Tuesday, June 4, 2013

Government Loses Another Appeal Based on Statute of Limitations

The Government has lost a number of notable appeals lately because of the six year statute of limitations. The latest is a case involving Raytheon and Cost Accounting Standards. In a case decided on April 22, 2013 but apparently just published, the ASBCA (Armed Services Board of Contract Appeals) ruled that the Government's claims against Raytheon for increased costs resulting from cost accounting practice changes were beyond the statute of limitations.

The six-year statute of limitations was a provision included in the Federal Acquisition Streamlining Act of 1994. It requires each claim by a contractor against the Federal Government relating to a contract and each claim by the Federal Government against a contractor relating to a contract shall be submitted with 6 years after the accrual of the claim. It works both ways, Government claims against the contractor and contractor claims against the Government.

FAR 33.201 defines the "accrual of the claim" as
The date when all events, that fix the alleged liability of either the Government or the contractor and permit assertion of the claim where known or should have been known. For liability to be fixed, some injury must have occurred. However, monetary damages need not have been incurred.
In the latest Raytheon case, the Government's claims arose for cost accounting changes that the contractor made in 2004 and 2005. Raytheon notified the Government of the pending changes in 2004 and also notified the Government that the accounting changes would result in increased costs to the Government.

In 2011, the contracting officer (DCMA in this case) issued final decisions which demanded that Raytheon refund the Government for increased costs that resulted from the accounting changes. Raytheon appealed on the basis that the Government's claim was beyond six years from the "accrual of the claim".

Raytheon's position was based on the date that it notified the Government of the accounting practice changes and the "potential" for there to be increased costs. The Government argued that Raytheon did not provide "auditable" cost impacts until much later (and within the statute of limitations).

The ASBCA sided with Raytheon. The Board stated that the initial notification was sufficient to trigger the statute of limitations. It stated:
Claim accrual does not depend on the degree of detail provided, whether the contractor revises the calculations later, or whether the contractor characterizes the impact as "immaterial". It is enough that the government knows, or has reason to know ...

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