims
entity here, against
The
U.S.C.
§
CDA
605.
makes
clear
that
is
the the
subject that the the
to
the
Act
into
are
those
contract
between with
the
the
Government
and
i.e.,
the
contractor.
41
The contractor
not
filed
entered general
the
is
Government,
jurisdiction filed
the the
prime
contractor.
With
minor exceptions
claims
v.
relevant directly
rule
that or
we
do
subcontractor See United
Government
F.2d 1541
Government
Cir.
Stales
Johnson
Controls,
Inc.,
713
(Fed.
1
not have
under
CDA
a
over
claims
directly
against
subcontractor.
General
Dynamics
Corporation,
ASBCA
Case 1:00-cv-00129-FMA
99-1 B.C.A,
Document 86-2
(CCH) P30,390
1999
Filed 06/23/2005
ASBCA
LEXIS
71,
*
Page 13 of 15
Page
8
No.
49339,
97-2
BCA
claim
P29,167
at
145,031 No. 31148,
Donner,
inertial
Division,
ASBCA
all
We have also adhered to this rule in the CAS had jurisdiction 87-3 BCA P20,066 over (Board
CAS-covered
prime See suggests
contracts also that
context. the
See
Systron
Government's
to
CAS
the
noncompliance determination
under
of
appellant's
but appellant Corporation,
is
had
no
right
appeal 50301,
of
CAS
noncompliance
the
under clause
for
its
subcontracts).
Aydin
the
BCA
p 29,260.
Moreover,
CAS
itself
strongly
contract
contractor
27).
responsible
noncompliance expert testimony departure from
of a subcontractor
to this effect settled
purposes
24).
of
adjustments
fails
(finding cite to
Mr.
(finding rule.
The Government
I
directly
ASBCA
also
No.
for
97-2
the
gave
that
persuasive
to
any persuasive
authority
would
warrant
this
well
We
under
the
conclude
that
in
is
these
to
circumstances, say
that a
the
Government
may
not
file
a
CAS
claim
against
a
subcontractor
the
CDA.
That
not
Government's
adjust
its
remedy
prime
is
against
the price
CAS covered subcontractor relevant CAS prime contractor
or cost as
may
under
a
violate the
CAS
covered
with
impunity. and
the
Rather,
contract
in issue,
Government
has
failed to
may
meet
the
contract
appropriate
to
the
extent
CAS
subcontractor
CAS
obligations.
lit.
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.
omissions, These
ACA
adjusted
are
its
billings here.
under
priced here
contracts are the
corrected
contracts
overhead
contracts
not
the
at
issue
The
contracts period.
issue
firm
between
ACA
and
the
Government
during
relevant
time
The Government
the contrnct price
is
bound
by
the
regulations
and
implementing
the
contract
clauses
which was
provide
the
in
parameters
all
of
adjustment.
Under
FAR
n3
the
52.230-3, contractor such
standard
to a
CAS
contract in
clause
price
which
incorporated
if
the or
its
relevant
CAS
covered
fixed-price
is
contracts,
agrees
adjustment
costs
the
contractor United
CAS
covered
subcontractor
noncompliant
"and
failure
results
any
increased
paid
by
the
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 disputes
into to a
the
applicability
number of
that
-cov
contracts
of
CAS
prime
coverage
contracts the
a
number of
the
these
contracts,
not dispute
23), so
during standard
relevant clause
time period
in the
(finding
and
does
not appear
for the
dispute
said
contained
CAS
FAR.
We
shall
presume
purposes
of
this
opinion.
7]
The nature of
Interpretations.
these
increased
costs
under
a
contractor's that
fixed-price
contract costs are
is
spelled
out
in the
FAR
30.306(b),
fails
"is
This
contract cost
provision accounting
the contract
provides standard
price the
these
increased
incurred and
that
where
the cost
contractor
to
follow by
the
the
applicable
"during
to
contract
performance"
contract price
differential
measured
the
difference
between
in
agreed
cost
and
the
that
would
have
been
agreed
to
had
contractor
proposed Preamble
accordance
with
accounting
this
v.
practices
used
during look
contract
performance."
to
CAS
into the
M
further rules
explains and
the cost the
the
nature of Perty
adjustment. Martin
the
We may
had
to
the preamble 1134, 1139
provide
Cir.
insight 1995).
CAS
M,
standards, Para. "that
regulations.
Marietta contractor
Corp.,
47
Jd[
(Fed.
Preamble performance According negotiation
2 explains reduced
his
need
for
a
remedy when below the
been
relied the
adopted during of
practices
during
contract process.'
allocations
allocation
determined
the estimating
allocation to at
to
this
reasoning,
to
had
Government would
have
aware
of
the
this
new
method
cost
cost
the
time
of
price price. a
prior a
award,
it
upon
reduced from
allocation
obtain
a
better
contract
as
Accordingly,
result
contract
price
adjustment during
did
precludes
contract
contractor
obtaining
any
contract
price
advantage
of any Here,
CAS
noncompliance
actions inactions If 32).
performance.
cost allocations
ACA's
or
not reduce
during
cost
the
performance
to
of any of
its
fixed
priced performed
CAS-covered
fixed price the
prime
contracts. (finding
anything,
's[h
omissions
is
increased
to
allocations
contemporaneously these
contracts
in
contracts
The
Government
and of
is
not
entitled
an
adjustment
under
accordance
with
relevant
CAS
contract
clause
regulations.
DOD's
(findings 30,
long standing
31).
interpretation
these
provisions with
that
is
also
consistent the
with
the
conclusion
in this appeal.
we
have
reached
This
interpretation
at
odds
offered
by
Government
Case 1:00-cv-00129-FMA
99-I B.C.A.
Document 86-2
I)[h
P30,390
Filed 06/23/2005
ASBCA
LEXIS
*
Page 14 of 15
Page 9
1
the
71,
In
view
of
all
the
foregoing, firm
we
conclude
price
that
the
Government
within
has not
established
it
is
entitled
to
a
contract
price
adjustment
regulations.
under
ACA's
fixed
prime
contracts
meaning
of
the
CAS
clause
and
related
CAS
The appeal
is
sustained
as
to
ACA's
prime
contracts.
It
is
dismissed
as
to
ACA's
subcontracts.
n4
n4 and
the
The Government
also price
argues
that
it
relied
on
a
defectively cause of
action
calculated
overhead
in
rates
when
pricing
it
negotiated of
awarded
Truth
here.
in
's[h
are
fixed
contracts. that
This not
to
is
sounding
defective decision
in violation
Negotiations
Act
was
asserted
by
such
the
contracting and
officer's
in the
Government's
merits.
claim
We
without
jurisdiction
consider
a claim
pass
no
judgment
Division,
on
its
See 27802, 83-2
International
Telephone
&
Telegraph
Corporation/ElectroOptical
Products
ASBCA
No.
BCA
P
16,773.
Dated:
18
May
1999
JACK
Armed
DELMAN
Judge Services
Administrative
Board
of Contract
I
c
c
Appeals
ALAN
Acting
M.
SPECTOR
Judge
Administrative
Chairman
Services Board
Armed
of Contract
Appeals
I
MARK
Vice
N.
STEMPLER
Judge
Administrative
Chairman
Services
Armed
Board
of Contract
Appeals
APPENDIX
standards
Insofar
as
pertinent, 0]
the
cost
accounting
relied
upon
by the Government
provide
as
follows:
40 1-40
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
410-40
Fundamental
requirement.
(b)(l) cost
The
G&A
of
expense
that cost
pool of
a
business
unit
for
a
cost
accounting
a cost input
period base
shall
be
allocated
to total
final activity
objectives business
accounting
period by means
omitted].
of
representing
the
of
the
unit
exception
410-50
Techniques
for
application.
Case 1:00-cv-00129-FMA
99-I R.C.A.
Document 86-2
(CCH) P30,390
1999
Filed 06/23/2005
ASBCA LEXIS
* 71,
Page 15 of 15
Page 10
***
(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
using
the
input
shall
include
are
those not
expenses of
a
which by operation
pool of
of
this
Standard and
are
excluded
from
the
expense
pool and
allocation
part
combined
G&A
expenses
other expenses
allocated
same
base.
418-40
Fundamental
Requirement.
**
(c)
Pooled
costs
shall the
be
allocated costs to
to
cost
objectives
in
reasonable
proportion
to
the
beneficial
or
causal
relationship
of
pooled
cost
objectives
[I
-50[
(a)
Techniques
for
application.
Determination
* *
of
direct
cost
and
indirect
cost
1)
(2)
*
In
accounting omitted]
for
direct
costs
a business
unit
shall
use
actual
costs
except
that
-
condition
420-50
Techniques
for
application.
(0
The
cost as
of
IR&D
and
B&P
projects
accumulated
at
a business
unit
shall
be
allocated
to
cost
objectives
follows:
1)
(2) shall
applicable]
JR&D
allocated unit to
and
B&P
to
all
cost
pools
costs
which
are
not of
allocated
under
unit
subparagraph by means
in
(
the
of
this
subsection,
be
final
its
objectives and
the
business
of
same base
used
by
. .
the
business
allocate
general
administrative
expenses
accordance
with
4 10-50]
.