Contract Disputes Act Statute of Limitations Bars Government Claims in Two Recent Decisions
April 26, 2012
In two recent decisions – The Boeing Company, ASBCA No. 57490 (Jan. 6, 2012) and Raytheon Co. v. United States, No. 09-306C (Fed. Cl. Apr. 2, 2012) –contractors successfully argued that the Government’s claims were barred by the 6-year statute of limitations under the Contracts Disputes Act (CDA). The CDA provides that “each claim by the Federal Government against a contractor relating to a contract shall be submitted within 6 years after accrual of the claim.” 41 U.S.C. § 7103(a)(4)(A).In other words, if a Federal Government contract claim is not brought within the 6 year period, the claim is forever waived. The key issue in any statute of limitations situation is when the claim has accrued. The FAR defines claim accrual as occurring on “the date when all events, that fix alleged liability of either the Government or the contractor and permit assertion of the claim, were known or should have been known. For liability to be fixed, some injury must have occurred. However, monetary damages need not have been incurred.” FAR 33.201. These two recent decisions shed light on when the Government knew or should have known the facts that give rise to its claims. The decisions also serve as a warning to contractors to be mindful of the deadline for filing their claims against the Government.
The Boeing Company, ASBCA No. 57490 (Jan. 6, 2012)
In 2000, Boeing submitted a Cost Accounting Standards Disclosure Statement to DCMA providing notice that it had revised its accounting practices. The revised practices resulted in increased costs on two contracts totaling $7.4 million. In 2003, the Contracting Officer issued a Prenegotiation Memorandum for the Cost Impact Settlement. In that memorandum, the CO stated that the accounting revision was not in the Government’s interests and described a negotiating strategy for obtaining reimbursement of the costs. The CO then proposed a settlement figure and stated, “I feel obligated to tell you if we can’t reach agreement on an appropriate cost adjustment within a reasonable period of time, I’m prepared to make a unilateral determination subject to appeal as provided for in the Disputes clause, FAR 52.233.” Following this letter, Boeing and the CO held several meetings between 2003-2010 to discuss the settlement (although the frequency of the meetings tapered off after 2005). It was not until 2010, however, when the Government issued a CO final decision demanding $6.42 million from Boeing.
Boeing appealed to the ASBCA claiming that the final decision is outside the 6-year statute of limitations. The Government did not deny that the claim accrued more than 6 years before the 2010 final decision. In fact, the 2010 final decision demonstrated that all the events on which the claim was based were known to the Government, at the latest in 2003. Rather, the Government made two arguments. First, the Government argued that the 2003 letter was the CO’s final decision. Second, the Government argued that the statute of limitations was tolled by Boeing’s settlement discussions. The Board rejected both arguments.
First, the Board found that the 2003 letter was not a final decision because it did not state a sum certain. Instead, it merely suggested a settlement proposal. Additionally, the language at the end of the letter which stated “if we can’t reach an agreement . . . I’m prepared to make a unilateral decision” demonstrated that this was not an appealable final decision. Instead, the Board noted that this language suggested a final decision was coming.
Second, the Board said that, while equitable tolling is applicable to the CDA, it requires evidence that one party induced or tricked the other party into missing the deadline for submitting a claim. The Board found no evidence that Boeing’s settlement discussions induced or tricked the Government. Rather, the Board stated, “If anything, Boeing’s continued resistance to the government’s conclusions, and to settling the matter, should have heightened the government’s awareness of the need to issue a final decision to preserve its claim before the deadline expired.” The Board also noted that most of the settlement meetings ended in 2005, thus the Government could have issued its final decision in 2005 before the limitations period had passed.
Raytheon Co. v. United States, No. 09-306C (Fed. Cl. Apr. 2, 2012)
Raytheon entered into an Advance Agreement with the Government in 1999 that covered $105.9 million in costs associated with Raytheon’s purchase of Hughes Aircraft. The Advance Agreement stated that the Government anticipated further review of the costs. In 2003, the Defense Contract Audit Agency (DCAA) audited the Advance Agreement costs and issued a report stating that $4.75 million was unallowable. Raytheon credited the Government for the disputed amount. Then, after criticism from the DOD Inspector General, DCAA performed a second audit in 2008. The 2008 audit used the same information as the 2003 audit, but this time DCAA determined that $25 million of the costs were unallowable. The Contracting Officer issued a final decision demanding repayment of $25 million. Raytheon sought a declaratory judgment at the Court of Federal Claims that the CO’s decision was issued outside the 6-year statute of limitations set forth in the CDA and the claim was unenforceable.
The Court of Federal Claims agreed with Raytheon that all of the events that pertained to the Government’s claim occurred in 1999 when the parties signed the Advanced Agreement and the Government had all the financial information it would ever have to assess the allowability of the costs. The Court said that this was the point at which the Government knew or should have known the costs were unallowable. The Court rejected the Government’s argument that it did not have knowledge of the claim until the 2003 audit. The Government argued that the terms in the Advance Agreement, which stated that the Government anticipated further review of the costs, delayed the statute of limitations. The Court rejected this argument holding that the parties can set a shorter limitations period by agreement, but cannot establish a longer one than the CDA allows.
The Court also rejected the Government’s arguments for accrual suspension and equitable tolling because both theories apply only in situations where one party concealed information. The Court found that there was no evidence that Raytheon withheld any relevant information from the Government. Rather, the Court concluded:
[The Government] had been aware of all the information on which it based the $25 million government claim for nine years before the contracting officer issued his decision in 2008. The decision conflicted dramatically with the results of the first audit, issued in 2004, which used information identical to that employed by the second set of auditors in 2007. The only event occurring after [the Government] signed the Advanced Agreement in 1999, and before the 2008 contracting officer’s final decision, was the Inspector General’s report criticizing DCAA’s $5 million first audit.
Although these cases involved the Government’s claims, they teach valuable lessons for Contractors’ claims as well. Contractors have the same six year statute of limitations for bringing contract claims against the Federal Government. 41 U.S.C.§ 7103(a)(4)(A). It is very important to be aware of when a claim has accrued, i.e. when all the information giving rise to liability is known. That is the point at which the 6-year limitation period begins to run. Additionally, as Boeing demonstrates, settlement discussions generally do not stop the 6-year time limit from running. This is not to say that contractors should rush to court and avoid conducting settlement negotiations with the Government. Settlements are traditionally less costly ways of resolving claims. However, contractors should keep the 6-year time limit in mind during the negotiations and if a settlement hasn’t been reached, ensure that their claims are filed well before the period is over. Finally, contractors should also be on the lookout for agreements with the Government that purport to extend the limitations period. As the Court noted in Raytheon, the parties cannot agree to extend the time limit. Thus, from the moment the claim has accrued, both parties (generally) have only 6 years to assert their claims.
Katie Calogero is the attorney responsible for the content of this article.