Contracting Officer's Alleged Misconduct Cost a Contractor $21 Million

L3 Technologies' Communication Systems-West Division (CSW) filed a suit against the Defense Contract Management Agency (DCMA) last month for $21 million alleging that DCMA's Divisional Administrative Contracting Officer (DACO) inappropriately directed the contractor to discontinue proposing its Material Adjustment Factor (MAF) on all proposals to the Government.

This case is about a DCMA DACO's unreasonable and improper administration of CSW's Government contracts and the "far-reaching harm" caused by that "maladministration". For more than two years, the DACO prohibited CSW from including otherwise allowable costs in its proposals for Government contracts. CSW, the complain alleges, had no viable choice but to accede to the DACO's directive because the DACO is the Government official with exclusive responsibility for determining CSW's compliance with Cost Accounting Standards (CAS), establishing final indirect cost rates and billing rates, and determining the adequacy of its accounting system and other contractor business systems (including estimating systems).

The MAF (Material Adjustment Factor) is a composite factor to propose material-related costs not included in any other bid element. It consists of four components: scrap, vendor rework, consumables, and residual material. From 1998 through 2006, CSW included the MAF factor in its negotiated Forward Pricing Rate Agreements (FPRAs). During those years, DCAA (Defense Contract Audit Agency) audited the factor numerous times and took no exception. During negotiations for a 2007-2011 FPRA, the Government and CSW could not come to agreement on one of the components of the MAF, residual materials. And so, the DACO excluded the MAF from the FPRA with the understanding that it would be included as an addendum to the FPRA when the parties resolved the residual material component.

In 2011, notwithstanding that the amount in dispute represented only a small part of the MAF and affected only certain contracts, the DACO directed CSW to discontinue proposing the MAF on all proposals until further notification. At no point prior to that did the DACO provide CSW written notice of any pontential noncompliances stemming from the use of the MAF nor did the DACO make any effort to reach a satisfactory settlement through discussions with CSW before peremptorily directing CSW to discontinue proposing the MAF. This action violated both FAR 30.605 and FAR 42.801.

The DACO compounded "her blunderbuss approach to the MAF with her erratic and unpredictable actions regarding the status of CSW's estimating system". The DACO disapproved the estimating system, then changed "disapproved" to "inadequate" and threatened CSW that it it proposed the MAF, she would consider the system to have a significant deficiency.

Because of the DACO's improper actions, CSW was unable to propose allocable, allowable, and reasonable costs totaling $21 million, the amount of the lawsuit.