Last November we highlighted an ASBCA (Armed Services Board of Contract Appeals) ruling from August 29, 2016 that CAS 404, Capitalization of Tangible Assets) does not apply to capital leases. This ruling caught us by surprise as almost everyone in Government contracting circles believed otherwise and acted on that premise in determining allowable costs (depreciation) on Government contracts. Read it here.
The Defense Contract Management Agency (DCMA) who defended the case before the Board also thought the Board was wrong and moved for a reconsideration of the Board's opinion alleging that the Board had made a "legal error". The Board denied DCMA's motion and wrote some strong wording concerning DCMA's approach to handling the original case and the motion for reconsideration. The Board wrote:
A motion for reconsideration is not the place to present arguments previously made and rejected. Where litigants have once battled for the court's decision, they should neither be required, nor without good reason permitted, to battle for it again. Motions for reconsideration do not afford litigants the opportunity to take a second bite at the apple' or to advance arguments that properly should have been presented in an earlier proceeding.
Moreover, we note that DCMA's argument regarding the interpretation of CAS 404 comprised just five and-a-half pages of its twelve-page brief in opposition to Exelis' motion to dismiss. Now DCMA has submitted a 34 page brief devoted solely to this issue. Put simply, the rulings of a board are not mere first drafts, subject to revision and reconsideration at a litigant's pleasure. The proper time for DCMA to have made these arguments was in response to Exelis' motion to dismiss, and not in a motion for reconsideration.Notwithstanding the denial for reconsideration, the Board considered DCMA's additional arguments and found none of them to be persuasive. Those arguments were:
- the Board misinterpreted the text of CAS 404
- the Board incorrectly held that GAAP (Generally Accepted Accounting Principles) play no role in the interpretation of CAS 404 and
- that the Board improperly applied the standard of review by assuming the Exelis' lease of an office building was not a capital lease.
As we stated in our previous posting, the Government can still pursue the case based on FAR and probably will. It is not unlikely however that DCMA will appeal the Board's rulings to a higher court.