Incurred and Claimed Does Not Prove Reasonableness

BAE Systems San Francisco Ship Repair was awarded a task order under a multiple-award, task order contract (MATOC) for programmed maintenance of a Logistics Support Vessel. During performance, BAE discovered significant differences between the drawings for potable water and drain piping systems and those that actually existed on the vessel. BAE filed a equitable adjustment claim for $904 thousand.

Eventually, DCAA (Defense Contract Audit Agency) was requested to audit the claim. In its report, DCAA reported that BAE had submitted adequate data to support its claim and considered the claim to be acceptable as a basis for negotiation of a fair and reasonable settlement. Of the $904 thousand claimed, DCAA took exception to a very insignificant $566 - almost not worth reporting upon.

The contracting officer evidently did not like the DCAA audit report because she dismissed it entirely and rendered a decision that BAE was entitled to recover only $351 thousand. She wrote:

Defense Contract Audit Agency (DCAA) ... did not question the amounts of your proposed claim. All DCAA did, unfortunately, was verify the addition of the claim without verifying any of the underlying facts. DCAA did not have any of the oroginal time cards or any other information beyond the summary you provided. DCAA took no exception to the proposed material costs. DCAA specifically did not examine entitlement, but only looked at quantum. DCAA had no knowledge of the actual facts and did not look beyond the information offered by BAE.

BAE appealed the contracting officer's final decision to the ASBCA (Armed Services Board of Contract Appeals. As the case progressed, BAE, at one point, moved for a summary judgment, asking whether its claim be based on its actual, recorded costs of performing additional work as confirmed by Government auditors, or should the amount be based on an estimate by Government personnel. BAE stated that its proposed costs are actual costs and DCAA confirmed them by tracing to books and records. The Government should not be heard to impeach or contradict its own auditors.

The ASBCA denied BAE's request for summary judgment. The ASBCA did not agree that BAE's costs were automatically allowable simply because those costs were recorded in the books and records and because DCAA had reconciled those costs to the books and records. It further stated that the contractor has the burden of proof, unaided by a presumption of reasonableness, to establish that the costs it incurred were reasonable. Therefore, BAE's claim does not meet the requirement, imposed by law, that it had met its initial burden of establishing that the costs it claimed are reasonable.