Tuesday, June 17, 2014

Government Loses Another Statute of Limitations Case

There have been a number of notable contract appeals recently where the Government's case has been thrown out because it couldn't seem to act within the six-year statute of limitations imposed by the Contract Disputes Act (CDA). We've reported on a number of them on this blog including Raytheon Cost Accounting Changes case from last year. Bottom line, both the Government and a contractor have only six years for asserting a claim after the event that fixes a liability becomes known. The Government has been losing a lot of appeals lately (or choosing not to pursue the matter) because it cannot seem to complete audits in a timely manner, or, in the case of Laguna Construction, failed to act timely on an audit report that was issued.

Laguna Construction received an Air Force contract to perform various construction projects in Iraq. In due course, Laguna issued a couple of subcontracts whose prices were not adequately supported. The subcontracts were not awarded based on competition nor was there any documentation by Laguna to support the reasonableness of the subcontract prices.

In December 2005, DCAA (Defense Contract Audit Agency) issued an inter-agency audit report (that's an audit report issued from one DCAA office to another) citing Laguna for inadequate subcontract management practices. DCAA stated that Laguna's subcontract management policies, procedures, and practices could not be relied upon to ensure the reasonableness of subcontract prices. The receiving DCAA office forwarded the audit report to the ACO in February 2006.

Now here's where the Government's actions get lame. It took more than three years for the ACO (Administrative Contracting Officer) to notify Laguna of the deficiencies cited in the audit report and more than three more years after that for the ACO  to render a final decision. That's more than six years after the Government had knowledge of Laguna's (alleged) subcontract management deficiencies. The Government's claim totaled $3.8 million. Laguna appealed stating that the Government's claim was outside the six-year statute of limitations.

Under the CDA, a contract claim, whether that of the contractor or the government must be submitted with six years after the accrual of the claim. Accrual of a claim, according to FAR 33.201 means the date when all events, that fix the alleged liability of either the Government or the contractor and permit assertion of the claim, were known or should have been known. The Board (Armed Services Board of Contract Appeals) found that the Government was aware of the "injury" in February 2006 when DCAA issued its audit report to the ACO but the ACO did not file a claim until December 2012. December 2012 was beyond the six-year statute of limitations.

Based on the foregoing, the ASBCA ruled that the Government's monetary claim was barred under the CDA as untimely. Accordingly the ACO's decision was deemed null and void.

You can read the entire Board decision here.

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