Tuesday, January 31, 2017

Government Loses Another 6-Year Statute of Limitations Case

In 2001 and 2004, Sparton Electronics (now Sparton DeLeon Springs LLC) was awarded Navy contracts for sonobuoy research and development and engineering and technical services related to submarine acoustics. Some of the work required under these contracts was farmed out to Jackson Engineering, an affiliated company of Sparton. By January 2007, the Government had reimbursed Sparton for about $577 thousand representing the cost of work performed by Jackson Engineering.

In 2007 and 2008, Sparton submitted timely final indirect cost rate proposals for its fiscal years 2006 and 2007. Both of these proposals included the required "Schedule I"s, Cumulative Allowable Cost Worksheet (CACWS) but neither Schedule I included the cost of the intra-divisional work performed by Jackson.

In September 2013, DCAA (Defense Contract Audit Agency) issued audit reports covering those years, noting that the Schedule I's did not include the Jackson costs. Eventually, the parties executed final indirect cost rate agreements after which Sparton updated its Schedule I's to reflect the the negotiated rates. The "final" Schedule I's still did not reflect the Jackson intra-divisional costs.

In August 2014, the contracting officer requested Sparton to submit final vouchers for the completed contracts/delivery orders. Sparton submitted the final vouchers that included the previously invoiced and paid Jackson costs.

In October 2015, the contracting officer issued a final decision demanding that Sparton repay $577 thousand that the Government had reimbursed it for work performed by Jackson. Evidently, Sparton was unable to satisfy the contracting officer's request for support for the costs. The contracting officer wrote: "There is no proof whatever that (Sparton) was billed for work or more importantly, that (Sparton) paid these costs in connection with any Government contract".

In January 2016, Sparton appealed the contracting officer final decision to the ASBCA (Armed Services Board of Contract Appeals) and the Government filed a complain alleging that Sparton had been overpaid because the Jackson costs were insufficiently supported.

Sparton eventually requested summary judgment that the Government's claim was time-barred under the Contract Disputes Act (CDA). Summary judgment can be granted if the movant (i.e. Sparton, in this case) shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law. Under the CDA, the Government must bring a contract claim against a contractor within six years after the accrual of the claim. A claim accrues on 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.

There was no dispute that the contracting officer first claimed there was an overpayment on October 26, 2015; consequently, to be timely, that claim must not have accrued earlier than October 26, 2009. The Board found that the Government knew, or should have know of the Jackson costs in January 2007 when it paid those costs pursuant to the interim vouchers that were reimbursed and by the Government's own admission, included information related to the Jackson costs. Moreover, the Government knew or should have known by January 2008 that Sparton had not included the Jackson costs in its indirect cost proposals. Thus, there is no genuine dispute that the Government's claim accrued no later than either January 2007 or January 2008. Both dates precede the October 2009 cut-off for statue of limitations purposes.

The ASBCA granted Sparton's motion for summary judgment and Sparton's appeal was sustained.

The decision doesn't mention why Sparton was unable to satisfactorily support the intra-divisional costs. It mentioned that Jackson had gone out of business in 2006 so perhaps the records supporting the intra-divisional transfers were no longer available.

You can read the entire ASBCA decision here.

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