Free Proposed Findings of Fact and Conclusions of Law - District Court of Federal Claims - federal

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IN THE UNITED STATES COURT OF FEDERAL CLAIMS ____________________________________ ) INTERNATIONAL DATA PRODUCTS ) CORP., ) ) Plaintiff, ) ) v. ) No. 01-459C ) (Judge George W. Miller) THE UNITED STATES, ) ) Defendant. ) ____________________________________)

DEFENDANT'S PROPOSED FINDINGS OF FACT

PETER D. KEISLER Assistant Attorney General DAVID M. COHEN Director OF COUNSEL: E. MICHAEL CHIAPARAS Acting Director Contract Disputes Resolution Center Defense Contract Management Agency 10500 Battleview Parkway, Suite 105 Manassas, VA 20109 JOHN T. LAURO Trial Attorney Commercial Litigation Division Air Force Legal Services Agency 1501 Wilson Boulevard Arlington, VA 22209 DEBORAH A. BYNUM Assistant Director

JOHN H. WILLIAMSON Trial Attorney Commercial Litigation Branch Civil Division Department of Justice Attn: Classification Unit, 8th Floor 1100 L Street, N.W. Washington, D.C. 20530 Tele: (202) 307-0277 Fax: (202) 307-0972 E-mail: [email protected] Attorneys for Defendant

December 12, 2005

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IN THE UNITED STATES COURT OF FEDERAL CLAIMS ____________________________________ ) INTERNATIONAL DATA PRODUCTS ) CORP., ) ) Plaintiff, ) ) v. ) No. 01-459-GWM ) (Judge George W. Miller) THE UNITED STATES, ) ) Defendant. ) ____________________________________) DEFENDANT'S PROPOSED FINDINGS OF FACT Pursuant to the Court's October 12, 2005 order, defendant, the United States, respectfully submits these proposed findings of fact. I. Background 1. On May 5, 1997, the Air Force awarded Contract F01620-97-D-001

("Desktop V") to plaintiff International Data Products Corporation ("IDP"). Compl.1 ¶5; International Data Products Corp. v. United States, 64 Fed. Cl. 642, 643 (2005) ("IDP I"). 2. IDP was a small minority-owned business and participant in the United States

Small Business Administration's ("SBA") 8(a) program. Compl. ¶ 4; IDP I, 64 Fed. Cl. at 643. 3. The Desktop V contract was a fixed-price, indefinite-delivery, indefinite-

quantity ("IDIQ") contract to provide computer systems, computer and warranty services, and software products and upgrades to the Air Force and other Federal agencies. Compl. ¶ 5; IDP I, 64 Fed. Cl. at 643. 4. The Desktop V contract consisted of one base year and four one-year options.

Compl. ¶ 5; IDP I, 64 Fed. Cl. at 644.

"Compl. ¶ ____" refers to paragraphs in the complaint that plaintiff filed in its second suit, No. 03-2515.

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II.

Termination of Desktop V Contract 5. On February 5, 1998, IDP informed the SBA of IDP's owner's intention to sell

their IDP stock to Dunn Computer Corporation, a non-8(a) concern. Compl. ¶ 6; IDP I, 64 Fed. Cl. at 644. As a result, Section 8 of the Small Business Act, 15 U.S.C. § 637(a)(21)(A), required the Government to terminate for convenience the Desktop V contract. Compl. ¶ 7; IDP I, 64 Fed. Cl. at 644. 6. On February 20, 1998, the Air Force requested a waiver pursuant to 15 U.S.C.

§ 637(a)(21)(B) of the statutory requirement that the Government terminate the Desktop V contract with IDP. Compl. ¶ 8; IDP I, 64 Fed. Cl. at 644. 7. The SBA denied the waiver request, and on August 31, 1999, the denial was

sustained by the SBA's Office of Hearings and Appeal. Compl. ¶ 10; PX2 14-1, In re International Data Products Corp., SBA No. BDPW-125, 1999 WL 1007639 (Aug. 31, 1999). 8. Mr. Kevin Murphy, IDP's Chief Financial Officer, who joined IDP in May

1999, testified at trial that he understood that "once the SBA decision became final, that a termination would be immediately effective." Tr.3 36:2-3 (emphasis added). 9. In an email dated September 17, 1999, Mr. James Crowther, whose title was

IDP's "Director, Contractor," wrote to Kay Walker, the Air Force contracting officer, regarding the SBA decision that "[i]t is our understanding that the Administrative Law Judge (ALJ) decision becomes final within 20 days of the ruling, i.e., 9/20/99." PX 35-1. 10. In a letter dated September 23, 1999, IDP's trial counsel, Mr. Edward

Tolchin, wrote to contracting officer Kay Walker "[t]he Small Business Administration Office of Hearings and Appeals decision in International Data Products, Inc., Dt. No. BDPW-98-10-14-05 is now final, 20 days having passed since its issuance. Accordingly,
2 3

"PX ____" refers to plaintiff's trial exhibits. "Tr. ___:___" cites the trial transcript as "page:line." 2

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Contract No. F0162-097-D-0001 must be terminated for convenience as a matter of law." PX 17-1 (emphasis added). 11. On October 8, 1999, contracting officer Kay Walker sent a written notice to

IDP that terminated for convenience the Desktop V contract. PX 33-1; IDP I, 64 Fed. Cl. at 644. 12. Mr. Murphy testified that the following passage in the October 8, 1999

termination notice told IDP that it was required to continue to perform warranty services: "This termination will not affect the rights and liabilities of the parties, arising under the contract or otherwise, concerning defects, guarantees or warranties relating to any articles or component parts furnished to the Government by the Contractor under the contract or this agreement, nor the rights and liabilities of the parties concerning software upgrades as required by Section C of the contract." Tr. 41:11-42:6 (quoting PX 33-1). 13. IDP's position at the time it received the termination notice was that IDP was

not required to continue performing warranty services. Tr. 159:7-16. 14. After IDP received the termination notice, its CEO and counsel met with

contracting officer Kay Walker, who told IDP to continue performing the warranty services. Tr. 42:7-20. 15. On April 11, 2000, IDP sent contracting officer Kay Walker a letter informing

her that IDP would no longer perform warranty services for the Desktop V contract. Tr. 49:21-50:3; PX 32. III. Labor Costs 16. The Desktop V contract was one of thirteen contracts for which IDP

performed warranty services. Tr. 195:6-21; PX 11-1. 17. Only one-third (33.3 percent) of the service calls opened during the period

August 1999 through April 2000 were for the Desktop V contract. Tr. 229:19-230:4; PX 111. The list of closed service calls for the same period recorded that 26.77 percent of the 3

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closed service calls for the same period were for the Desktop V contract. PX 12-1. 18. The Southware service order management system did not track which IDP

employees worked on performing warranty services for the Desktop V contract. Tr. 229:811. 19. After the Desktop V contract was terminated on October 8, 1999, IDP never

set up any tracking system to identify labor costs that IDP incurred to perform warranty services for the Desktop V contract. Tr. 187:4-7, 228:5-17. 20. Between October 8, 1999 and April 11, 2000, IDP did not maintain timesheets

that recorded the amount of time that IDP employees spent performing warranty services for the Desktop V contract. Tr. 58:3-17, 228:18-22. 21. In April 2001, one year after IDP ceased performing warranty services for the

Desktop V contract, it prepared affidavits that stated the number of hours purportedly spent by eight IDP employees to perform warranty services for the Desktop V contract after October 8, 1999. Tr. 65:5-22, 69:8-12; PX 2. 22. At the time IDP prepared the affidavits in April 2001, only four of the eight

employees who allegedly had performed warranty services for the Desktop V contract ­ David Costello, Vicki Hiers, Paul Seyfrit, and Brian Anderson ­ were still employed by IDP because the other four employees ­ Dario Uruburo, Sean Mahoney, Julio Manyari, and Jesse Harris ­ were laid off once IDP ceased performing the warranty services. Tr. 65:23-66:18; PX 2. 23. In April 2001, IDP attempted unsuccessfully to contact the four laid-off

employees ­ Dario Uruburo, Sean Mahoney, Julio Manyari, and Jesse Harris ­ at their last known telephone number and address, and also tried searching for them using the Internet. Tr. 69:16-25. 24. Three of the IDP warranty services employees who were still employed by

IDP in April 2001 ­ Vicki Hiers, Paul Seyfrit, and Brian Anderson ­ were also no longer 4

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employed by IDP at the time of trial. Tr. 66:12-18. In September 2005, IDP attempted unsuccessfully to contact them at their last known telephone number and address, and also tried searching for them using the Internet. Tr. 68:11-21. 25. Kevin Murphy testified that, in the absence of timesheets, senior IDP staff

prepared its claim for warranty costs by developing percentages to allocate the amount of time the eight employees spent performing warranty services for the Desktop V contract. Tr. 57:23-58:2, 74:13-22, 85:10-14; PX 1-1. 26. IDP has not identified any worksheets or other contemporaneous documents

that record any calculations used by IDP to arrive at the percentages (100 percent, 75 percent, or 50 percent) claimed for the amount of time that eight IDP employees allegedly spent performing services for the Desktop V contract. PX 1; DX 3/13. 27. Kevin Murphy did not explain any calculations used by IDP to arrive at the

percentages, other than the 100 percent claimed for Julio Manyari, who was the only employee hired exclusively to work on the Desktop V contract. Tr. 74:13-22, 81:2-15, 85:814. 28. Mr. Murphy testified that he relied on David Costello, who supervised

warranty services, to develop the percentages of time that IDP employees allegedly spent performing warranty services for the Desktop V contract, and that Mr. Murphy did not get involved in that subject. Tr. 181:2-11. 29. During Mr. Costello's direct examination, he testified "50 percent?" in

response to the question, "how much time did you personally spend on that, approximately, on the Desktop V aspect of your work?" Tr. 194:6- 9 (emphasis added). 30. On cross-examination, Mr. Costello agreed with the accuracy of his

deposition testimony in which he approximated that he spent about one-third to one-half of his time performing warranty services during the period August 1999 to April 2000. Tr. 226:19-227:17. 5

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31.

On re-direct examination, Mr. Costello testified as follows in response to

questions from his counsel: Q: Okay. Now, can you explain how ­ was there a peak during this time period that actually threw the total percentage during the September `99 through April 2000 period to the 50 percent as opposed to the lower number? Was there a peak that was occurring during this time period? Right when we stopped the warranty work, then it became close to, you know, 85-90 percent of my time was spent supporting and getting all the logistics worked out so my customer service people weren't getting beat up. Okay. And that skews the number back to 50 percent overall? Yes, it does.

A:

Q: A:

Tr. 237:14-238:2 (emphasis added). 32. During cross-examination, Mr. Costello agreed with the accuracy of the

following deposition testimony about the 780 hours that, according to his affidavit (PX 2), he devoted to performing warranty services for the Desktop V contract: Q: A: Q: A: Do you have any recollection about how that number 780 was calculated. Today, no. At the time I obviously did. But at this time you can't tell us how you went about determining that you had worked 780 hours? No, I can't.

Tr. 225:7-18 (emphasis added). 33. During further cross-examination, Mr. Costello also testified as follows: Q: There are no records that you're aware of, you don't know of any records that are the basis of that 780-hour calculation other than this affidavit (PX 2), correct? That's correct.

A: Tr. 226:14-18.

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34.

During re-direct examination, Mr. Costello testified as follows in response to

his counsel's questions: Q: Just to clarify, when you were being asked about the number of hours, you don't have any idea how these hours were calculated because you weren't participating in the calculation of hours in Exhibit No. 2; is that right? No. I was involved in the calculation of hours. Okay. With respect to giving percentages, correct? That's correct.

A: Q: A:

Tr. 235:22-236:6 (emphasis added). 35. During direct examination, Mr. Costello testified that he knew that Dario

Uruburo spent 75 percent of his time on the Desktop V contract because "I supervised him and was with him day by day," but Mr. Costello did not explain any calculations he used to arrive at the 75 percent figure for Mr. Uruburo. Tr. 193:21-5. 36. During his deposition, Mr. Costello testified as follows with respect to the

proportion of Mr. Uruburo's time that was spent on the Desktop V contract: Q: A: What is your basis for thinking that most of his time was being spent on Desktop V contract service orders? Just based on these documents [referring to PX 2].

Tr. 221:4-7 (emphasis added). 37. On re-direct examination, Mr. Costello testified as follows in response to his

counsel's questions: Q: Now, when you were testifying at your deposition that you didn't have any information outside of this document, were you referring to other documents or to your own information in your head? I was referring to did I have any other in my head or anywhere. Okay. So do you have a present recollection of the work that you did and the work that these people did? 7

A: Q:

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A:

Yes, I do.

Tr. 236:17-237:1 (emphasis added). 38. Mr. Costello testified that he knew that Paul Seyfrit and Sean Mahoney each

spent 75 percent of his time on the Desktop V contract because "I managed the both of them, as well as working with them on calls," but Mr. Costello did not explain any calculations he used to arrive at the 75 percent figure for either Mr. Seyfrit or Mr. Mahoney. Tr. 201:3-22. 39. During his deposition, Mr. Costello testified as follows regarding the

proportion of time that Mr. Seyfrit spent on the Desktop V contract: Q: A: What's your recollection about how much of Mr. Seyfrit's time was spent on the Desktop V contract? That amount, it's difficult to remember to say, you know, so I have to go by the numbers that we did at the time.

Tr. 221:22-222:2 (emphasis added). 40. On cross-examination, Mr. Costello agreed with the accuracy of the following

testimony from page 21 of his deposition transcript: Q: How about any of the other employees [besides Dario Uruburo and Paul Seyfrits] who are listed on the front page of [PX 2], do you have any recollection about how much of their time they were spending on service orders for the Desktop V contract? Not outside of this document.

A:

Tr. 224:5-15 (emphasis added). 41. On direct examination, Mr. Costello testified that he knew that Jesse Harris

spent "half his time" on the Desktop V contract, but Mr. Costello did not explain any calculations he used to arrive at the 50 percent figure for Mr. Harris. Tr. 202:16-203:2. 42. On direct examination, Mr. Costello testified that he knew that Vicki Hiers,

who "ran the help desk," spent 75 percent of her time on the Desktop V contract because "I worked with her as well as managing her," but Mr. Costello did not explain any calculations he used to arrive at the 75 percent figure for Ms. Hiers. Tr. 203:20-204:13.-203:2. 8

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43.

On direct examination, Mr. Costello testified that he knew that Brian

Anderson spent 75 percent of his time on the Desktop V contract because "I worked with him as well as managing him," but Mr. Costello did not explain any calculations he used to arrive at the 75 percent figure for Mr. Anderson. Tr. 202:16-203:2. 44. The labor costs that IDP allegedly incurred to perform warranty services for

the Desktop V contract during the eight months from September 1, 1999 through April 30, 2000 are $126,990.00. PX 1-1. Thus, the labor costs that IDP allegedly incurred during the month of September 1999 and October 1-7, 1999 are approximately $19,500.00. IV. Third-Party Warranty Costs A. 45. Federal Express After the Desktop V contract was terminated on October 8, 1999, IDP never

set up any tracking system to identify the shipping costs that were incurred for purposes of performing warranty services for the Desktop V contract. Tr. 159:1-6. 46. Kevin Murphy testified during his direct examination that "I believe it's an

exhibit . . . . we were able to pull a list of all the service orders that had a Federal Express tracking number associated with it, and it was about 45 percent of the volume during that period." Tr. 116:11, 116:23-117:1 (emphasis added); PX 12-2. 47. The only IDP list of service orders that shows Federal Express tracking

numbers, the list of closed service orders, contains a total of 3,263 service orders with Federal Express numbers. PX 12. Only 755 Desktop V service orders, or approximately 23 percent of the total number of closed service orders, have Federal Express tracking numbers. PX 12-10 to 12-33. 48. Mr. Murphy testified that PX 12 was the basis for developing the 45 percent

estimate. Tr. 121:7-20; PX 12-1, 12-18. 49. Despite his testimony that IDP based the calculation of its Federal Express

expenses on a list of service orders, Mr. Murphy stated, "Correct," in response to the 9

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following question by the Court: "you pulled all of the invoices that had a Federal Express tracking report; is that correct? That's where you started?" Tr. 117:2-6 (emphasis added). 50. The Federal Express invoices produced by IDP do not show any twelve-digit

Federal Express tracking numbers like those on PX 12, nor any other information about the weight or destination of the packages shipped, but only show the total amount charged by Federal Express for shipping services. PX 6. 51. Mr. Murphy agreed on cross-examination that none of the Federal Express

invoices produced by IDP show any information regarding particular shipments, such as how many packages were sent to a particular destination, or where were the destinations. Tr. 156:13-157:10; PX 6. 52. IDP has not identified any worksheets or other contemporaneous documents

that record any calculations that IDP used to arrive at the 45 percent figure shown for the costs that IDP allegedly paid to Federal Express for shipping charges allegedly attributable to the Desktop V contract during August 1999 through April 2000. PX 7. 53. The Federal Expense invoices that IDP received that are dated August 31,

1999 through October 7, 1999 total $29,826. PX 6-1 to 6-2. Applying the 45 percent figure used by IDP to this total yields $13,421.70. B. Astronautics Corporation of America 1. 54. Work Performed Before October 8, 1999

Mr. Murphy testified that IDP did not seek to recover any costs for warranty

services performed before August 31, 1999. Tr. 143:12-19. 55. The September 1 and 2, 1999 invoices for warranty services allegedly

performed by Astronautics Corporation of America ("America") for the Desktop V contract, which total $2,712.00, are for services that Astronautics performed during the month of July 1999, before contracting officer Kay Walker terminated the contract on October 8, 1999. Tr. 90:4-10; PX 4-3 to 4-5 (excluded from evidence, Tr. 104:5-12). 10

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56.

The two October 22, 1999 invoices for warranty services allegedly performed

by Astronautics for the Desktop V contract, which total $28,480.00, are for services that Astronautics performed during the month of August 1999, before contracting officer Kay Walker terminated the contract on October 8, 1999. Tr. 144:2-25; PX 4-6 to 4-7. 57. IDP's counsel conceded that the Astronautics invoices for services performed

during the month of August 1999 should not be included in IDP's claim for damages. Tr. 144:8-9. 58. Mr. Murphy agreed on cross-examination that because one of the October 22,

1999 invoices shows a "ship date" that is the same date as the date shown in the "invoice date" box, that the October 28, 1999 ship date shown on the invoice dated October 28, 1999 for $614.35 for freight expense might not be conclusive evidence that the freight expense was incurred on October 28, 1999. PX 4-7, 4-8. 59. The two November 10, 1999 invoices for warranty services allegedly

performed by Astronautics for the Desktop V contract, which total $49,850.00, are for services that Astronautics performed during the month of September 1999, before contracting officer Kay Walker terminated the contract on October 8, 1999. Tr. 151:24152:22; PX 4-9 to 4-10. 60. The invoices (discussed above in paragraphs 55, 56, and 59) that IDP received

from Astronautics for warranty services allegedly performed for the Desktop V contract during the months of July, August, and September 1999 total $81,656.00. Tr. 153:25154:22; PX 4-1, 4-3 to 4-10. Applying the 85 percent allocation used by IDP to this total yields $69,407.60. 61. The December 22, 1999 Astronautics invoice that Mr. Murphy identified as an

example of the "backup" to Astronautics invoices only shows "time and material service calls" in Germany that total $960.00, and does not provide information about the December 22, 1999 invoice for $22,420.00 (discounted to $18,430.00) for warranty services performed 11

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outside the continental United States during the month of November 1999. Tr. 95:14-97:13; compare PX 4-19 with PX 4-13 to 4-17. 2. 62. Work Performed After October 8, 1999

After the Desktop V contract was terminated on October 8, 1999, IDP never

set up any tracking system to identify costs charged by Astronautics or Accutek to perform warranty services for the Desktop V contract. Tr. 186:23-187:2. 63. There are no worksheets or other contemporaneous documents that record any

calculations that IDP used to arrive at the 85 percent figure shown for the costs that it allegedly paid to Astronautics for charges allegedly attributable to the Desktop V contract during August 1999 through April 2000. Tr. 142:24-143:4; PX 7. 64. On direct examination, Mr. Murphy testified that IDP developed as a

"reasonable estimate" that 85 percent of the services that Astronautics performed were for the Desktop V contract, but he did not explain whether there were any calculations that IDP used to arrive at the 85 percent figure. Tr. 111:6-25. 65. On direct examination, Mr. Costello testified as follows in response to his

counsel's questions regarding the accuracy of the 85 percent figure: Q: And is that a fair and accurate amount of the billing of Astronautics that's allocable to Desktop V as opposed to any other work? Yes, it was. Is it low, high, right on? How would you describe that to the Court? It would be low, if anything. Okay. And why is that? Because I could not get ­ to get ­ it felt like it should have been higher, but to be fair it's 85 percent because I couldn't bring up enough calls to make it ­ to drop it down, and it's just ­ Eighty-five percent is a fair number? 12

A: Q: A: Q: A:

Q:

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A: Tr. 216:14-217:2. 66.

Yes, it was.

On cross-examination, Mr. Costello testified that he developed the 85 percent

figure by estimating what percentage of the total number of all Astronautics service calls for IDP were performed for purposes of the Desktop V contract: Q: Okay. Well, you arrived at a number for the total number of calls that you thought were for, for instance, Astronautics that were performed for purposes of the Desktop V contract, correct? That's correct. And then you looked at the total number of service calls and that's how you came up with the 85 percent figure, right? That's correct.

A: Q: A: Tr. 232:4-12. 67.

On direct examination, Mr. Costello testified that to determine the 85 percent

figure for charges by Astronautics that were allocable to the Desktop V contract by, "I went through all the invoices" and went "through the supporting data of the invoices." Tr. 215: 215:10-11, 215:24-25. 68. On cross-examination, though, Mr. Costello admitted that the 85 percent

figure was not based upon totaling the invoices that Astronautics sent to IDP: Q: Okay. So you arrived at a percentage of the total number of service calls as a way of estimating how many service calls were rendered by Astronautics for the Desktop V contract rather than going through and totaling up all the invoices that Astronautics had sent for the Desktop V contract, correct? That's correct. And at the time that you did that IDP had the backup ­ had the detailed invoices that it [no] longer has, correct? That's correct. But you said that it was very laborious, or I think you said you didn't want to perform the data entry function because all the invoices were paper, is that right? 13

A: Q: A: Q:

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A: Q:

All the invoices were paper, and a lot of them were four to six inches thick. I think you acknowledge[d] in the course of your deposition that that would produce a more precise figure as far as how many and what the total amount of invoices were for the work that Astronautics had done, correct? Yes, it would.

A: Tr. 233:2-234:2. C. 69.

Accutek Mr. Murphy testified that IDP determined that "approximately" 10 percent of

the services that Accutek performed were for the Desktop V contract because "Dave Costello had that knowledge, and he could estimate 10 percent of these companies were being serviced by Accutek," but did not explain how Mr. Costello arrived at the 10 percent figure. Tr. 108:21, 109:17-19. 70. Mr. Costello testified on direct examination that his method for developing

the 10 percent figure for Accutek was "going through the invoices." Tr. 218:5. 71. On cross-examination, Mr. Costello admitted that just like with the

Astronautics invoices, totaling the Accutek invoices would also yield a more precise figure for what percentage of the services performed by Accutek were for the Desktop V contract. Tr. 233:25-234:2. 72. The invoices that IDP received from Accutek that are dated from September

9, 1999 through September 27, 1999 total $1,936.00. PX 5-1. Applying the 10 percent figure used by IDP to this total yields $193.60. IV. DCAA Audit 73. Mr. Larry Tatem, then the Branch Manager of the Fairfax Branch Office of

the Defense Contract Audit Agency ("DCAA"), was the lead auditor on the March 4, 2002 DCAA audit report that reviewed IDP's claim for warranty costs. Tr. 247:23-248:2; PX 1010. 14

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74.

Mr. Tatem has been a certified public accountant since 1983, and a DCAA

branch manager since 1987. Tr. 244:15-17, 243:15-18. He now serves as the Branch Manager of the DCAA Herndon Branch Office, where he supervises six supervisory auditors, six technical specialists, and approximately 40 auditors. Tr. 243:2-4, 243:15-18. 75. Mr. Tatem spent five days at IDP's offices supervising the work of fellow

DCAA auditor Sharon Parr, "ensuring that Sharon reviewed the warranty cost and the shipping cost." Tr. 278:3-11. During the course of that week, Mr. Tatem discussed with Ms. Parr "what conclusions and recommendations that she was looking at based on the documentation that was provided or was not provided" regarding the warranty costs. Tr. 278:16-24. 76. Mr. Tatem testified that his role in auditing IDP's claim was to "[r]ender

opinion on the supporting documentation, the competent evidential matter that's there to support those costs, and then from there determine whether or not the costs are reasonable, allowable, and allocable." Tr. 277:11-15. 77. The DCAA audit report questioned in their entirety IDP's claimed warranty

labor cost of $126,900 and third-party maintenance and shipping costs of $314,000. Tr. 249:15-18; PX 10-9. 78. Mr. Tatem testified that DCAA questioned IDP's claim for warranty costs for

two reasons: "The first reason was that the claim[ed] warranty cost was included in the prices of the equipment that was sold to the government, so that the government had already paid for the costs. And then the second reason was there was a lack of adequate supporting documentation." Tr. 249:22-250:7. 79. Mr. Tatem testified that "[w]hat should have been done is an accounting

number could have been set up, or what we refer to as a job order number would have been set up once IDP was notified that the contract was going to be terminated, and then all of the cost would be charged to that accounting number or that job number as they were incurred on 15

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the Desktop V contract. That would be the third[-]party warranty costs as well as the labor cost, the in-house labor cost." Tr. 259:3-11. 80. Mr. Tatem testified that the reason to track costs as they were incurred is

because "[i]t's very difficult to go back six months to a year to try to reconstruct[] those costs." Tr. 258:23-25. 81. Ms. Parr reviewed the affidavits and time allocation percentages that IDP

prepared in 2001 regarding the time allegedly expended by IDP employees in performing warranty services during the period August 1999 through April 2000. Tr. 163:10-25; DX 3/6, 3/14 to 3/18. 82. The DCAA audit report notes that IDP did not contemporaneously maintain

timesheets or maintenance logs, and states that DCAA was unable to verify from the affidavits the time allocation percentages claimed by IDP. PX 10-10. 83. Mr. Tatem testified that the affidavits prepared by IDP did not provide any

support for IDP's claim. Tr. 252:3-9. 84. Mr. Tatem testified that in its March 2002 audit report, DCAA questioned the

labor costs claimed by IDP because IDP had not contemporaneously created any documents that recorded weekly or at end of each two-week pay period the number of hours that IDP employees performed warranty services for purposes of the Desktop V contract. Tr. 250:3252:2. 85. Mr. Tatem testified that the fact that the affidavits were signed in April 2001,

approximately one year after the warranty services were allegedly performed by IDP's employees, tended to indicate that there could be a problem with whether employees could recall the hours that they actually spent on the Desktop V contract. Tr. 252:14-23; 284:11285:16. 86. Mr. Tatem recalls requesting but not receiving from IDP any documents to

support its claim for third-party warranty costs and shipping costs. Tr. 254:2-11. 16

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87.

The March 4, 2002 DCAA audit report records that "[w]e requested but not

receive any documentation to support the claimed third party maintenance/shipping and receiving costs" for Accutek, Astronautics, and Federal Express. PX 10-10. 88. Mr. Tatem testified that he instructed Ms. Parr on how to handle IDP's claim

for warranty costs, and that "[h]ad there been documentation that existed to support the cost, we would have also included that in the audit report for the consideration of the termination contracting officer." Tr. 274:1-10. 89. A memorandum in the DCAA working papers that was prepared by the first

DCAA auditor, Robin Wesnofske, on November 28, 2000, and revised by Mr. Tatem's colleague, Sharon Parr, on February 12, 2002, records that IDP did not provide any documents to support its claims for Accutek, Astronautics, and Federal Express charges. PX 10-52; DX4 3/3. 90. A memorandum in the DCAA working papers that was prepared by Ms. Parr

records that "1. On 2/5/02, Larry Tatem and I verbally requested support for (1) the $126,990 labor costs and (2) the $314,000 third party maintenance/shipping and receiving costs. . . . 8. Requested but did not receive support for 3rd party maintenance/shipping and receiving costs." PX 10-56 (emphasis added); DX 3/5. 91. The Astronautics, Accutek, and Federal Express invoices that IDP produced

during discovery in this suit in April and May 2005 (PX 4, 5, and 6) are not found in the DCAA working papers. Tr. 164:4-11; DX 3/1 to 3/21; PX 10-51 to 10-57. 92. After IDP produced the Accutek, Astronautics, and Federal Express invoices

and other documents in discovery, Mr. Tatem reviewed the documents, and could not identify any documents that supported how the 10 percent, 85 percent, and 45 percent figures, respectively, were calculated. Tr. 256:21-257:25. "DX ____" refers to defendant's trial exhibits. As stated at DX 3/1, DX 3 includes all work papers regarding the warranty costs, including all documents referenced in PX 10-51 to 1057. 17
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93.

IDP has not retained any records of what documents it provided to DCAA

auditors. Tr. 165:1-18. 94. Unlike public accounting firms, which send out engagement letters, DCAA

auditors typically do not request documents in writing, but instead hold an entrance conference with the contractor to discuss what documents DCAA requires. Tr. 255:2-17. 95. At no time since meeting with Ms. Wesnofske has Kevin Murphy reviewed

any records regarding what documents IDP provided to her. Tr. 169:17-20. 96. Mr. Murphy testified that IDP only permitted Ms. Wesnofske to review

originals of the detailed backup to the third-party invoices at IDP's offices rather than taking copies. 185:8-12. 97. Mr. Murphy testified that Ms. Wesnofske she did not indicate any

disagreement with only being able to review original documents at IDP's offices. Tr. 170:10-171:8. 98. Tr. 171:9-12. 99. Mr. Murphy has no reason to think that Ms. Wesnofske removed any original Ms. Wesnofske returned to IDP all folders that she reviewed in IDP's offices.

documents from IDP's offices. Tr. 172:4-11. 100. Tr. 256:10-12. 101. Mr. Murphy agreed that because the detailed records that accompanied the DCAA only received from IDP copies of documents, not original documents.

March 2000 Astronautics invoice were only found one week before trial while IDP was "cleaning up," that it was possible that IDP had misplaced similar detailed records that accompanied other invoices. Tr. 172:12-22. 102. Mr. Murphy testified that in 2005, IDP moved from one location in Dulles,

Virginia to two locations in Herndon, Virginia, and agreed with his counsel's description that the move was a "massive undertaking." Tr. 186:3-15. 18

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103.

During discovery, IDP searched for and failed to locate the same sort of

detailed records supporting invoices for the months before August 1999, even though IDP would normally retain those records, and IDP never granted the DCAA auditors access to those documents: Q: Mr. Murphy, IDP has undertaken a search for backup invoices and detailed information supporting invoices for the period before August 1999? Yes. And those invoices and backup material were not reviewed by DCAA as part of the audit because they weren't the subject of IDP's claim, right? Correct. And IDP was not able to identify any of the backup for those invoices that were located, any of the backup, right? Correct. Now, you testified just a moment ago that IDP's retention period for retaining records is the records seven years are retained, right? Correct. So those documents or backup before August 1999 would still be something that, in accordance with the document retention policy, would be retained in an off-site location by IDP? Correct.

A: Q:

A: Q: A: Q:

A: Q:

A: Tr. 173:12-174:7. 104.

Mr. Murphy has been a certified public accountant for over 10 years. He

began his career as an accountant with Ernst & Young, and is well acquainted with the need to retain records for purposes of review by auditors. Tr. 128:3-13.

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Respectfully submitted, PETER D. KEISLER Assistant Attorney General DAVID M. COHEN Director

OF COUNSEL: E. MICHAEL CHIAPARAS Acting Director Contract Disputes Resolution Center Defense Contract Management Agency 10500 Battleview Parkway, Suite 105 Manassas, VA 20109 JOHN T. LAURO Trial Attorney Commercial Litigation Division Air Force Legal Services Agency 1501 Wilson Boulevard Arlington, VA 22209

s/ Deborah A. Bynum DEBORAH A. BYNUM Assistant Director

s/ John H. Williamson JOHN H. WILLIAMSON Trial Attorney Commercial Litigation Branch Civil Division Department of Justice Attn: Classification Unit, 8th Floor 1100 L Street, N.W. Washington, D.C. 20530 Tele: (202) 307-0277 Fax: (202) 307-0972 E-mail: [email protected] Attorneys for Defendant

December 12, 2005

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CERTIFICATE OF SERVICE I certify under penalty of perjury that on this 12th day of December, 2005, a copy of the foregoing "DEFENDANT'S PROPOSED FINDINGS OF FACT" was filed electronically. I understand that notice of this filing will be sent to all parties by operation of the Court's electronic filing system. Parties may access this filing through the Court's system. /s John H. Williamson