The Armed Services Board of Contract Appeals (ASBCA) recently dismissed a $17 million government claim as untimely in Raytheon Missile Systems, ASBCA No. 58011 (Jan. 28, 2013). This is yet another case in a string of recent decisions over the last year (reported here) in which the government’s claim was barred by the 6-year statute of limitations under the Contract Disputes Act (CDA). With the ever-growing backlog of audits at the Defense Contract Audit Agency (DCAA), it’s likely this untimely government claim won’t be the last.
In Raytheon Missile Systems, Raytheon submitted a CAS disclosure statement in 1999 that excluded certain subcontract costs from application of Raytheon’s full overhead rate. These “major subcontracts,” as they were called, would receive a reduced rate. That same year, Raytheon received a contract from the Naval Air Systems Command (NAVAIR) and subcontracted a portion of this work to Lockheed Martin Corp. Raytheon’s price proposal for this contract was analyzed by NAVAIR, DCAA, and the Defense Contract Management Agency (DCMA). On July 26, 1999, a DCMA price analyst issued a report discussing the various components of the price proposal.
In 2005, the same DCMA price analyst that issued the 1999 report performed a second review of Raytheon’s price proposal to see if Lockheed Martin was treated as a “major subcontract” subject to Raytheon’s special burden rate as described in the CAS disclosure statement. This review revealed that Lockheed Martin was not treated as a “major subcontract” and thus, the full overhead rate was applied to the Lockheed Martin subcontract resulting in increased costs to the government. On April 3, 2006, DCAA issued a draft condition statement alleging that Raytheon did not comply with its CAS disclosure statement. This allegation was based on Raytheon’s 1999 proposal and the 2005 DCMA review. After Raytheon responded that it did not concur with DCAA’s conclusion, DCAA issued an audit report and an Initial Determination of CAS noncompliance. After several more communications between Raytheon and DCMA, the contracting officer issued a final decision in November 2011 claiming $10 million plus nearly $7 million in interest. Raytheon appealed.
The CDA requires both parties to submit a claim within 6 years after the accrual of such claim. The Board’s decision, again, came down to when the government’s $17 million claim accrued – i.e., when all the events fixing liability were known or should have been known to the government. The Board found that all of the facts and events that gave rise to the government’s claim occurred in 1999 when Raytheon submitted its price proposal. Thus, the government was required under the CDA to submit its claim by 2005. The Board rejected the government’s argument that the test should be when the CO knew of the facts that give rise to the claim stating, “If that were the case, the both contractors and the government could suspend accrual by compartmentalizing relevant information and insulating senior decision makers for as long as they choose.” The Board also rejected the government’s argument that the claim did not accrue until DCAA issued its audit report stating, “Delay by a contracting party assessing the information available to it does not suspend the accrual of its claim.” This holding is especially important in light of DCAA’s backlog of over 25,000 audits – some of which go back as far as 1996. This massive backlog will likely result in a growing number of government claims outside the 6-year window. Contractors should be on the lookout for untimely claims and maintain relevant documents and other evidence of claim accrual.
Katie Calogero is the attorney responsible for this article.