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.

Statute of Limitations and "Sum Certain"

Most readers of this blog are aware of the Contract Disputes Act's six-year statute of limitations that begins from the accrual of a claim. The six-year statute of limitations became a big issue a few years back when contract auditors began auditing incurred cost submissions that had been piling up on their desks for more than six years. Although the auditors tried to get cute with their definition of "accrual of a claim", the efforts were feeble and they soon gave up trying to audit incurred cost submissions that were older than six years.

In a recent decision handed down by the U.S. Court of Appeals for the Federal Circuit, the court considered the concept of "sum certain". Claims against the Government must be for a "sum certain" and until the "sum certain" is known, the statute of limitations does not begin.

In 2001, the Army awarded KBR a cost-plus-award-fee contract for construction and operations of dining facilities in Iraq. On July 31, 2003, KBR terminated one of its subcontractors on the job for default. Later the termination for default was converted to a termination for convenience in September 2003. In January 2005, KBR and its subcontractor reached an initial settlement for costs under the contract for $17.4 million and an agreement to pay additional costs as supported by the subcontractor.

Ultimately, the claim made its way to the ASBCA (Armed Services Board of Contract Appeals) who dismissed KRB's case finding that the dispute fell outside of the Contract Disputes Act's six-year statute of limitation. KBR filed its claim in May 2012 and the ASBCA ruled that the claim accrued either in September 2003 when the termination for convenience was issued or January 2005 when KBR reached its initial settlement with the subcontractor. Either date would have made the claim late.

The Federal Circuit however ruled that the ASBCA erred by finding the claim accrued before KBR could state the claimed amount in a "sum certain". The Federal Circuit found that the claim did not actually accrue until August 2006 when the subcontractor billed KBR for all outstanding costs in dispute. In January 2005, KBR did not have the exact amount for those additional amounts. It didn't have the final amount until more than a year later. KBR could not actually submit a claim to the Government in either 2003 or 2005 because claims must be presented in a "sum certain".

The Federal Circuit set the date for a "sum certain" at August 2006 which also happened to be withing the six-year statute of limitations and remanded the case back to the ASBCA for a decision on the merits of KBR's claim.

PowerPoint Slides Do Not Trigger Statute of Limitations

The Boeing Company filed a motion with the ASBCA (Armed Services Board of Contract Appeals) to dismiss a government claim for $650 thousand plus interest. The issue, which isn't really relevant to this discussion, involved required cost accounting practice changes resulting from consolidating a couple of divisions.

Boeing contended that the Government's claim "accrued no later than February 2, 2007 whereas the Government contended that it accrued no earlier than February 16, 2007. One wouldn't necessarily think that two weeks would make any difference. However, this two-week difference is critical because of the contracting officer's final decision at issue was dated February 8, 2013, and the Contract Disputes Act contains a six-year statute of limitations on claims.

In July 2006, Boeing disclosed its intention to consolidate two of its sites in California in early 2007. From November 2006 to February 2007, the contracting officer repeatedly implored Boeing to comply with the cost accounting disclosure requirements contained in FAR. Boeing submitted a revised CAS Disclosure Statement and revised it twice. It met with the Government and made presentations on PowerPoint slides. However, throughout this process, Boeing never submitted was is referred to in FAR as a general dollar magnitude (GDM) of the change until February 8, 2007.

Although the GDM was not submitted until February 8, 2007, Boeing maintained that it had advised the Government of the cost impact before that date through PowerPoint presentations. Boeing placed a lot of emphasis on information convened in its PowerPoint slides used in its presentations in November 2006 and again in January 2007. Boeing requested the ASBCA to conclude that it conveyed enough information through those slides to trigger accrual of the claim. The ASBCA stated that Boeing's request was a "tall order" given that i) the Board was not at the meetings where the slides were discussed, ii) the Board did not hear live testimony (subject to cross-examination) from witnesses who were at the meetings; iii) the shorthand style of communication in the slides means that they are inherently subject to multiple interpretations and iv) the Board lacks a full appreciation of the highly complex business relationship between the parties - a relationship characterized by highly sophisticated contracts, people, and most of all, accounting practices - making it difficult to determine the accrual date of the government's claim using PowerPoint slides as a guide.

The Board concluded that Boeing did not convey sufficient information to the government in a timely manner to trigger the statute of limitations. As a result, the Board denied Boeing's motion. Now, the issue will need to be decided on its merits rather than thrown out on a technicality.

You can read the entire ASBCA decision here.

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.