Case 1:00-cv-00129-FMA
Document 79-3
Filed 11/22/2004
Page 1 of 33
IN
THE UNITED STATES COURT OF FEDERAL CLAIMS
LOCKHEED MARTIN CORPORATION
PLAINTIFF
NO OO129C
JUDGE ALLEGRA
UNITED
STATES OF
AMERICA
DEFENDANT
APPENDIX TO PLAINTIFFS
REPLY IN SUPPORT OF
ITS
MOTION FOR
SUMMARY JUDGMENT AND OPPOSITION TO DEFENDANTS CROSS MOTION FOR SUMMARYJUDGMENT
PAGES 078108
DATED NOVEMBER 22 2004
Case 1:00-cv-00129-FMA
Document 79-3
Filed 11/22/2004
Page 2 of 33
SUPPLEMENTAL DECLARATION
OF JAMES
BLUE
046049
INC
DECEMBER 29 1995
LETTER
FROM
CRAY RESEARCH
TO
050052
LOCKHEED WITH DECEMBER 22
LETTERS ATTACHED
MAY
1997
FACSIMILE
FROM LOCKHEED
CONCERNING
TO
DON WHEATLEY
DISPOSITION OF
053056
TRANSMITTING
CORRESPONDENCE
CRAY COMPUTERS
057068
MAY
1997
FACSIMILE APRIL
FROM LOCKHEED
TO
DON WHEATLEY
TRANSMITTING
1996
DCAA
AUDIT REPORT
OCTOBER
10
1997
LOCKHEED
MEMORANDUM WITH
ATTACHMENTS
069072 073074 075077
LOCKHEED MARTIN SKUNK WORKS FEDERAL COURTS ADMIN 1992
LADC
PL
FY
1997
OVERHEAD RATE AGREEMENT
USCCAN
ACT OF 1992 3921
102572
DCAA AUDIT
UNILATERAL
GUIDANCE ON COST ACCOUNTING STANDARDS COST IMPACT IN COST ACCOUNTING PRACTICE AND NONCOMPLIANCE WITH CAS CHANGES
PRACTICES
CAS
078100
AND DISCLOSED
JAN 2002
IN
RE VIOLATION
OFRULE
28C
MISCELLANEOUS
NO 774 2004
TO DORIS
101105
106
AUGUST 19 2004 OCTOBER 1997
LETTER
FROM CLARENCE KIPPS FROM LOCKHEED
FINNERMAN
LETTER
TO
DCE
BECKER
107108
Case 1:00-cv-00129-FMA
Document 79-3
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Page 3 of 33
DEFENSE CONTRACT AUDIT AGENCY DEPARTMENT OF DEFENSE
8725
JOHN KINGMAN ROAD SUITE FORT BELVOIR VA 220606219
2135
IN
REPLY REFER TO
JANUARY
2002
PAC
7303
120023
02PAC004R
MEMORANDUMFOR REGIONAL DIRECTORS DCAA
DIRECTOR SUBJECT
AUDIT GUIDANCE
FIELD
DETACHMENT DCAA
STANDARDS
ON COST ACCOUNTING
PRACTICE
CAS
COST IMPACT
UNILATERAL
CHANGES
PRACTICES
IN COST ACCOUNTING
AND NONCOMPLIANCE WITH
CAS
AND DISCLOSED
SUMMARY
THE PURPOSE OF THIS MEMORANDUMIS
AND SETTLEMENT
ALTERNATIVES TO PROVIDE ENHANCED AUDIT
GUIDANCE ON THE COMPUTATION
OF THE
CAS
WITH
COST IMPACT
FOR UNILATERAL
COST ACCOUNTING PRACTICE OR ESTABLISHED
CAP
CHANGES AND FOR NONCOMPLIANCES
PRACTICES
CAS
OR
CONTRACTORS DISCLOSED
ACCOUNTING
BACKGROUND
THE
CAS
ANY
THE
STATUTE
PL
100679
STATES AT 41
USC 422
SUBSECTION
26H3
AS
THAT
CONTRACT PRICE STATES IN
ADJUSTMENT UNDERTAKEN
SHALL BE
MADE
TO PROTECT THE
UNITED
FROM PAYMENT IN THE AGGREGATE OF INCREASED DEFINED BY THE
COSTS
DEFINED BY
BOARD
NO CASE SHALL THE GOVERNMENT RECOVER COSTS GREATER THAN THE
INCREASED
COST
AS
BOARD TO
THE
GOVERNMENT
IN THE AGGREGATE ON
THE RELEVANT
CONTRACTS
THE
ORIGINAL
CAS
STATUTE
PL
INCREASED COSTS
ESTABLISHED
HOWEVER THE ORIGINAL
91379 DID CASB
INCREASED
NOT INCLUDE
LANGUAGE REGARDING AGGREGATE
REGULATIONS AT
IN ITS IMPLEMENTING
CFR 33170F CAS
IMPACTS
THE CONCEPT OF OFFSETTING
AND DECREASED COSTS PAID BY THE GOVERNMENT
CONGRESS REITERATED THE OFFSET APPROACH IN
PL
CAS
100679
IN
1988
BY MANDATING
IN DETAIL
THAT
ARE TO BE DEALT WITH IN THE AGGREGATE BUT THE COSTS IN COSTS AND RESOLUTION THE
STATUTE DOES NOT PRESCRIBE REGULATIONS
HOWTO COMPUTE
ON INCREASED ADDRESS
AGGREGATE WHILE
IN
PROVIDE SOME GUIDANCE DO NOT SPECIFICALLY
OF COST IMPACTS
9903306
THE REGULATIONS
COMPUTATION
OF INCREASED
COSTS IN THE AGGREGATE
078
Case 1:00-cv-00129-FMA
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Page 4 of 33
PAC 7303 120023 SUBJECT AUDIT CAS
GUIDANCE
ON COST ACCOUNTING
STANDARDS
PRACTICE
CAS
COST IMPACT
UNILATERAL
CHANGES
IN COST ACCOUNTING
AND NONCOMPLIANCE WITH
AND DISCLOSED PRACTICES
GUIDANCE
AUDITORS SHOULD USE
RESULTING
FIVESTEP
PROCESS TO CALCULATE
AND ASSIST RESOLVING
COST IMPACTS
FROM UNILATERAL
THE
CAP
CHANGES AND
CAS
NONCOMPLIANCES
COST
THE
FIRST
TWO STEPS INVOLVE
AND ALLOCATION IMPACT
ASCERTAINING
IMPACT ON COST ACCUMULATION PRICES
STEPS
IE
MEASUREMENT ASSIGNMENT
AND AND
ITS ITS
AFFECT ON CONTRACT AFFECT
AND
TRANSLATE THE RESULTING
COST ACCUMULATION
USING THE
SETTLEMENT RESPONSIBLE
ON CONTRACT PRICES INTO INCREASED COSTS IN THE AGGREGATE PAID BY THE GOVERNMENT CAS BOARDS CASBS DEFINITIONS OF INCREASED COSTS PAID STEP ADDRESSES
ALTERNATIVES AVAILABLE TO THE
COGNIZANT FEDERAL AGENCY OFFICIAL MATTERS THREE EXAMPLES
CFAO WHO
IS
FOR ADMINISTRATION
OF
CAS
OF THE FIVESTEP
PROCESS ARE
INCLUDED AS AN ENCLOSURE TO THIS STEP CONTRACTS
MEMORANDUM
INCREASEDDECREASED COST ACCUMULATIONS FOR
COMPUTE THE
CASCOVERED
OR IMPACT
IN
ON CONTRACT PRICES FOR ESTIMATING
THE COST IMPACT
IS
NONCOMPLIANCES
STEP
CALCULATED
FOR ALL
CASCOVERED CONTRACTS
AFFECTED
BY
UNILATERAL
CAP
CHANGE OR
UNILATERAL
NONCOMPLIANCE
ACCOUNTING CHANGES
REPRESENTS THE DIFFERENCE
HE
COST IMPACT
BETWEEN THE ESTIMATED COST TO COMPLETE
ETC
USING THE OLD ACCOUNTING PRACTICE FROM THE EFFECTIVE CONTRACTS
AND THE
ETC
USING THE
NEW ACCOUNTING
PRACTICE
IT
IS
PROSPECTIVE THE AFFECTED
DATE OF THE CHANGE UNTIL
THE END OF THE PERIOD OF PERFORMANCE OF
NONCOMPLIANCE THE
NONCOMPLIANT
COST IMPACT
IN COST ACCUMULATION
REPRESENTS
THE DIFFERENCE
BETWEEN COSTS ACCUMULATED USING THE COMPLIANT
PRACTICE
PRACTICE
AND COSTS THAT WOULD HAVE BEEN ACCUMULATED IF
HAD
BEEN USED THE COST IMPACT AFFECTS ONLY FLEXIBLYPRICED
WHICH
THE CONTRACTOR
ACCUMULATED COSTS IN
IN
CONTRACTS AND ONLY NONCOMPLIANT MANNER
FOR THE PERIOD DURING
NONCOMPLIANCE THE
NONCOMPLIANT
COST IMPACT
COST ESTIMATING THE DIFFERENCE
REPRESENTS
BETWEEN THE CONTRACT PRICE
IF
IT
USING THE
PRACTICE
AND WHAT THE CONTRACT PRICE WOULD HAVE BEEN TYPE OF NONCOMPLIANCE
HAD BEEN PRICED USING
COMPLIANT PRACTICE
CONTRACTS AND THE IN THE CONTRACT FEE
THIS
AFFECTS THE COSTS AND PROFIT
ON FIXEDPRICE
ON CPFF CONTRACTS AND AMOUNT
REPRESENTS
THE ENTIRE PERIOD OF PERFORMANCE PRICED
FOR OFFICIAL
USE ONLY
079
Case 1:00-cv-00129-FMA
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Page 5 of 33
PAC 7303 120023 SUBJECT AUDIT CAS
STEP
GUIDANCE
ON COST ACCOUNTING
STANDARDS
PRACTICE
CAS
COST IMPACT
UNILATERAL
CHANGES
IN COST ACCOUNTING PRACTICES
AND NONCOMPLIANCE WITH
AND DISCLOSED
FOR
UNILATERAL
CHANGES AND
COST
COST ACCUMULATION
INCREASEDDECREASED
COST ACCUMULATIONS
WITHIN
NONCOMPLIANCES COMBINE THE THE CONTRACT GROUP FOR ESTIMATING
NONCOMPLIANCES COMBINE THE
WITHIN THE CONTRACT
IMPACT OF THE NONCOMPLIANCE ON THE CONTRACT PRICE
GROUP
THERE ARE PRICE
IN
STEP
FLEXIBLYPRICED
AND FIXED
FP
TWO CONTRACT GROUPS OF CASCOVERED CONTRACTS
IN THIS
THAT
WE CONSIDER
COMBINED
STEP THE COST ACCUMULATION
INCREASES
AND DECREASES
FOR
UNILATERAL
CHANGES AND ACCUMULATION
NONCOMPLIANCES DEVELOPED
NONCOMPLIANCES
IN STEP
ARE
WITHIN
EACH CONTRACT GROUP FOR ESTIMATING
ARE
THE INCREASES
AND DECREASES TO
CONTRACT
CONTRACT PRICES
COMBINED WITHIN
CONTRACT
GROUP THE
SUBJECT CONTRACTS
FLEXIBLYPRICED
GROUP INCLUDES COSTS THE
COST REIMBURSEMENT
CONTRACTS AND CONTRACTS
TO ADJUSTMENT BASED
ON INCURRED
FP GROUP
CONTRACTOR
INCLUDES
THOSE TYPES OF FIXED
PRICE
WHERE THE
PRICE
DOES NOT VARY BASED ON
COST
THUS
THE
FP
GROUP EXCLUDES EPI
CONTRACT
AND
FP
REDETERMINABLE CONTRACTS WHICH ARE
THE IMPACT
INCLUDED IN THE FLEXIBLYPRICED
IS
GROUP COMBINING
SO THE
WITHIN
THE CONTRACT GROUPS RATHER THAN ALL
DONE FOR ADMINISTRATIVE
CONVENIENCE
CFAO MAY ADJUST
FEW CONTRACTS
CONTRACTS
THE IMPACT ON
CONTRACT
COST ACCUMULATIONS CONTRACT
AND CONTRACT PRICES
ARE SEVERAL
IS
COMBINED ONLY WITHIN
AS FOLLOWS
GROUP NOT BETWEEN
GROUPS THERE
REASONS FOR THIS
INCREASED COSTS PAID BY THE GOVERNMENT ON FLEXIBLYPRICED INCREASED
COST ACCUMULATIONS
CONTRACTS RESULT FROM
WHILE INCREASED
COSTS PAID
BY
THE GOVERNMENT
RESULT FROM DECREASED COST ACCUMULATIONS
CAS
BY
99033
06
THIS
DIFFERENCE
ON FP MAKES
CONTRACTS
IT
IMPROPER
AND MATHEMATICALLY
UNWORKABLE TO SIMPLY
INCREASED
COMBINE
THE
THE COST ACCUMULATIONS
ACROSS CONTRACT
GROUPS WHEN CALCULATING
COSTS PAID
GOVERNMENT
BETWEEN CONTRACT GROUPS COULD RESULT IN ON FFP CONTRACTS DECREASE BY
IF THE COST
COMBINING
INEQUITABLE RESULTS
THE COST ACCUMULATIONS
FOR INSTANCE ASSUME COST ACCUMULATIONS
NET
200
WHILE COST ACCUMULATIONS
ARE
ON CPFF
CONTRACTS INCREASE
ACCUMULATIONS
COMBINED BETWEEN
SINCE INCREASED
CONTRACT COSTS
WHICH
IS
NOT EQUITABLE
BY NET 200 GROUPS THE GOVERNMENT WOULD RECOVER NOTHING PAID BY THE GOVERNMENT OCCURRED ON BOTH FFP AND
CPFF
CONTRACTS
SHIFTS OCCUR ONLY WITHIN
COMBINING THE COST ACCUMULATIONS BETWEEN CONTRACT GROUPS PRESUMES THAT COST CASCOVERED CONTRACTS IN FACT THE OPERATING HYPOTHESIS SHOULD BE THAT
ACCUMULATIONS
DID NOT SHIFT SOLELY BETWEEN THE COST SHIFTS ALSO AFFECT EXISTING
CASCOVERED CONTRACTS NONCASCOVERED CONTRACTS ANDOR FUTURE AWARDS
CASCOVERED
CONTRACTS USUALLY
FUTURE AWARDS ARE AFFECTED
PERIODS
BECAUSE THE AFFECTED
HAVE DIFFERENT
OF PERFORMANCE IN THE CASE OF AN ESTIMATING
AFFECTED
NONCOMPLIANCE
THE PERIODS OF PERFORMANCE COST ACCOUNTING PERIODS FUTURE CONTRACTS NOT
FOR THE INDIVIDUAL
CASCOVERED FP
CONTRACTS COVER DIFFERENT
THEREFORE
COST SHIFTS MUST ALSO AFFECT EXISTING
NONCASCOVERED ANDOR
INCLUDED IN THE COST IMPACT PROPOSAL
FOR OFFICIAL
USE ONLY
080
Case 1:00-cv-00129-FMA
Document 79-3
Filed 11/22/2004
Page 6 of 33
PAC 7303 120023 SUBJECT AUDIT GAS
GUIDANCE
ON COST ACCOUNTING
STANDARDS
PRACTICE
GAS COST
IMPACT
UNILATERAL
CHANGES
IN COST ACCOUNTING
AND NONCOMPLIANCE WITH
AND DISCLOSED PRACTICES
STEP CONTRACT
DETERMINE THE INCREASEDDECREASED
COST PAID
BY THE GOVERNMENT FOR EACH
GROUP
USING THE NET IMPACT ON COST ACCUMULATIONS
OR CONTRACT
PRICE FOR
ESTIMATING
NONCOMPLIANCES
INCREASED COSTS PAID BY THE GOVERNMENT CONTRACTS INCREASED COSTS PAID
THE GOVERNMENT OCCUR RESULT OF UNILATERAL
FLEXIBLYPRICED
BY
AS
WHEN MORE COSTS
ARE ACCUMULATED
ON FLEXIBLYPRICED
CONTRACTS
ACCOUNTING CHANGE
GAS
9903
306A
AS RESULT OF AN ACCOUNTING
FP
NEGOTIATED
CONTRACTS INCREASED COSTS PAID BY THE GOVERNMENT OCCUR WHEN LESS
COSTS ARE ACCUMULATED
ON FP
IS
CONTRACTS
CHANGE
OR THE PRACTICE
CONTRACT PRICE
IT IS
HIGHER AS
RESULT OF ESTIMATING REFERRED TO AS WINDFALL
USING PROFIT
NONCOMPLIANT
GAS 9903306B
COMMONLY
DECREASED COSTS PAID BY THE GOVERNMENT DECREASED COSTS PAID BY THE GOVERNMENT ARE NOT DEFINED BY THE ALTHOUGH THE
CASB
GAS
STATUTE PRESUMES THAT THERE CAN BE DECREASED COSTS PAID
IT
BY
THE
GOVERNMENT SINCE AGGREGATE
PROVIDES FOR ADJUSTMENTS TO REMOVE ONLY INCREASED COSTS PAID IN THE
WEINTERPRET
DECREASED
COSTS
PAID
TO BE THE CONCEPTUAL OPPOSITE
OF THE
CASBS
DEFINITION
OF INCREASED
COSTS
PAID
FLEXIBLYPRICED
CONTRACTS DECREASED COSTS PAID BY THE GOVERNMENT OCCUR WHEN
CONTRACTS AS RESULT OF AN ACCOUNTING CHANGE OR AS FEWER COSTS ARE RECORDED ON
FEWER COSTS ARE ACCUMULATED ON FLEXIBLYPRICED NONCOMPLIANCE
THE CONTRACTS IN COST ACCUMULATION
THIS
OCCURS AUTOMATICALLY
FP CONTRACTS DECREASED
ARE ACCUMULATED ON
COSTS PAID
BY
THE GOVERNMENT
OCCUR WHEN MORE COSTS
NEGOTIATED IF
FP
CONTRACTS
IS
AFTER AN ACCOUNTING THAT
NONCOMPLIANT
PRACTICE
PRACTICE
LOWER THAN THE PRICE
CHANGE OR WHEN THE PRICE WOULD HAVE BEEN NEGOTIATED
USING
COMPLIANT
HAD BEEN USED
CONSIDER
THE CASE OF
ACCUMULATED UNDER THE FP CONTRACT IF THE NEGOTIATIONS HIGHER PRICE PRICE
CAP CHANGE FOR CAP CHANGE
WHICH
GREATER COSTS WILL
NOWBE
OF
LESS THROUGH
HAD BEEN KNOWN
AT THE TIME
WOULD HAVE BEEN NEGOTIATED
THE GOVERNMENT HAS PAID
LOWER NEGOTIATED
SIMILARLY
PRICE EFFECT THAT
IF THE PRICE NEGOTIATED
NEGOTIATED
USING
NONCOMPLIANT
PRACTICE
PRACTICE
IS
LESS THAN THE
WOULD HAVE BEEN
IT
HAD
COMPLIANT
IF
HAS PAID LESS THAN
WOULD HAVE PAID
THE COMPLIANT
BEEN USED THE GOVERNMENT IN PRACTICE HAD BEEN USED
FOR OFFICIAL
USE ONLY
081
Case 1:00-cv-00129-FMA
PAC 7303 120023 SUBJECT AUDIT CAS
Document 79-3
Filed 11/22/2004
Page 7 of 33
GUIDANCE
ON COST ACCOUNTING
STANDARDS
PRACTICE
CAS
COST IMPACT
UNILATERAL
CHANGES IN
COST ACCOUNTING
AND NONCOMPLIANCE WITH
AND DISCLOSED PRACTICES
STEP
DETERMINE AGGREGATE INCREASED
COSTS PAID COSTS PAID
BY THE GOVERNMENT BY COMBINING BY THE GOVERNMENT FOR EACH
ACROSS CONTRACT GROUPS THE INCREASEDDECREASED CONTRACT GROUP
ONCE
CONTRACT GROUP IN
THE INCREASEDDECREASED
COSTS PAID
BY THE GOVERNMENT
ARE DETERMINED
FOR EACH ARE
STEP
IE
FLEXIBLYPRICED
AND
FP
CONTRACTS THESE INCREASESDECREASES
COMBINED
TO DETERMINE
INCREASED
COSTS IN THE AGGREGATE PAID COSTS PAID
BY THE GOVERNMENT
THE GOVERNMENT
COMBINING WHICH
STATE IN
THE INCREASEDDECREASED INCREASED COSTS IN
BY
BETWEEN THE TWO
CONTRACT GROUPS TO DETERMINE
THE AGGREGATE IS CONSISTENT
WITH
CAS
REGULATIONS
9903306E
AN
ADJUSTMENT TO THE CONTRACT PRICE OR OF COST ALLOWANCES PURSUANT TO THE COST STANDARDS CLAUSE
AT OR
ACCOUNTING
99032014A
MAY NOT
BE REQUIRED
WHEN
CHANGE
IN COST ACCOUNTING PRACTICES PRACTICES CONTRACT
IS
FAILURE TO FOLLOW STANDARDS OR COST ACCOUNTING COSTS BEING
ESTIMATED TO RESULT IN INCREASED
THE
PAID UNDER
ARISE
PARTICULAR CONTRACTOR
ALL IS
BY
UNITED STATES
THIS
CIRCUMSTANCE
MAY
WHEN
PERFORMING TWO OR MORE COVERED CONTRACTS AND THE CHANGE OR FAILURE AFFECTS SUCH CONTRACTS THE CHANGE OR FAILURE MAY INCREASE THE COST PAID UNDER ONE
OR
MORE OF THE CONTRACTS WHILE DECREASING THE COST PAID UNDER ONE OR MORE OF THE CONTRACTS IN SUCH CASE THE GOVERNMENT WILL NOT REQUIRE PRICE ADJUSTMENT FOR ANY
INCREASED
OR COSTS
PAID BY THE UNITED
THIS SITUATION
STATES
SO LONG AS THE COST DECREASES UNDER ONE
MORE CONTRACTS
IN
ARE AT LEAST EQUAL TO THE INCREASED COST UNDER THE OTHER AFFECTED THE CONTRACTING
CONTRACTS
AGENCIES
WOULD OF
COURSE REQUIRE
TO THE EXTENT
AN
ADJUSTMENT OF THE CONTRACT PRICE OR COST ALLOWANCES
THAT THE INCREASES
AS APPROPRIATE
UNDER CERTAIN
CONTRACTS
WERE NOT OFFSET BY THE DECREASES UNDER
THE REMAINING CONTRACTS EMPHASIS
ADDED
THE
PL
CONGRESSIONAL
IS
CONCEPT OF COSTS PAID IN THE AGGREGATE IN THE CURRENT
EQUIVALENT
CAS
STATUTE COSTS
100679
THE FUNCTIONAL
OF THE CONCEPT OF OFFSETTING
IN
INCREASEDDECREASED
THE AGGREGATE
PAID BY THE GOVERNMENT DISCUSSED IN RECOGNIZES IN STATUTE THE PRACTICE
CAS
99033
06E
THE PHRASE IN
OF OFFSETTING GROUPS OF CURRENT
WE BELIEVE
AGGREGATING THE IMPACT ACROSS THE RESPECTIVE
CASCOVERED CONTRACTS IS REASONABLE INTERPRETATION OF THE REGULATIONS HOWEVER THERE MAY BE WHEN COMBINING THE INCREASEDDECREASED COSTS PAID BY THE GOVERNMENT ACROSS THE RARE INSTANCES
TWO GROUPS OF CURRENT
AGGREGATE
CONTRACTS RESULTS IN INEQUITABLE RESULTS IN THESE INSTANCES AUDITORS ARE NOT
PRECLUDED FROM USING ANOTHER AGGREGATION METHOD TO CALCULATE THE INCREASED
COSTS IN THE
FOR EXAMPLE SUCH CASE MIGHT OCCUR WITH CHANGE IN MEASUREMENT CONSIDER CHANGE IN MEASUREMENT THAT CAUSES FEWER COSTS TO BE INCURRED IN THE CURRENT PERIOD AND GREATER
COSTS TO BE INCURRED IN
SUBSEQUENT PERIODS
DEPENDING ON
THE
MIX OF
CONTRACT TYPES
OFFSETTING CONTRACTS
THE AGGREGATE COSTS PAID
BY THE GOVERNMENT BETWEEN
CURRENT
FP AND FLEXIBLYPRICED BY
COULD RESULT IN THE APPEARANCE THAT THERE ARE NO INCREASED
COSTS PAID
THE GOVERNMENT
AND
FOR OFFICIAL
USE ONLY
082
Case 1:00-cv-00129-FMA
Document 79-3
Filed 11/22/2004
Page 8 of 33
PAC 7303 120023 SUBJECT AUDIT CAS
GUIDANCE
ON COST ACCOUNTING
STANDARDS
PRACTICE
GAS COST
IMPACT
UNILATERAL
CHANGES IN
COST ACCOUNTING
AND NONCOMPLIANCE WITH
AND DISCLOSED PRACTICES
THEREFORE NO CONTRACT ADJUSTMENTS ARE NECESSARY TO PROTECT THE GOVERNMENT FROM INCREASED PAID
COSTS
HOWEVER SINCE
MORE
COSTS WILL BE ACCRUED IN
FUTURE PERIODS
THE GOVERNMENT WILL
BE
THE
PAYING INCREASED
FUTURE PERIODS
COSTS ON
NEW CONTRACTS
IN THE FUTURE IN THE FORM OF COSTS THAT HAVE TO CURRENT CONTRACT
MOVEDTO
WITHOUT
ANY DOWNWARD ADJUSTMENT
INCREASED
PRICES THE SAME COST WILL AND WORK
THE
BE DOUBLECOUNTED IN THIS CASE THE AUDITOR
CLOSELY WITH THE
SHOULD CAREFULLY ANALYZE THE SITUATION
COSTS IN THE AGGREGATE PAID
CFAO WHENCALCULATING
BY
GOVERNMENT
IN
IS
MOST INSTANCES HOWEVER BY COMBINING
THE
INCREASED
COSTS IN THE AGGREGATE PAID COSTS PAID
BY
THE GOVERNMENT FOR EACH GROUP
CALCULATED
INCREASEDDECREASED
BY
THE GOVERNMENT
OF CURRENT CONTRACTS
THE
INCREASED
COSTS IN THE AGGREGATE PAID REPORT AND REPRESENTS
BY
THE
THE GOVERNMENT
DETERMINED IN STEP
SHOULD BE REPORTED
IN OUR AUDIT
AMOUNT OWED THE GOVERNMENT
STEP
SETTLEMENT
ALTERNATIVES
IT
IS
THE
CFAOS RESPONSIBILITY
CFAO
TO ADMINISTER
GAS
THIS
INCLUDES
RESOLUTION
OF THE
THE
COST IMPACT AUDITOR
FOR
CAP
CHANGES AND NONCOMPLIANCES
AS NECESSARY IN
HOWEVER IN
OUR ADVISORY CAPACITY
SHOULD ASSIST THE
SETTLEMENT
OF THESE ISSUES
THERE ARE
COST IMPACT
NUMBER OF SETTLEMENT
ALTERNATIVES
AVAILABLE
TO THE
CFAO
TO RESOLVE
THE THE
ONCE
THE AGGREGATE INCREASED COSTS PAID SETTLEMENT
BY
THE GOVERNMENT ARE DETERMINED
CFAO
SHOULD WORK TOWARDS
THAT PRECLUDES
PAYMENT BY
THE GOVERNMENT OF THIS
AMOUNT
SOME OF THE
OPTIONS
AVAILABLE
TO THE
CFAO
INCLUDE
CONTRACT ADJUSTMENTS
ADJUST
ALL
CONTRACTS CONTRACTS CONTRACTS
ADJUST SOME DISALLOW
COSTS ON FLEXIBLYPRICED
ADJUST TARGETS AND CEILINGS ADJUST FIXED
FEE
DOWNWARD
IF
DOWNWARDON CPFF CONTRACTS UPWARD ONLY
SIGNIFICANT
NOTE
CONTRACT PRICE
CONTRACT PRICES
CAN BE ADJUSTED
TO THE EXTENT
ADJUSTMENTS ON OTHER CONTRACTS
INDIRECT RATE ADJUSTMENTS
IS
9903201
6B3
OF DOWNWARD
THIS
OPTION
MOST APPROPRIATE BY
WHEN
THE INDIRECT
RATES ADJUSTED
REFLECT THE VARIOUS
AGENCIES THAT EXPERIENCED
THE AGGREGATE INCREASED
INCREASED
COSTS PAID ON THEIR
CONTRACTS THE ADJUSTMENT SHOULD BE FOR
THE IMPACT
COSTS PAID
THE GOVERNMENT INCLUDING
ON FP CONTRACTS
FOR OFFICIAL
USE ONLY
083
Case 1:00-cv-00129-FMA
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Page 9 of 33
PAC 7303 120023 SUBJECT AUDIT CAS
ADJUSTED INDIRECT
GUIDANCE
UNILATERAL
ON COST ACCOUNTING STANDARDS COST IMPACT IN COST ACCOUNTING PRACTICE AND NONCOMPLIANCE WITH CHANGES
CAS
AND DISCLOSED PRACTICES
FOR THE GOVERNMENT
PARTICIPATION
RATE IN THE
ALLOCATION INDIRECT
BASE OF THE RATE BEING ADJUSTED
RATES RATHER THAN ADJUSTED
FULL
RATE ADJUSTMENTS SHOULD BE USED ONLY
ON
FINAL
FOR IN
FORWARD PRICING
RATES TO ENSURE THAT THE GOVERNMENT RATE IN
RECOVERS THE
AMOUNT IT
IS
OWED
HOWEVER
AGREEMENT
FINAL INDIRECT INDIRECT
FUTURE PERIOD CAN BE ADJUSTED
THROUGH USE OF AN ADVANCE
RATE ADJUSTMENTS ARE USUALLY
NOT APPROPRIATE
WHENTHE
CONTRACTOR HAS LITTLE
FLEXIBLYPRICED
WORK
CASH PAYMENT
THIS OPTION
IS
MOST APPROPRIATE
CHECK
IS
AGGREGATE
IS
SMALL AND WRITING
LESS
AMOUNT OF INCREASED COSTS BURDENSOME THAN MAKING CONTRACT OR
THE
WHEN
IN THE INDIRECT RATE
ADJUSTMENTS
CONCLUDING REMARKS
REVISIONS
TO THE COST IMPACT
IN
AUDIT
PROGRAM
AUDIT
REPORT SHELL
AND
CAM TO REFLECT
THIS
GUIDANCE ARE CURRENTLY
PROCESS
IF FAQ PERSONNEL HAVE ANY QUESTIONS THEY SHOULD CONTACT REGIONAL PERSONNEL IF REGIONAL PERSONNEL HAVE ANY QUESTIONS THEY SHOULD CONTACT SUSAN BARAJAS PROGRAMMANAGER AT 703 7673246 ACCOUNTING AND COST PRINCIPLES DIVISION
MS
SIGNED
LAWRENCE
ASSISTANT
UHLFELDER
DIRECTOR
POLICY AND PLANS ENCLOSURE THREE SCENARIOS
FOR COST IMPACT CALCULATIONS
DISTRIBUTION
FOR OFFICIAL
USE ONLY
084
Case 1:00-cv-00129-FMA
Document 79-3
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Page 10 of 33
SCENARIO UNILATERAL
CHANGE
IN
COST ACCOUNTING PRACTICE OF COSTS
AFFECTING
THE ALLOCATION
THE
CONTRACTOR DECIDED
TO CHANGE
ITS
METHOD OF ALLOCATING
WITH
FRINGE
BENEFITS
FROM HEADCOUNT
TO TOTAL LABOR DOLLARS
THE
CONTRACTOR PROPOSED THE CHANGE AS
IT
UNILATERAL
CHANGE
DCAA
REVIEWED THE CHANGE AND DETERMINED
COMPLIES
GAS
OF THE
THE
PROPOSAL
IS
CONTRACTOR
SUBMITTED
COST IMPACT
PROPOSAL FOR THE CHANGE OUR ANALYSIS
BELOW
STEP
COMPUTE THE COST IMPACT INCREASEDDECREASED CASCOVERED CONTRACTS
FOR BOTH FIXEDPRICE
COST
ACCUMULATIONS
FOR
FP
AND FLEXIBLYPRICED
CONTRACTS THE COST IMPACT
IS
CALCULATED
AS
THE DIFFERENCE
BETWEEN THE ESTIMATED COST TO COMPLETE USING THE
ETC
USING THE OLD ACCOUNTING PRACTICE
AND THE
ETC
THE
NEW ACCOUNTING
PRACTICE
SUBJECT
ACCOUNTING PRACTICE
CHANGE SHIFTS ALLOCATIONS
BETWEEN CONTRACTS THIS
RESULTS
IN INCREASED
COST ACCUMULATIONS
ON SOME CONTRACTS AND DECREASED COST ACCUMULATIONS ON OTHER
POSITIVE
CONTRACTS IN THE SCHEDULE BELOW
CONTRACT AS
RESULT OF THE ACCOUNTING
NUMBER MEANS MORE COSTS WILL BE ACCUMULATED TO THE CHANGE WHILE NEGATIVE NUMBER MEANS THAT LESS COSTS WILL CHANGE
EXISTING
BE ACCUMULATED AS
RESULT OF THE ACCOUNTING
COMMERCIAL
FLEXIBLY PRICED
AND
NONCAS
FUTURE CONTRACTS
FP
COVERED
CPAF
965096D2222
DAA9399D3333
NASI52000
340000 240000
50000 420000
CPFF
FL
162699D5555
10733
DEACO899NB FPI
F0965099C7777 F0965098C8888 F4265099C9999
40000 80000
230000
FFP
F04701 F04701
70000
350000 400000
80000 130000 200000 20000 540000 330000
97D0001
98C
1001
N624779XC2002 N6247799C3003 NOOO 997C4004
COMMERCIAL CONTRACTS GOV
NONCA SCOVERED
FUTURE CONTRACTS
ENCLOSURE FOR OFFICIAL USE ONLY
085
Case 1:00-cv-00129-FMA
Document 79-3
Filed 11/22/2004
Page 11 of 33
STEP
OFFSET THE INCREASEDDECREASED
COST ACCUMULATIONS
WITHIN
EACH CONTRACT
GROUP
WHEN
IN ADDITION
OCCURS THE CHANGE MERELY SHIFTS COSTS BETWEEN THE CONTRACTS TO THE SHIFT BETWEEN EXISTING CONTRACTS COST SHIFT ALSO OCCURS BETWEEN EXISTING AND CHANGE IN ALLOCATION
THAT ARE INCLUDED IN THE CONTRACTORS FORWARD PRICING RATE PROJECTIONS
FUTURE CONTRACTS CALCULATE THE
USED TO
LINE TO
ETC
ON EXISTING
CONTRACTS THEREFORE THE CHART BELOW INCLUDES
SEPARATE
SHOW THE IMPACT ON
ACCOUNTING PRACTICE INCREASEDDECREASED
IS
COST ALLOCATIONS
ON
FUTURE CONTRACTS
HOWEVER THE IMPACT OF THE COST
OUR CALCULATION OF CHANGE
PRACTICE
CHANGE ON THESE FUTURE CONTRACTS DOES NOT IMPACT
COSTS PAID
BY THE GOVERNMENT THE IMPACT OF THE ACCOUNTING
RATES USED TO PRICE
IS
INCLUDED IN THE FORWARD PRICING
THE FUTURE CONTRACTS THEREFORE NO FOR ILLUSTRATIVE
ADJUSTMENT TO FUTURE CONTRACTS
NEEDED
IT
IS
SHOWN HERE
PURPOSES ONLY TO SHOW
HOWTHE
COST ALLOCATIONS
BALANCE BETWEEN THE CONTRACTS
IN PRICED PRICED
OUR EXAMPLE COST ACCUMULATIONS
DECREASE BY
NET
290000
AND
600000
ON FLEXIBLY FLEXIBLY
AND FP CONTRACTS RESPECTIVELY AND
WEUSE
TWO CONTRACT GROUPS FOR OUR ANALYSIS
FP
EXISTING FLEXIBLY PRICED
COMMERCIAL
AND
NONCAS
FUTURE CONTRACTS
FP
COVERED
CPA 965096D2222
DAA9399D3333
NAS152000
340000 240000
50000 420000
CPFF
FL
162699D5555
10733
DEACO899NB
FPI F0965099C7777 F0965098C8888 F4265099C9999
40000 80000
230000 70000
350000 400000
80000
FFP
F04701
97D0001
F0470198C1001 N6247798C2002 N6247799C3003 NOOO 997C4004
COMMERCIAL CONTRACTS GOVT NONCASCOVERED
FUTURE CONTRACTS
130000
200000 20000 540000 330000
TOTAL
290000
600000
560000
330000
ENCLOSURE FOR OFFICIAL USE ONLY
086
Case 1:00-cv-00129-FMA
Document 79-3
Filed 11/22/2004
Page 12 of 33
STEP
DETERMINE THE INCREASEDDECREASED
COST PAID BY THE GOVERNMENT CONTRACT GROUP USING THE NET IMPACT ON COST ACCUMULATIONS
FOR EACH
THE GOVERNMENT PAID NET DECREASE OF 224000 ON FLEXIBLYPRICED FP CONTRACTS DETAILED AS FOLLOWS INCREASE OF 600000 ON JNCREASED
CONTRACT GROUP FLEXIBLYPRICED
CONTRACTS
AND
NET
DECREASED
COST
CPAF
CPFF
FPI
TOTAL PRICED
530000
460000
FLEXIBLY
CONTRACTS
154000 224000
600000
CONTRACTS
A1 A2 A3
FP
FLEXIBLYPRICED
FOR FLEXIBLYPRICED
CONTRACTS INCREASED
COSTS PAID
BY
THE GOVERNMENT
OCCUR WHEN
MORE
COSTS ARE ACCUMULATED
ON
THE CONTRACT AS
RESULT OF THE
CHANGE
IF FEWER COSTS ARE
ACCUMULATED ON THE CONTRACT THEN THE GOVERNMENT EXPERIENCES DECREASED COSTS PAID
CPAF
IN
CONTRACTS
OUR EXAMPLE THE
CPAF
CONTRACTS WILL
INCUR
NET
530000
LESS COSTS
340000
GOVERNMENT
240000
50000
530000
THIS
REPRESENTS
DECREASED COSTS PAID BY THE
FURTHER
WE ASSUME THAT
NO PROVISION
THE AWARD FEE ON THE ARE BASED
CPAF
ON
IS
CONTRACTS
IS
NOT IMPACTED
BY
THE
THE ACCOUNTING CHANGE BECAUSE THE
AWARD PROVISIONS
LESS COSTS THE
DELIVERY
SCHEDULES NOT
COSTS THE CONTRACT CONTAINS
FOR ANY OF THE FEE TO BE FIXED
THEREFORE EVEN THOUGH
CPAF
CONTRACTS
WILL INCUR
530000
AWARD FEE
UNAFFECTED
CPFF
CONTRACTS
CONTRACTS WILL INCUR NET
THE CPFF
460000
MORE
COST ACCUMULATIONS
420000
40000
FPI
460000
CONTRACTS
THIS REPRESENTS
INCREASED
COSTS PAID
BY
THE
GOVERNMENT
THE FPI
CONTRACTS
WILL INCUR
NET
220000
LESS COSTS
80000
REPRESENT
230000
70000
220000
THIS
ENTIRE
DECREASE IN COST ACCUMULATIONS
DOES NOT
BE ADJUSTED
DECREASED COSTS PAID BY THE GOVERNMENT THE DECREASE IN THE COST ACCUMULATIONS MUST BY THE CONTRACTORGOVERNMENT SHARE RATIO OF 7030 THEREFORE ONLY 70 PERCENT OF THE
DECREASE IN COST ACCUMULATIONS FPI
CONTRACTS
220000
70
REPRESENTS
THE DECREASED COSTS PAID
BY
THE GOVERNMENT FOR THESE
154000
ENCLOSURE FOR OFFICIAL USE ONLY
087
Case 1:00-cv-00129-FMA
Document 79-3
Filed 11/22/2004
Page 13 of 33
FP CONTRACTS THE
NET DECREASE IN COST ACCUMULATIONS
ON
FP
CONTRACTS
REPRESENTS
INCREASED COSTS
PAID BY THE GOVERNMENT THE NET DECREASE IN COST ACCUMULATIONS
OF
600000
INCREASED
350000
COSTS PAID
400000
80000
130000
200000
600000
REPRESENTS
BY
THE
GOVERNMENT
STEP
DETERMINE AGGREGATE INCREASED
CONTRACT
COSTS PAID
BY THE GOVERNMENT BY
COSTS PAID
OFFSETTING
ACROSS
CONTRACT GRONPS THE INCREASEDDECREASED
BY THE GOVERNMENT FOR EACH
GRONP
IN
INCREASED COSTS PAID BY THE GOVERNMENT INCREASEDDECREASED
INCREASED COSTS PAID COSTS PAID
THE AGGREGATE ARE THE TOTAL OF
BY
THE GOVERNMENT
DETERMINED
IN
STEP
ABOVE
IN THIS
CASE THE
BY
THE GOVERNMENT
IN THE AGGREGATE ARE
376000
600000
224000
376000
STEP SETTLEMENT ALTERNATIVES
THE GOVERNMENT COULD ADJUSTMENTS
INDIRECT
SETTLE THE COST IMPACT OR THROUGH
USING ONE OF THREE METHODS CASH PAYMENT
CONTRACT
RATE ADJUSTMENT
CONTRACT ADJUSTMENTS
THE GOVERNMENT COULD
RECOVERS THE AGGREGATE INCREASED
INCREASED TO ADJUST COSTS PAID THE
ADJUST
ONE MORE THAN ONE BY
THE GOVERNMENT OF
OR ALL CONTRACTS
AS LONG AS
IT
COSTS PAID
376000
SINCE THE NET
IT
BY
THE GOVERNMENT
OCCURRED ONLY ON THE FP CONTRACT GROUP FLEXIBLYPRICED CONTRACTS
IS
MOST LOGICAL
FP
CONTRACTS RATHER THAN THE
INDIRECT
RATE ADJUSTMENT
THE GOVERNMENT COULD
INCREASED APPLICATION COSTS PAID COSTS PAID
ADJUST THE INDIRECT
RATE SUCH THAT THE TOTAL
AMOUNT OF
RATE
BY THE GOVERNMENT
376000
WILL
BE RECOVERED THROUGH THE INDIRECT OUR EXAMPLE
SINCE
TO THE GOVERNMENT FLEXIBLYPRICED
CONTRACTS IN FROM
THE INCREASED
BY
THE GOVERNMENT RESULTED SINCE THE INDIRECT
PRIMARILY
PP
CONTRACTS THIS SETTLEMENT IMPACT ON FLEXIBLYPRICED
COSTS PAID
OPTION
MAY
NOT BE PREFERABLE
RATHER THAN THE
RATE ADJUSTMENT ADJUSTS
CONTRACTS
FP
CONTRACTS
WHICH EXPERIENCED
THE INCREASED
BY
THE
GOVERNMENT
THE RATE ON
IS
HOWEVER IF
COMPLETED
THAT
IT
THE
CFAO
THE FULL
DECIDES TO ADJUST AN INDIRECT
RATE
WE RECOMMEND ADJUSTING
RATES SO THE GOVERNMENT
FISCAL YEAR RATHER THAN ADJUSTING
FORWARD PRICING
IS
CONFIDENT
RECOVERS
AMOUNT TO WHICH
IT
ENTITLED
CONTRACTOR TO DISALLOW
THE ADJUSTMENT COULD BE FORMALIZED THROUGH WRITTEN AGREEMENT WITH THE AMOUNT FROM THE FINAL INDIRECT RATE AT THE TIME OF RATE SPECIFIED
AGREEMENTSETTLEMENT
ENCLOSURE FOR OFFICIAL USE ONLY
088
Case 1:00-cv-00129-FMA
Document 79-3
Filed 11/22/2004
Page 14 of 33
FOR EXAMPLE ASSUME THAT THE FRINGE GOVERNMENT PARTICIPATION
APPLICATION THE RATE FOR FLEXIBLYPRICED
RATE FOR
FY1999
THE
CONTRACTS IN
GA
WILL BE ADJUSTED ALLOCATION
THE
IS
BASE
USED FOR
GA
TO THE FRINGE
RATE THE GOVERNMENT PARTICIPATION
RATE FOR FLEXIBLYPRICED FOR THE
CONTRACTS IN RATE IS
BASE
IS
50 PERCENT
OUR RECOMMENDED DISALLOWANCE
FY1999
FRINGE
752000
CALCULATED
AS FOLLOWS
INCREASED
COST IN THE
GOVENMIENT FLEXIBLYPRICED
CONTRACT PARTICIPATION
AMOUNT OF ADJUSTMENT
THE FRINGE POOI
TO
AGGREGATE
GA
RATE IN THE
ALLOCATION BASE
376000
CASH PAYMENT
IN THIS
050
752000
INSTANCE THE CONTRACTOR MIGHT CHOOSE TO SUBMIT
COSTS PAID
CHECK TO THE GOVERNMENT
FOR THE TOTAL INCREASED
BY
THE GOVERNMENT
376000
ENCLOSURE FOR OFFICIAL USE ONLY
089
Case 1:00-cv-00129-FMA
Document 79-3
Filed 11/22/2004
Page 15 of 33
SCENARIO ESTIMATING
ONLY NONCOMPLIANCE
INPUT
ID
THE
CONTRACTOR DECIDED
IT
TO CHANGE ITS
GA
ALLOCATION
BEGAN ESTIMATING
PROPOSALS USING
GA
BASE FROM VALUEADDED TO TOTAL COST
RATE WITH
TCI BASE HOWEVER
AND SUBCONTRACT
IT
CONTINUED TO RECORD COSTS USING
VALUEADDED BASE BECAUSE
CONTRACTS
THE GOVERNMENT TOOK ISSUE MATERIAL
WITH COSTS
IN
TCI
BASE SOME OF THE
EXISTING
HAVE SIGNIFICANT THIS
DIFFERENCE
DIRECT
WHILE OTHER CONTRACTS ARE LABOR INTENSIVE HIGHER
GA
IN THE CONTRACT COMPOSITION INTENSIVE CONTRACTS
RESULTED
COSTS BEING PROPOSED FOR MATERIALSUBCONTRACT ANALYSIS
WHEN
TCI
BASE
WAS USED AFTER
PRACTICE
BY
THE AUDITORS THE
CFAO
IT
DETERMINED THAT THE CONTRACTORS ESTIMATING
THE CONTRACTOR
WAS
IN NONCOMPLIANCE
WITH
ADDED BASE WAS MORE APPROPRIATE
THAN
GAS 410 SUBSEQUENTLY TCJ AND ONCE AGAIN
AGREED THAT
BEGAN PROPOSING WITH
VALUEADDED BASE AT NO TIME WERE CONTRACT
ADDED BASE SO THE NONCOMPLIANCE
AFFECTED
COSTS ACCUMULATED
GA
GA
VALUE VALUE
RATE USING
RATE USING
ONLY COST ESTIMATES
THE
STEP
AUDITOR
CALCULATED
COST IMPACT
USING THE FIVESTEP
FOR
PROCESS CONTRACTS
COMPUTE THE
POSITIVE
COST
IMPACT ON CONTRACT
PRICES
CASCOVERED
NUMBER MEANS
THE CONTRACT PRICE
NONCOMPLIANT
PRACTICE
USED FOR PRICING
PROPOSAL
WAS NEGOTIATED TOO HIGH AS RESULT OF NEGATIVE NUMBER MEANS THE CONTRACT
PRACTICE IN PRICING
PRICE
WAS
NEGOTIATED
TOO LOW AS
RESULT OF USING
NONCOMPLIANT
PROPOSAL
EXISTING FLEXIBLY PRICED
COMMERCIAL
AND
NONCAS
FUTURE CONTRACTS
EP
COVERED
CPAF
965096D2222
340000 240000
DAA9399D3333 NAS 152000 CPFF
FL
50000
420000
162699D5555
10733
DEACO899NB FPI
F0965099C7777 F0965098C8888 F4265099C9999
40000 80000
230000
70000
FFP
F04701
97D0001
350000
400000 80000 130000 200000
F0470198C1001 N6247798C2002 N6247799C3 003 NOOO 997C4004
COMMERCIAL CONTRACTS GOV NONCAS COVERED
FUTURE CONTRACTS
820000
110000
ENCLOSURE FOR OFFICIAL USE ONLY
090
Case 1:00-cv-00129-FMA
Document 79-3
Filed 11/22/2004
Page 16 of 33
STEP
OFFSET THE IMPACT OF THE NONCOMPLIANCE ON THE CONTRACT PRICE WITHIN
EACH CONTRACT
GROUP WHEN AN
GENERALLY ESTIMATING NONCOMPLIANCE OCCURS THE COST IMPACT ON CONTRACT PRICES WILL NOT BALANCE BETWEEN EXISTING FLEXIBLYPRICED FP AND NONGASCOVERED CONTRACTS
THIS
IMBALANCE
OCCURS BECAUSE THE COST IMPACT
FOR
THE PRICE
NEGOTIATED
FOR THE CONTRACTS ENTIRE PERIOD OF PERFORMANCE CONTRACTS
GASCOVERED CONTRACTS IS WHEN
CALCULATED COST IMPACT THE
BASED ON
PROPOSAL INCLUDES
WITH PERIODS
OF PERFORMANCE IN DIFFERENT
FISCAL YEARS
CORRESPONDING COST IMPACT ALSO COVERS DIFFERENT
THE EXISTING
YEARS AND THE IMPACTS WILL NOT BALANCE BETWEEN
CONTRACTS
WEUSE
FLEXIBLYPRICED
TWO CONTRACT GROUPS
CONTRACTS
FOR OUR ANALYSIS
FLEXIBLYPRICED
NET
AND
FP
CONTRACTS
WERE NEGOTIATED
FP IN OUR EXAMPLE AMOUNT OF 670000 AND
AND
460000
TOO HIGH RESPECTIVELY
EXISTING FLEXIBLY PRICED
COMMERCIAL
FUTURE CONTRACTS
AND NONCAS
FP
COVERED
CPAF
965096D2222
340000 240000
DAA9399D3333
NASI 52000
50000
420000
10733
CPFF
FL
162699D5555
DEACO899NB FPI
F0965099C7777 F0965098C8888 F4265099C9999
40000 80000
230000
70000
FFP
F0470197D0001 F0470198C1001 N6247798C2002 N6247799C3003 NOOO 997C4004
COMMERCIAL CONTRACTS GOV
350000
400000 80000 130000 200000
820000
110000
NONCAS COVERED
FUTURE CONTRACTS
420000
670000 460000
TOTAL
710000
420000
ENGLOSURE FOR OFFIGIAL USE ONLY
091
Case 1:00-cv-00129-FMA
Document 79-3
Filed 11/22/2004
Page 17 of 33
STEP
DETERMINE THE INCREASEDDECREASED
COST PAID BY THE GOVERNMENT FOR EACH CONTRACT GRONP USING THE NET IMPACT ON CONTRACT PRICE
NET DECREASE OF
INCREASED COSTS PAID BY THE GOVERNMENT ARE
CONTRACTS
130000
ON FLEXIBLYPRICED
AND
NET INCREASE
OF
460000
ON FP
CONTRACTS DETAILED
AS FOLLOWS
INCREASED
CONTRACT GROUP FLEXIBLYPRICED
DECREASED
COST
CPAF
CPFF
FPI
TOTAL
FLEXIBLYPRICED
38000 168000 130000
460000
CONTRACTS
A1 A2 A3
CONTRACTS
FP
FLEXIBLYPRICED
ON FLEXIBLYPRICED
ESTIMATES
PRACTICES
CONTRACTS WHEN THE NONCOMPLIANCE
RELATES ONLY TO COST
ONLY THE FEE IS AFFECTED
BECAUSE THE CORRECT COSTS WILL BE ACCUMULATED USING COMPLIANT
CPAF
IN
CONTRACTS
OUR EXAMPLE
WE ASSUME
THAT THE AWARD FEE ON THE
CPAF
CONTRACTS IS
NOT
IMPACTED
BY
THE NONCOMPLIANT
COST ESTIMATE
BECAUSE THE AWARD PROVISIONS NO PROVISION
ARE BASED
ON DELIVERY
TOO HIGH
SCHEDULES NOT COSTS THE CONTRACT CONTAINS THEREFORE EVEN THOUGH THE
FOR ANY OF THE FEE TO BE FIXED
340000
THERE ARE
240000
NO INCREASED
CPAF CONTRACTS 50000 530000
BY
WERE ESTIMATED
THE FEE
NET AMOUNT OF
530000
WAS UNAFFECTED BY
THE NONCOMPLIANCE
AND
COSTS PAID
THE GOVERNMENT
ON THE
CPAF
CONTRACTS
CPFF
CONTRACTS
THE CPFF
CONTRACTS WERE ESTIMATED
NET
AMOUNT OF 380000
TOO HIGH
420000
NEGOTIATED
40000
THIS
IS
380000
THE INCREASED
ASSUMING
CONTRACTS COST PAID
THAT THE FIXED
FEE NEGOTIATED
EQUATES TO
10
OF THE
COST THE FEE ON THE
CPFF
WAS ESTIMATED
38000
TOO HIGH
380000
10
38000
BY
THE GOVERNMENT
ON THE CPFF CONTRACTS
FPI CONTRACTS
ON THE 240000
NEGOTIATED
FPI
CONTRACTS THE CONTRACT PRICES
WERE NEGOTIATED
AS
NET
AMOUNT OF
TOO LOW
80000
230000
70000
240000
RESULT OF USING
NONCOMPLIANT
ESTIMATING
PRACTICE
IF THE CONTRACTOR
HAD PROPOSED USING
COMPLIANT
PRACTICE
THE
AMOUNTS WOULD HAVE BEEN HIGHER
THE GOVERNMENTS SHARE OF THE AMOUNT THE
CONTRACT
ENCLOSURE FOR OFFICIAL USE ONLY
092
Case 1:00-cv-00129-FMA
Document 79-3
Filed 11/22/2004
Page 18 of 33
WAS
PRICED
TOO LOW REPRESENTS
LOSS OF INCENTIVE
DECREASED COSTS PAID BY THE GOVERNMENT SINCE
PROFIT IF THE TARGET LEVELS
THE CONTRACTOR IN
WOULD
EXPERIENCE ASSUMING GOVERNMENT
WERE NOT CORRECTED
OUR EXAMPLE
CONTRACTORGOVERNMENT SHARE RATIO OF
IS
168000
FP
240000
70
7030
THE DECREASED COST PAID
BY
THE
168000
CONTRACTS
ON THE FP
THIS RESULTS IN
COSTS PAID
CONTRACTS THE CONTRACT PRICES
WERE NEGOTIATED BY
THE PARTIES
NET
460000
REPRESENTS
TOO HIGH
INCREASED
PROFIT ENLARGED THE
BEYOND
THAT CONTEMPLATED
AND
BY
GOVERNMENT
COSTS PAID
STEP
DETERMINE AGGREGATE INCREASED
CONTRACT
BY THE GOVERNMENT BY
COSTS
OFFSETTING
ACROSS
CONTRACT GROUPS THE INCREASEDDECREASED
PAID
BY THE GOVERNMENT FOR EACH
GROUP
COSTS
INCREASED COSTS IN THE AGGREGATE PAID BY THE GOVERNMENT ARE THE TOTAL OF INCREASED
ON THE FLEXIBLYPRICED
AND
FP
CONTRACTS
DETERMINED IN STEP
AS FOLLOWS
JNCREASED
CONTRACT GROUP FLEXIBLYPRICED
DECREASED COST
130000
330000
FP
AGGREGATE INCREASED COSTS PAID BY THE SETTLEMENT
GOVT
STEP
ALTERNATIVES
THE GOVERNMENT COULD ADJUSTMENTS
INDIRECT ALSO BE COLLECTED
SETTLE THE COST IMPACT
USING ONE OF THREE METHODS CASH PAYMENT
IN
ALL
CONTRACT
RATE ADJUSTMENT
OR THROUGH
CASES INTEREST SHOULD
ON THE AMOUNT OF OVERPAYMENT
CONTRACT ADJUSTMENTS
THE GOVERNMENT COULD
RECOVERS THE AGGREGATE INCREASED
ADJUST
COST PAID
ONE MORE THAN ONE OR ALL CONTRACTS BY THE GOVERNMENT OF 330000
AS LONG AS
IT
INDIRECT
RATE ADJUSTMENT
THE GOVERNMENT COULD
INCREASED APPLICATION COSTS PAID
ADJUST
THE INDIRECT
RATE SUCH THAT THE TOTAL
AMOUNT OF
RATE
BY
THE GOVERNMENT
330000
WILL BE RECOVERED THROUGH THE INDIRECT
TO THE GOVERNMENT
FLEXIBLYPRICED
CONTRACTS
WE RECOMMEND
ADJUSTING
THE
IS
RATE ON CONFIDENT
COMPLETED FISCAL YEAR RATHER THAN ADJUSTING
THAT
IT
FORWARD PRICING
IS
RATES SO THE GOVERNMENT
RECOVERS THE
FULL
AMOUNT TO WHICH
IT
ENTITLED
ENCLOSURE FOR OFFICIAL USE ONLY
093
Case 1:00-cv-00129-FMA
Document 79-3
Filed 11/22/2004
Page 19 of 33
CONTRACTOR TO
THE ADJUSTMENT COULD BE FORMALIZED THROUGH WRITTEN AGREEMENT WITH THE DISALLOW AMOUNT FROM THE FINAL INDIRECT RATE AT THE TIME OF RATE SPECIFIED
AGREEMENTSETTLEMENT
FOR EXAMPLE ASSUME THAT THE GOVERNMENT PARTICIPATION 50 PERCENT
AS FOLLOWS
GA
RATE FOR
FY1999
IN THE
RATE FOR FLEXIBLYPRICED
CONTRACTS
OUR RECOMMENDED DISALLOWANCE
FOR THE
FYI
999
GA GA
WILL BE ADJUSTED ALLOCATION
THE
IS
BASE
RATE IS
516000
CALCULATED
INCREASED
COST IN THE
GOVERNMENT FLEXIBLYPRICED
CONTRACT PARTICIPATION
AMOUNT OF ADJUSTMENT
THE THE
AGGREGATE
GA
RATE IN
GA
TO
POOL
ALLOCATION BASE
330000
CASH PAYMENT THE
NONCOMPLIANCE
CONTRACTOR
050
660000
MAY CHOOSE
IS
TO SUBMIT
CHECK FOR THE AMOUNT OF THE
IT
330000
THERE
NOTHING THAT PREVENTS
FROM DOING THIS
10
ENCLOSURE FOR OFFICIAL USE ONLY
094
Case 1:00-cv-00129-FMA
Document 79-3
Filed 11/22/2004
Page 20 of 33
SCENARIO
CONCURRENT ACCUMULATION AND ESTIMATING
NONCOMPLIANCE
THE
LABOR RATES
CONTRACTOR DECIDED
TO CHANGE ITS ACCOUNTING PRACTICE CHANGING
FROM FUNCTIONAL
DIRECT
DIRECT
IE
WAS
ASSEMBLY ENGINEERING
ALL
INSPECTION
IT
ETC
TO
SINGLE
SEGMENTWIDE
LABOR
RATE THAT INCLUDES LABOR RATE CONTRACTOR
DIRECT LABOR ACTIVITY
BEGAN ESTIMATING
PROPOSALS AND RECORDING THE SINGLE
ON JANUARY HOWEVER
1997
AFTER ANALYSIS WITH
BY
THE AUDITORS THE
CFAO
DETERMINED
THAT THE
IN NONCOMPLIANCE THE EMPLOYEES
GAS 418
THE
THIS
FUNCTIONS
PERFORMED ARE MATERIALLY
YIELDING
DISPARATE
DO NOT WORK IN
SINGLE
IS
PRODUCTION UNIT
IN NONCOMPLIANCE
HOMOGENEOUS
OF
OUTPUTS NOR DO THEY PERFORM AS AN INTEGRAL TEAM
WITH
SINGLE
GAS
41
850A2B
THE
CONTRACTOR ULTIMATELY
AGREED TO DISCONTINUE
THE PRACTICE DIRECT
SEGMENTWIDE DIRECT 2000 JANUARY THE
AUDITOR
LABOR RATE AND CHANGED BACK TO USE OF FUNCTIONAL
LABOR RATES EFFECTIVE
CALCULATED
COST IMPACT
USING THE FIVESTEP
PROCESS
ESTIMATING NONCOMPLIANCES
NONCOMPLIANCES
AFFECT PRIMARILY
FP
CONTRACTS WHILE ACCUMULATION SINCE THE CONTRACTOR BOTH ESTIMATED AND
AFFECTS BOTH FLEXIBLYPRICED
AFFECT ONLY FLEXIBLYPRICED
CONTRACTS
ACCUMULATED COSTS USING
NONCOMPLIANT
PRACTICE
THE COST IMPACT
AND
FP
CONTRACTS
STEP
COMPUTE
THE COST IMPACT FOR
CASCOVERED
IS
CONTRACTS
FOR FP CONTRACTS THE COST IMPACT
PRICE PRICED
CALCULATED
AS THE DIFFERENCE
BETWEEN THE CONTRACT
IF
IT
USING THE NONCOMPLIANT
PRACTICE
AND WHAT THE CONTRACT PRICE WOULD HAVE BEEN
HAD BEEN
FOR FLEXIBLYPRICED USING COMPLIANT PRACTICE CONTRACTS THE COST IMPACT IS THE DIFFERENCE BETWEEN THE COSTS ACCUMULATED USING THE NONCOMPLIANT PRACTICE AND THE COST THAT WOULD HAVE BEEN ACCUMULATED IF COMPLIANT PRACTICE HAD BEEN USED PLUS ANY IMPACT ON FEE
IN THE
SCHEDULE BELOW
POSITIVE
NUMBER ON FLEXIBLYPRICED
RESULT OF THE
CONTRACTS
ARE ACCUMULATED
ON THE CONTRACT AS
RESULT OF THE AS
NONCOMPLIANCE WHILE
TOO HIGH AS
NEGATIVE
MEANS MORE COSTS NUMBER
MEANS
POSITIVE
THAT LESS COSTS ARE ACCUMULATED
NONCOMPLIANCE ON FP CONTRACTS
RESULT OF USING THE CONTRACT PRICE
NUMBER MEANS
PRACTICE
THE CONTRACT PRICE PRICING
WAS NEGOTIATED
NONCOMPLIANT
IN
PROPOSAL WHILE
NEGATIVE
NUMBER MEANS
IN PRICING
WAS NEGOTIATED
TOO LOW AS
RESULT OF USING
NONCOMPLIANT
PRACTICE
PROPOSAL
11
ENCLOSURE FOR OFFICIAL USE ONLY
095
Case 1:00-cv-00129-FMA
Document 79-3
Filed 11/22/2004
Page 21 of 33
EXISTING FLEXIBLY PRICED
COMMERCIAL AND
FUTURE CONTRACTS
FP
NONCASCOVERED
CPAF
F1965096D2222
340000 240000
DAA9399D3333 NAS 152000 CPFF
FL
50000
420000
10733
162699D5555
DEACO899NB FPI
F0965099C7777 F0965098C8888 F4265099C9999
40000 80000
230000
70000
FFP
F04701
97D0001
350000
400000 80000 130000 200000
F0470198C1001 N6247798C2002 N6247799C3003 NOOO 997C4004
COMMERCIAL CONTRACTS GOV
80000
510000
NONCA SCOVERED
FUTURE CONTRACTS
STEP
OFFSET THE IMPACT OF THE NONCOMPLIANCE ON THE COST ACCUMULATIONS CONTRACTS WITHIN EACH CONTRACT CONTRACTS AND CONTRACT PRICE
FLEXIBLYPRICED
FP
GROUP
THE COST IMPACT
WHEN THERE
AND
IS
CONCURRENT ACCUMULATION AND CONTRACT PRICES THIS
AND ESTIMATING
WILL
NONCOMPLIANCE
ON COST ACCUMULATIONS
ACCUMULATION
GENERALLY
NOT BALANCE BETWEEN FLEXIBLYPRICED
FOR
FP
NONCASCOVERED CONTRACTS
NONCOMPLIANCE
REPRESENT
IMBALANCE
OCCURS BECAUSE THE COST IMPACT
FLEXIBLYPRICED
DIFFERENT
CONTRACTS AND ESTIMATING
NONCOMPLIANCE
FP
CONTRACTS GENERALLY
TIME PERIODS BETWEEN THE
FOR FLEXIBLYPRICED
COSTS ACCUMULATED
CONTRACTS THE COST IMPACT
PRACTICE
IS
CALCULATED
AS THE DIFFERENCE
USING THE NONCOMPLIANT
PRACTICE
AND THE COST THAT WOULD HAVE BEEN
IT
ACCUMULATED
THE CONTRACTOR
IF
COMPLIANT
HAD BEEN USED
ENCOMPASSES
ONLY THE PERIOD DURING WHICH
ACCUMULATED COSTS INCORRECTLY
AS THE DIFFERENCE
ON THE
OTHER
HAND
FOR
FP CONTRACTS
THE COST PRICE
IMPACT
THAT
IS
CALCULATED
BETWEEN THE CONTRACT PRICE
AGREED TO AND THE CONTRACT
PRACTICES
IT
WOULD HAVE BEEN AGREED
TO HAD THE CONTRACTOR PROPOSED USING COMPLIANT FOR EACH OF THE AFFECTED
INCLUDES
THE ENTIRE PERIOD OF PERFORMANCE
CONTRACTS WHICH MIGHT BE
ACCUMULATED INCORRECTLY SINCE THE LONGER OR SHORTER THAN THE PERIOD DURING WHICH COSTS WERE OF DIFFERENT PERIODS AND FP CONTRACTS GENERALLY REPRESENT COST IMPACTS FOR FLEXIBLYPRICED PERFORMANCE IMPACT
THE COST IMPACT
IS
BETWEEN THE DIFFERENT INCLUDED
CONTRACT GROUPS WILL NOT BALANCE UNLESS
THE
OF FUTURE CONTRACTS
12
ENCLOSURE FOR OFFICIAL USE ONLY
096
Case 1:00-cv-00129-FMA
Document 79-3
Filed 11/22/2004
Page 22 of 33
WE USE
PRACTICE
TWO CONTRACT GROUPS
ON FLEXIBLYPRICED
FOR OUR ANALYSIS CONTRACTS
FLEXIBLYPRICED
AND
FP
IN
OUR EXAMPLE
COST ACCUMULATIONS
INCREASED
BY
AND CONTRACT PRICES
ON FP
CONTRACTS WERE ESTIMATED
670000 460000
EXISTING
DUE TO THE NONCOMPLIANT TOO HIGH
FLEXIBLY PRICED
COMMERCIAL AND
FUTURE CONTRACTS
FP
NONCASCOVERED
CPAF
965096D2222
340000 240000
DAA9399D3333 NAS 152000 CPFF
FL
50000
420000
162699D5555
10733
DEACO899NB FPI
F0965099C7777 F0965098C8888 F4265099C9999
40000 80000
230000
70000
FFP
F04701
97D0001
350000
400000 80000 130000 200000
F0470198C1001 N6247798C2002 N6247799C3003 NOOO 997C4004
COMMERCIAL CONTRACTS GOV
80000
510000
NONCASCOVERED
FUTURE CONTRACTS
1560000
670000 460000 430000
TOTAL
1560000
STEP
DETERMINE THE INCREASEDDECREASED
CONTRACT
COST PAID CONTRACTS
BY THE GOVERNMENT FOR EACH
FLEXIBLYPRICED
GROUP USING THE NET IMPACT ON COST ACCUMULATIONS
AND CONTRACT PRICE
CONTRACTS
FP
INCREASED COSTS PAID BY THE GOVERNMENT ARE AND
742000
AND
460000
ON FLEXIBLYPRICED
FP
CONTRACTS RESPECTIVELY
DETAILED
AS FOLLOWS
INCREASED
CONTRACT GROUP FLEXIBLYPRICED
DECREASED
COST
CPAF
CPFF
FPI
TOTAL
530000
418000
FLEXIBLY
168000 780000 460000
A1 AL A2
PRICED CONTRACTS
FP
13
ENCLOSURE FOR OFFICIAL USE ONLY
097
Case 1:00-cv-00129-FMA
Document 79-3
Filed 11/22/2004
Page 23 of 33
FLEXIBLYPRICED
CONTRACTS
WHEN CONCURRENT ESTIMATING
CONSIDER AS THE IMPACT
AND ACCUMULATION
NONCOMPLIANCES
IF
EXIST ONE MUST
COSTS ARE RECORDED
ON BOTH
THE NEGOTIATED
FEE AND THE RECORDED COSTS INCREASED COSTS PAID
MORE
THE
RESULT OF THE THAT THE
MEANS
NONCOMPLIANCE CONTRACT PRICE WAS NEGOTIATED
AT THE TIME
IS
THIS REPRESENTS
TOO HIGH USING THE
SINCE
GOVERNMENT IT ALSO NONCOMPLIANT PRACTICE WHEN BY
LESS COSTS WILL BE RECORDED ONCE COSTS FOR FEE ASSOCIATED
COMPARED TO
INCREASED
COST EXPECTATIONS
OF NEGOTIATIONS
THE NONCOMPLIANCE
CORRECTED THE GOVERNMENT PAID INCREASED
WITH
COSTS ESTIMATED
BY USING NONCOMPLIANT
PRACTICE
IF LESS COSTS ARE RECORDED AS
RESULT OF THE ALSO
NONCOMPLIANCE
THIS REPRESENTS
DECREASED COSTS PAID BY THE GOVERNMENT LOW BECAUSE THE NONCOMPLIANT EXPECTED TO INCUR ADDITIONAL
IT
MEANS AT
THAT THE CONTRACT PRICE
WAS NEGOTIATED
THE CONTRACTOR
TOO
USED IN ESTIMATING
THE TIME
IS
OF NEGOTIATIONS
COSTS ONCE THE NONCOMPLIANCE
CORRECTED
CPAF
IN CONTRACTS AS
CONTRACTS
OUR EXAMPLE
530000
ADDITIONAL
COSTS WILL BE ALLOCATED PRACTICE
TO THE
CPAF
RESULT OF ACCUMULATING
COSTS USING
NONCOMPLIANT
REGARDING THE IMPACT
THE
ON FEE
WE ASSUME IN
OUR EXAMPLE
THAT THE
AWARD FEE ON
CPAF
PROVISIONS
OF THE FEE OF
BY THE NONCOMPLIANT COST ESTIMATE BECAUSE THE AWARD ARE BASED ON DELIVERY SCHEDULES NOT COSTS THE CONTRACT CONTAINS NO PROVISION FOR ANY TO BE FIXED NET AMOUNT THEREFORE EVEN THOUGH THE CPAF CONTRACTS WERE ESTIMATED
CONTRACTS
IS
NOT IMPACTED
530000
TOO HIGH THE FEE WAS UNAFFECTED BY ESTIMATING
THE PRICE
USING
NONCOMPLIANT
PRACTICE
CPFF
IN CONTRACTS AS
CONTRACTS
OUR EXAMPLE
380000
ADDITIONAL
COSTS WILL
BE ALLOCATED
TO THE
CPFF
RESULT OF ACCUMULATING
COSTS USING
NONCOMPLIANT
PRACTICE
REGARDING THE IMPACT ON FEE
NEGOTIATED
WE ASSUME IN
OUR EXAMPLE THAT THE FIXED
FEE
EQUATES TO
10
OF THE NEGOTIATED
COSTS THEREFORE THE FEE ON THE
CPFF
CONTRACTS
WAS
ESTIMATED
38000
TOO HIGH
380000
10
COSTS PAID THE
38000
BY THE GOVERNMENT ON
TOTAL
INCREASED
CPFF
CONTRACTS
IS
418000
380000
38000
418000
WHICH
IS
SUM OF THE
INCREASED
GOVERNMENT RELATED TO BOTH ESTIMATING
AND ACCUMULATING
COSTS IN
BY THE NONCOMPLIANT MANNER
COSTS PAID
14
ENCLOSURE FOR OFFICIAL USE ONLY
098
Case 1:00-cv-00129-FMA
Document 79-3
Filed 11/22/2004
Page 24 of 33
FPI
CONTRACTS
THE DECREASED
IN THE SCHEDULE IN
COSTS PAID
BY THE GOVERNMENT
ARE NOT THE
OUR EXAMPLE THE GOVERNMENT AND CONTRACTOR SHARE THE
7030
RATIO
70
THEREFORE THE DECREASED COSTS PAID BY THE GOVERNMENT ARE
240000 INDICATED 240000 DECREASE IN 168000 240000
168000
FP CONTRACTS
ON THE FP
THIS
RESULTS IN COSTS PAID
CONTRACTS THE CONTRACT PRICES WERE NEGOTIATED
NET
460000
TOO HIGH
INCREASED
PROFIT ENLARGED THE
BEYOND THAT CONTEMPLATED BY
THE PARTIES
AND REPRESENTS
BY
GOVERNMENT NONCOMPLIANCE
CORRECTION THERE ARE NEITHER INCREASED
REGARDING THE ACCUMULATION
NOR
DECREASED COSTS PAID BY THE GOVERNMENT SINCE SIMPLY
OF THE ACCUMULATION
NONCOMPLIANCE
ACCUMULATES THE PROPER AMOUNT COMMENSURATEWITH THE EFFORT THAT WAS PRICED
STEP
DETERMINE AGGREGATE INCREASED
CONTRACT
COSTS
PAID
CONTRACT GROUPS THE INCREASEDDECREASED
COSTS PAID
BY THE GOVERNMENT BY OFFSETTING ACROSS BY THE GOVERNMENT FOR EACH
GROUP
COSTS
INCREASED COSTS PAID BY THE GOVERNMENT IN THE AGGREGATE ARE THE TOTAL OF INCREASED
ON THE FLEXIBLYPRICED
AND
FP
CONTRACTS
DETERMINED
IN
STEP
AS FOLLOWS
CONTRACT GROUP FLEXIBLYPRICED
INCREASED
COST
780000
FP
AGGREGATE INCREASED COSTS PAID BY THE SETTLEMENT
1240000
GOVT
STEP
ALTERNATIVES
THE GOVERNMENT COULD SETTLE THE COST IMPACT USING ONE OF THREE METHODS CONTRACT ADJUSTMENTS INDIRECT RATE ADJUSTMENT OR THROUGH CASH PAYMENT HOWEVERWHEN THE CONTRACTOR CORRECTS THE NONCOMPLIANCE THE COSTS ACCUMULATED ON FLEXIBLYPRICED CONTRACTS
AUTOMATICALLY ACTION CORRECT WITHOUT FURTHER ACTION
WILL
BY
THE
GOVERNMENT THE GOVERNMENT NEEDS
CONTRACTS
TO TAKE
TO RECOVER THE REMAINDER
OF THE INCREASED COSTS PAID BY THE GOVERNMENT OF
498000
CASES INTEREST
460000
ON FFP
CONTRACTS
38000
FEE ON
CPFF
498000
IN
ALL
SHOULD ALSO BE COLLECTED ON THE AMOUNT OF OVERPAYMENT CONTRACT ADJUSTMENTS
THE GOVERNMENT COULD
RECOVERS THE
ADJUST
ONE MORE THAN ONE
THE
OR ALL CONTRACTS
AS LONG AS
IT
498000
INCREASED
COST PAID
BY
GOVERNMENT SOME ALTERNATIVES
ARE AS FOLLOWS
15
ENCLOSURE FOR OFFICIAL USE ONLY
099
Case 1:00-cv-00129-FMA
Document 79-3
Filed 11/22/2004
Page 25 of 33
ADJUST ONE OR MORE
INCREASED CONTRACTS TO COSTS ON
FP CONTRACTS DOWNWARDFOR TOTAL OF 460000 THE NET THE FP CONTRACTS AND DISALLOW COSTS ON ONE OR MORE CPFF
THE
INCREASED COSTS ON THE
OF
38000
FLEXIBLYPRICED
CONTRACTS RELATED
FEE
OR
ADJUST ONE OR MORE
FP
CONTRACTS
DOWNWARDFOR
TOTAL OF
498000
THE
REMAINDER
INDIRECT RATE ADJUSTMENT
THE GOVERNMENT COULD
COST PAID
ADJUST
THE INDIRECT
RATE SUCH THAT THE REMAINDER CONTRACTS
OF INCREASED
SELFADJUST
BY
THE GOVERNMENT AFTER THE INDIRECT
ACCUMULATED COSTS ON FLEXIBLYPRICED
RATE APPLICATION THE RATE ON
WILL BE RECOVERED THROUGH THE
TO THE GOVERNMENT FLEXIBLYPRICED
CONTRACTS
WERECOMMEND ADJUSTING
COMPLETED FISCAL YEAR RATHER THAN ADJUSTING
IT
FORWARD PRICING
ENTITLED
RATES SO THE GOVERNMENT IS
CONFIDENT THAT
RECOVERS THE
FULL
AMOUNT TO WHICH
IT
IS
CONTRACTOR TO DISALLOW
THE ADJUSTMENT COULD BE FORMALIZED THROUGH WRITTEN AGREEMENT WITH THE AMOUNT FROM THE FINAL INDIRECT RATE AT THE TIME OF RATE SPECIFIED
AGREEMENTSETTLEMENT
FOR EXAMPLE ASSUME THAT THE LABOR OVERHEAD RATE FOR
FY
1999
WILL
BE ADJUSTED
THE GOVERNMENT
BASE
IS
PARTICIPATION
RATE FOR FLEXIBLYPRICED
CONTRACTS
IN THE LABOR OVERHEAD ALLOCATION
50 PERCENT OUR RECOMMENDED DISALLOWANCE FOR THE FY1999 CALCULATED AS FOLLOWS
OVERHEAD COST
IS
996000
INCREASED
COST IN
THE
GOVERNMENT FLEXIBLYPRICED
CONTRACT PARTICIPATION LABOR OVERHEAD
RATE IN
AMOUNT OF ADJUSTMENT
THE THE LABOR OVERHEAD
TO
AGGREGATE
POOL
ALLOCATION BASE
498000
CASH PAYMENT THE
NONCOMPLIANCE
CONTRACTOR
050
996000
MAY
CHOOSE TO SUBMIT
IS
CHECK FOR THE AMOUNT OF THE
IT
498000
THERE
NOTHING THAT PREVENTS
FROM DOING THIS
16
ENCLOSURE FOR OFFICIAL USE ONLY
100
Case 1:00-cv-00129-FMA
Document 79-3
Filed 11/22/2004
Page 26 of 33
UNITED STATES COURT OF APPEALS FOR THE FEDERAL CIRCUIT
MISCELLANEOUS
NO
774
IN
RE VIOLATION
OF RULE
28C
BIAS
ARROVO
AISTON
BIRD
LLP
THE
OF
CHARLOTTE
NORTH INC
CAROLINA
COUNSEL
FOR
DEFENDANTLCOUNTERCLAIMANT RICHARD
CROSSAPPELLANT
ESAB GROUP
OF
WAS
MCDERMOTT
EDWARD
HAFFER
SHEEHAN PHINNEY
BASS
GREEN
PA
OF MANCHESTER
NEW
HAMPSHIRE HAMPSHIRE
COUNSEL
FOR
PLAINTIFFCOUNTERCLAIM COUNTERCLAIM
DEFENDANTAPPELLANT
CENTRICUT
LLC
NEW
OF
OF
AND
WERE MICHAEL
CENTRICUT DEFENDANTAPPELLANT BUIOLD AND NEAL FRIEDMAN DAVIS
LLC
DELAWARE
BUJOLD
PLLC
MANCHESTER APPEALED
NEW HAMPSHIRE
UNITED STATES
DISTRICT
FROM
COURT FOR THE DISTRICT
OF
NEW HAMPSHIRE
JUDGE STEVEN
MCAULIFFE
101
Case 1:00-cv-00129-FMA
Document 79-3
Filed 11/22/2004
Page 27 of 33
UNITED
STATES COURT OF APPEALS FOR THE FEDERAL CIRCUIT
MISCELLANEOUS
NO
774
IN
RE VIOLATION
OF RULE 28C
BEFORE
MICHEL
CLEVENGER
AND
DYK
CIRCUIT
JUDAES
PER CURIAM
ORDER
ON SEPTEMBER 10 2004
AT ORAL
ARGUMENT
IN
CENTRICUT
LLC
ESAB GROUR
FOR
INC
NOS 031574
1614
THIS
COURT ISSUED
AN ORDER
TO
BIAS
ARROYO COUNSEL
SHOULD
THE
FOR
ESAB GROUP INC
THE
FILING
COUNSEL
TO
SHOW CAUSE WHY
REPLY
BRIEF IN
SANCTIONS
NOT BE IMPOSED
OF
CROSSAPPELLANTS
WRITTEN
VIOLATION
OF
FED
APP
28C
REPLY
THAT
COUNSEL SUBMITTED
BRIEF WHILE
IN
RESPONSE URGING
THAT
THE
FILING
OF
NONCONFORMING
VIOLATION
OF RULE
28C
CASE
DID
NOT MERIT
SANCTIONS
WE
CONCLUDE
SANCTIONS
ARE NOT WARRANTED
IN
THIS
HOWEVER
IN
THE FUTURE SIMILAR
VIOLATIONS
OF THE
FEDERAL
RULES
OF APPELLATE
PROCEDURE OR
OF OUR LOCAL
RULES OF PRACTICE
WILL
LIKELY
RESULT
IN
SANCTIONS
DISCUSSION
THE
ESAB
UNDERLYING
CASE HERE INVOLVES
CENTRICUT
SUIT
FOR PATENT
INFRINGEMENT
BROUGHT BY THE
GROUP INC
ESAB
AGAINST
LLC
NEW HAMPSHIRE
BENCH
TRIAL
AND CENTRICUT
LLC
DELAWARE
INFRINGEMENT
COLLECTIVELY
CENTRICUT DAMAGES
IN
FOLLOWING
THE
DISTRICT
COURT FOUND
AND
GRANTED
FAVOR OF
ESAB
CENTRICUT
APPEALED
FROM
THE
JUDGMENT
OF INFRINGEMENT
AND OBJECTED
TO THE
MEASUREMENT
OF
DAMAGES ESAB
CROSS
MISC
NO
774
102
Case 1:00-cv-00129-FMA
Document 79-3
Filed 11/22/2004
Page 28 of 33
APPEALED
SEEKING
TO MODIFY
THE JUDGMENT ON
DAMAGES THE
MERITS
OF THE
APPEAL AND
CROSSAPPEAL RULE
HAVE NOT BEEN DECIDED
28C
OF THE
FEDERAL
RULES
OF APPELLATE
PROCEDURE PROVIDES
BRIEF
IN
IN
PERTINENT
PART
AN
APPELLEE
WHO HAS
CROSSAPPEALED
MAY
FILE
REPLY
TO THE
APPELLANTS
RESPONSE
TO THE ISSUES
PRESENTED BY THE CROSSAPPEAL
BRIEF TO
RULE
THE
28C
LIMITS
THE CONTENT OF
CROSSAPPELLANTS
PRACTICE
REPLY
ISSUES
PRESENTED
BY
CROSSAPPEAL
AND
THE
NOTES
PROMULGATED
OF RULE
BY
THIS
COURT
EXPLICITLY
WARN CROSSAPPELLANTS
AGAINST
EXCEEDING THE SCOPE
28
IN
CLOUNSEL ARE CAUTIONED
THE FOURTH
BRIEF TO THE
CASES
INVOLVING
PROPER CROSSAPPEAL
IN
ALL
TO LIMIT
ISSUES
PRESENTED
TO
BY THE CROSSAPPEAL
FILING
CASES
AND THE
COUNSEL SHOULD BE PREPARED
DEFEND THE
IN
OF
CROSSAPPEAL
AT ORAL
PROPRIETY OF ARGUMENTS PRESENTED FEDERAL
THE FOURTH BRIEF
ARGUMENT
IN
CIRCUIT
RULE 28
2004
BRIEF
AND PRACTICE
NOTE
CROSSAPPEALS
ISSUES
LARGE PART
THE CROSSAPPELLANTS
REPLY
FILED
BY
ESAB ADDRESSED
CONCEDED DURING 20
PERTINENT
ONLY TO THE
MAIN
APPEAL
OF THE
INDEED
COUNSEL
FOR
ESAB
ORAL
ARGUMENT
BRIEFS
THAT
THE VAST
MAJORITY
CROSSAPPELLANTS
REPLY BRIEFROUGHLY
APPEAL
OF THE
23
PAGES
ADDRESSED ISSUES
RELATING
ONLY TO THE MAIN
AND NOT
IS
TO THE
CROSSAPPEAL
OF CLARITY
IN
CONTRARY
TO
COUNSELS
ARGUMENT
BRIEFS
THAT
THERE
LACK
THE
RULES
CONCERNING
CROSSAPPEAL
IN
REPLY
THE LANGUAGE OF RULE
28C
IS
PERFECTLY
CLEAR
THE
REPLY
BRIEF
THE
CROSSAPPEAL APPEAL
FOR
MUST BE
LIMITED
TO
CROSSAPPEAL
CIRCUIT
ISSUES
AND MUST NOT WHICH GOVERNS DOES
NOT
AGAIN
ADDRESS THE MAIN
THE
BRIEFS
FACT
THAT
FEDERAL
RULE
31
THIS
COURTS
PROCEDURES
FILING
INCLUDING
CROSSAPPEAL
IS
REPLY
BRIEFS
EXPLICITLY
REFERENCE
RULE 28S
CONTENT
LIMITATIONS
OF
NO IMPORT
RULE 28
IS
CLEAR
AND
MUST BE COMPLIED WITH
MISC
NO
774
103
Case 1:00-cv-00129-FMA
Document 79-3
Filed 11/22/2004
Page 29 of 33
THIS
COURT HAS AUTHORITY TO IMPOSE
SANCTIONS
FOR VIOLATIONS
OF THE
FEDERAL
RULES
OF
APPELLATE
PROCEDURE OR
THAT COURT
OF
OF ITS
OWN
RULES
FEDERAL
RULE OF APPELLATE
PROCEDURE
BEFORE
46C
IT
PROVIDES
APPEALS
MAY
DISCIPLINE
AN ATTORNEY WHO PRACTICES
FOR FAILURE
TO
COMPLY WITH ANY COURT RULE
THAT
WE
WAS
ACCEPT COUNSELS REPRESENTATION
THE VIOLATION
OF RULE
28C
IN
THIS
CASE
THE
INADVERTENT
SO
ITS
FAR
AS
WE
TO
HAVE BEEN
ABLE
TO
DETERMINE INADVERTENT
THIS
COURT HAS NOT
IN
PAST EXERCISED
AUTHORITY
IMPOSE
SANCTIONS
FOR
VIOLATIONS
OF APPLICABLE
COURT RULES
UNDER THESE CIRCUMSTANCES
IS
WE CONCLUDE
TO
THAT
THE IMPOSITION
OF SANCTIONS
IN
THIS
CASE
NOT APPROPRIATE
HOWEVER WE WISH
MAKE
CLEAR THAT
IT
IS
THE
DUTY OF
COUNSEL
TO FAMILIARIZE
THEMSELVES WITH APPLICABLE
RULES
RULES
AND THAT
IN
FUTURE
CASES
SERIOUS
VIOLATIONS
OF
APPLICABLE
WHETHER OR NOT
INADVERTENT
WILL
POTENTIALLY
SUBJECT
COUNSEL
TO
SANCTIONS
ORDER TO GET
THIS
COURT
IN
ITS
WORK DONE MUST
INSIST
ON
STRICT
COMPLIANCE WITH
ITS
RULES
VIOLATIONS
OF RULE
28CAND
THE CITATION
OF OTHER PROCEDURAL
RULES
SUCH AS FEDERAL
CIRCUIT
RULE
476
WHICH
PROHIBITS
OF NONPRECEDENTIAL
OPINIONS
ALL
OR THE RULES GOVERNING
SITUATIONS
IN
WHICH
UNFAIR
CROSSAPPEAL
IS
APPROPRIATEARE
TOO FREQUENT
IN
ADDITION
TO
IMPOSING
COURT
AN
BURDEN ON OPPOSING PARTIES
LARGE
VIOLATIONS
OF OUR RULES
ALSO BURDEN THE
THE
COURT MUST CONSIDER
NUMBER
OF APPEALS
EACH YEAR
IT
CAN ONLY
FEDERAL
RULE
OF APPELLATE
PROCEDURE
46C
PROVIDES
IN
ITS
ENTIRETY
DISCIPLINE PRACTICES
FOR FAILURE
COURT OF BEFORE
TO
IT
FOR
AN ATTORNEY WHO APPEALS MAY DISCIPLINE CONDUCT UNBECOMING MEMBER OF THE BAR OR
FIRST HOWEVER THE COURT COMPLY WITH ANY COURT RULE MUST AFFORD THE ATTORNEY REASONABLE NOTICE AN OPPORTUNITY TO SHOW CAUSE TO THE CONTRARY AND IF REQUESTED HEARING
MISC
NO
774
104
Case 1:00-cv-00129-FMA
Document 79-3
Filed 11/22/2004
Page 30 of 33
CONDUCT
RULES
ITS
WORK
FAIRLY
AND
EFFICIENTLY
IF
COUNSEL
COOPERATE BY ABIDING
BY THE
PERTINENT
ACCORDINGLY
IT IS
ORDERED THAT
BE IMPOSED
IN
NO
SANCTIONS
THE PRESENT
CASE
FOR THE COURT
NOV5
DATE
2004
JAN HORBALY JAN HORBALY
CLERK
MISC
NO
774
105
Case 1:00-cv-00129-FMA
Document 79-3
Filed 11/22/2004
FWTEENTH WASHIIGTON
Page 31 of 33
STRF NWSUITE DC 200053701
900
MILLE
CHEVALIER
CHARTERED
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COPY OF LOCKHEEDS RESPONSE HAD DELIVERED TO YOU IN JUNE 2001
PLAN TO SUBSTANTIALLY ATTACHED SCHEDULE ENTITLED SUBMISSION PROVIDE
IT
TO
YOUR
FIRST
REQUEST FOR ADMISSIONS
THAT
WE
NARROW THE ISSUES
IN
THIS
CASE
UNDERSTAND
THAT
DCAA
23
IF
AUDITED
THE
COST IMPACT CONCLUSION
TO
YOU
ENTITLED
DCMA
RESULTS ISSUES
ON PAGE
OF OUR OCTOBER
2001 YOU WRNDD
BELIEVE
LOCKHEED MARTIN DISCUSSION
CHECKING
ME COPY OF THE WOULD HELP NARROW THE
OF
DCAAS
AND MORE QUICKLY
OF THE NUMBERS ON THAT SCHEDULE CLOSE THANKS BRING THIS CASE TO SINCERELY
CLARE
ENCLOSURE
BCC
DAVID
CHRISTENSON
DIPASQUALE
MR MR JAN
BLUE
WO END
ESQUIRE WO END WO END
WAS
NOTO
PHILADELPHIA
106
LOCKHEED NIANIN CORPORATION Case 1:00-cv-00129-FMA SCTHESDA MO OSI SOI
DPEON
Document 79-3
Filed 11/22/2004
Page 32 of 33
TMPHANE OI 8976781
ANTHONY NI
GOVERNMENT
DIPASQUALE
CORPORATE DIRECTOR
FANJINCTAL
MANASEMENT
OCTOBER
1997
MR LOUIS
BECKER
DEFENSE CORPORATE EXECUTIVE DEFENSE CONTRACT MANAGEMENT
COMMAND
DO LOCKHEED
6801 BETHESDA
MARTIN CORPORATION
ROCKLEDGE DRIVE
MD 20817
FINAL
SUBJECT
DETERMINATION REPORT
OF NONCOMPLIANCE
WITH
CAS
403
AND 418
AUDIT
NO 312194J19200016
ALLOCATION OF CRAY COMPUTER COSTS TO
LADC LMSC AND
LASC
DEAR
MR BECKER
TO
WE CONTINUE
CAS
418
BELIEVE THAT
DISAGREE WITH YOUR CONCLUSION THAT LOCKHEED OF
MARTIN
IS
NONCOMPLIANT
WITH
CAS
403
AND
WITH REGARD TO THE ALLOCATION OUR ALLOCATION
CRAY
COMPUTER COSTS FROM
LITC
AS PREVIOUSLY STATED WE
METHODOLOGY
IS
COMPLIANT WITH
FOR THE
CAS
AS YOU REQUESTED
IN
AND IS AN ACCEPTABLE MEASURE OF RESOURCE CONSUMPTION LETTER OF JUNE 17 1997 WEARE PROVIDING COST IMPACT DATA YOUR
YEARS OF ALLEGED NONCOMPLIANCE
COMPARISON OF BUDGET COMMITMENT TO ACTUAL USAGE
MILLIONS
GM
1994 MISSILES SPACE SYSTEMS
S6376 2211 1400
481
504
15
54802 5038 147
SL574
2827
AERONAUTICAL
SKUNK WORKS
1253
1995
REGULAR AGREEMENT MISSILES SPACE SYSTEMS
5634 634
AERONAUTICAL
446 554
566 702
068
068
CESS
MISSILES
CAPACITY1
SPACE
684
AERONAUTICAL SYSTEMS
510
IN THE
446 554
979 12 15
705 705
THE EXCESS CAPACITY AMOUNTS
BUDGET COLUMN ARE ACTUAL EXCESS CAPACITY COSTS RATHER THAN BUDGET
000135
107
Case 1:00-cv-00129-FMA
Document 79-3
Filed 11/22/2004
Page 33 of 33
CONTRACT TYPE BY COMPANY EXPRESSED AS
PERCENTAGE
SK
27
1994 FIRM FIXED FIXED
PRICE PRICE INCENTIVE
53
943
659
10 331
24
702
COST PLUS
1995 FIRM FIXED FIXED
PRICE PRICE
86
911
725
271
AND INTERCOMPANY SALES
NA
INCENTIVE
COSTPLUS
INCLUDES COMMERCIAL
FOREIGN
NONFMS
SINCERELY
DIPASQUALE
CC
DON WHEATLEY
JOHN
DCMC
AMES DCAA
000136
108
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| Date: | November 22, 2004 |
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