American Bar Association Section of Public Contract Law

AMERICAN BAR ASSOCIATION – SECTION OF PUBLIC CONTRACT LAW

ACCOUNTING, COST & PRICING COMMITTEE

Agenda for February 12, 2015 Meeting

The Accounting, Cost & Pricing Committee is pleased to invite you to a meeting on the subject of “Legal Trends Affecting DCAA Audits” on Thursday,February 12, 2015, at 12:00 noon (eastern).

Meeting Location: We will meet at the Washington, DC office of McKenna Long & Aldridge. Their office is located on the lobby level of 1900 K Street NW, Washington, DC 20006 (the corner of 19th and K Streets). The location is located two blocks from the Farragut North metro station on the red line and it is 1½ blocks from the Farragut West metro station on the blue and orange lines. Garage parking is very limited in the area. For those who cannot attend in person, there is a dial-in number: 1-888-887-4214; passcode, 551269. We will connect the phone link at about 12:10 PM. For those who do attend, lunch will be provided for a contribution of $10. If you plan to attend in person, please RSVP o later than February 9, 2015. You must RSVP if you will attend in person so that we can notify the building manager.

PLEASE NOTE THAT THE MEETING LOCATION AND CALL-IN INFORMATION ARE DIFFERENT THAN OUR NORMAL COMMITTEE MEETINGS.

I.Meeting Subject: Legal Trends Affecting DCAA Audits

Please join us for a meeting of the ABA Accounting, Cost and Pricing Committee for a panel discussion led by Steve Masiello of McKenna Long & Aldridge regarding legal trends affecting DCAA audits. The panelists include David C. Hoffman, Deputy General Counsel, DCAA; Taylor M. Menlove, Senior Attorney, Aerospace & Technologies, Ball Corporation; and Arthur M. Taylor, Deputy Chief Trial Attorney, DCMA. The panel will cover topics such as: the impact of the recent statute of limitations decisions on DCAA audits, DCAA/DCMA’s use of decrements to withhold or disallow direct and/or indirect costs, and the impact of the DCAA audit backlog on contractors’ record retention obligations.

If time allows, we may discuss select recent cases and regulatory developments.

II.Recent Regulatory Items of Interest

• Department of Labor, Wage and Hour Division; Establishing a Minimum Wage for Contractors (79 FR 60633): On October 7, 2014, the Department of Labor issued a final rule at implementing Executive Order 13658, Establishing a Minimum Wage for Contractors, which was signed by President Barack Obama on February 12, 2014. The effective date was December 8, 2014.

• Department of Defense (DoD), Defense Federal Acquisition Regulation Supplement (DFARS); Forward Pricing Rate Proposal Adequacy Checklist (79 FR 73493): On December 11, 2014, DoD issued a final rule at amending the DFARS to provide guidance to contractors for submittal of forward pricing rate proposals. The effective date was December 11, 2014.

• Federal Awarding Agency Regulatory Implementation of Office of Management and Budget’s (OMB’s) Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (79 FR 75871): On December 19, 2014, the OMB issued an interim final rule at implementing for all Federal award-making agencies the final guidance Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance) published by the OMB on December 26, 2013. The rule is necessary in order to incorporate into regulation and thus bring into effect the Uniform Guidance as required by OMB. The effective date was December 26, 2014.

III.Recent Cases of Interest

• ASFA Int’l Constr. Indus. Trade, Inc., ASBCA No. 57880 (September 2, 2014) available at Under a construction contract, ASFA was required to complete construction by November6, 2005. ASFA, however,did not complete construction until April 28, 2007. On November 23, 2011, the contracting officer issued a final decision assessing liquidated damages from November 23, 2005 to April 18, 2007. ASFA appealed the final decision. On appeal, the Board addressed whether the Government’s claim was timely under the Contract Disputes Act (CDA) six-year statute of limitations. The Government argued that, under the continuing claim doctrine, each day of delay created a separate and distinct event or wrong with its own associated damages. The Board rejected the Government’s argument and held that the Government’s claim accruedas of November 7, 2005 and, accordingly, that the Government’s claim was untimely.

• Laguna Constr. Co., Inc., ASBCA No. 58324 (September 23, 2014) available at In April 2012, DCAA rejected and the Government declined to pay 14 Laguna vouchers under various task orders under a contract for environmental remediation in Iraq. Both parties moved for summary judgment. Several of Laguna’s employees and officers were indicted or entered guilty pleas for crimes related to kickbacks from a subcontractor. The Government argued that it was not liable for Laguna’s claim because Laguna breached the contract when its principal officers and employees solicited and accepted kickbacks. The Board agreed with the Government and held that Laguna materially breached the contract through kickbacks taken by its agents and its billings to the Government based upon amounts inflated by those kickbacks. The Board stated that insofar as Laguna’s vouchers to the Government were improperly inflated to include the payment of kickbacks, its vouchers also did not reflect allowable and reimbursable contract costs, which breached the Allowable Cost and Payment contract clause.

• SOS Int’l, Ltd., CBCA No. 3678 (September 26, 2014) available at The Drug Enforcement Agency (DEA) issued a request for proposal (RFP) to procure linguist services and “exception” travel. The RFP instructed offerors to “propose a single rate per contract line item (CLIN) that includes all costs associated with contract performance to include wages (including apportioned supervisory and management labor), overhead, general and administrative [G&A] expenses, and profit.” The RFP section dealing with the travel costs stated that costs for transportation, lodging, meals, and incidental expenses were allowable subject to FAR 31.205-46, travel costs. The offerors were not required to provide proposal pricing for the travel CLINs. DEA awarded a contract to SOSInternational (SOSI). The contract incorporated by reference FAR 52.216-7, Allowable Cost and Payment, and the FAR 52.232-1 and -7 payment clauses. A dispute arose under the contract regarding whether SOSI could include G&A markups on travel costs. The Government informed SOSI that G&A could not be billed on travel costs because “[t]he G&A should be built into the hourly labor CLINs.” SOSI responded that applying allocable G&A expense to allowable travel costs was consistent with Cost Accounting Standards G&A allocation practices. The Boardagreed with the Government and interpreted the RFP provisions and the contract clauses to unequivocally limit the costs SOSI could recover for travel to “transportation, lodging, meals, and incidental expenses” (without an accompanying G&A mark-up).

• Combat Support Assoc., ASBCA Nos. 58945, 58946 (October 22, 2014) available at On May 20, 2007, Combat Support Associates (CSA) completed its incurred cost submission (ICS) for contractor fiscal year 2006. On August 23, 2013, the ACO issued two final decisions on the ICS. On appeal, CSA moved to dismiss on the basis that the Government’s claims were untimely under the CDA’s six-year statute of limitations. The Government contended that it had no knowledge, and had no reason to know, whether the costs that were the subject of the final decisions were allowable until CSA provided detailed information (adequate supporting data) in addition to the initial ICSshowing the costs were allowable. The Government relied upon the declaration of a DCAA Supervisory Auditor, who stated that “the supporting data related to those costs identified in the two (2) Government contracting officer final decisions dated August 23, 2013 was not provided to the auditors until after August 23, 2007.” CSA did not counter by demonstrating that, even without the supporting data, the Government had the information it needed to know that it had the claims set forth in the ACO’s August 23, 2013 final decisions or that the Government had additional information before August 23, 2007 from which it knew or should have known of its claims. The Board denied CSA’s motion to dismiss.

• The Boeing Co., ASBCA No. 58660 (November 6, 2014) available at In July 2006, Boeing disclosed its intention to make accounting practice changes by consolidating two of its sites in early 2007. From November2006 to February 2007, the contracting officer (CO) repeatedly implored Boeing to comply with the cost accounting disclosure requirements contained in FAR. Subsequently, Boeing submitted a revised CAS Disclosure Statement Revision, and then revised it twice. Boeing also met with the Government and made presentations on PowerPoint slides. On February16, 2007, Boeing submitted a GDM. On February 8, 2013, the CO issued a final decision demanding payment for increased costs due to the accounting practice change.On appeal, Boeing filed a motion to dismiss contending that the Government’s claim accrued no later than February 2, 2007 and, accordingly, that the claim was untimely under the CDA six-year statute of limitations. The Government argued that the claim accrued no earlier than February 16, 2007, when Boeing submitted the GDM. The Board denied the motion to dismiss, holding that the Government should not have to pursue cost impact information on its own where the FAR places the burden on the contractor to submit the GDM. The Board noted that Boeing did not show that it provided the Government with sufficient cost impact information in the absence of a GDM, even though Boeing attempted to “cobble together various pieces of evidence to contend that the government had constructive knowledge of its claim” by February 2, 2007, which includedthe CO’s deposition testimony, Boeing’s PowerPoint presentations, and communications the parties exchanged from July 2006 to February 2007.

• BAE Sys. Land & Armaments Inc., ASBCA No. 59374 (November 18, 2014) available at The Government awarded acontract to BAE Systems. DCAA audited BAE Systems’ cost or pricing data and concluded that a subcontractor’s cost or pricing data were defective. On May14, 2013, the CO issued a “Defective Pricing Demand Letter” seeking debt recoupment for the alleged defective pricing identified by DCAA. On July 30, 2013, BAE Systems submitted a certified claim challenging the Government demand. On March 24, 2013, the CO issued a final decision denying the claim. BAE Systems filed a motion to compel the Government to file the complaint in this appeal. The Board granted BAE Systems’ motion,holding that in these particular circumstances the proceedings would be more efficient if it could start with a Government articulation of the basis for its determination of defective pricing.

• Thorpe See-Op Corp., ASBCA No. 58960 (December 4, 2014) available at On August 22, 2005, the CO terminated the contract for convenience. After the submission of termination settlement proposals, negotiations, and settlement offers, the parties reached an impasse on October 15, 2012. On July 15, 2013, the CO unilaterally modified the contract and demanded payment from Thorpe. On August 12, 2013, Thorpe submitted a certified claim for payment from the Government. On appeal, the Board addressed whether the Government’s modification and/or Thorpe’s payment claim were barred by the CDA six-year statute of limitations. The Board concluded that the parties’ respective claims accrued on October 15, 2012, fewer than six years before the CO issued the modification and fewer than six years before Thorpe submitted its certified claim. The Board stated that “[w]here contract termination settlement procedures provide for the parties to attempt to negotiate a settlement, a claim for payment arising from those procedures prior to an impasse in such negotiations is premature.”

• Sikorsky Aircraft Corp., CAFC No. 2013-5096, -5099 (December 10, 2014) available at Between 1999 and 2005, Sikorsky allocated its material overhead costs according to a direct labor base. The Government contracting officer issued a final decision alleging that Sikorsky’s allocations between 1999 and 2005 were noncompliant with CAS 418. The Court of Federal Claims (COFC) held that CAS 418-50(e) was applicable to Sikorsky’s cost pool and determined that the Government failed to establish by a preponderance of the evidence that Sikorsky’s direct labor base was not an appropriate allocation method. The two issues on appeal were (i) whether the Government’s claim was barred by the CDA’s six-year statute of limitations, codified at 41 USC §7103(a)(4)(A), and (ii) whether Sikorsky violated CAS. The Court held that the six-year limitation was not jurisdictional. The Court provided that “§ 7103 does not have any special characteristic that would warrant making an exception to the general rule that filing deadlines are not jurisdictional.” Since it found § 7103 non-jurisdictional, the Court determined that it need not be addressed before deciding the merits. On the merits, the Court affirmed the COFC’s decision, rejecting the Government’s argument that CAS should be interpreted using non-published internal documents and ambiguous language from the preamble. The Court held that CAS 418-50(e) was applicable and the Government did not show that Sikorsky adopted an inappropriate measure of resource consumption.

IV.Other Items of Interest

• DCAA MRD 14-PPS-015(R), September 12, 2014, “Audit Guidance on Revised Policies and Procedures for Testing of Paid Vouchers” (available at )
• DCAA MRD 14-PAC-016(R), September 19, 2014, “Audit Alert on Evaluating the Adequacy of Cost Impact Proposals” (available at )
• DCAA MRD 14-PPS-017(R), September 26, 2014, “Guidance on Revised Policies and Procedures for Billing Oversight” (available at )
• Office of the Under Secretary of Defense, Director, Defense Pricing Memorandum, October 24, 2014, “Use of Blended Rates to Implement Multiple Compensation Caps” (available at
• U.S. Government Accountability Office, GAO-15-44, November 12, 2014, “Defense Contract Audit Agency: Additional Guidance Needed Regarding DCAA’s Use of Companies’ Internal Audit Reports” (available at
• DCAA MRD 14-PPD-020(R), November 24, 2014, “Audit Alert Regarding Sampling Low-Risk Incurred Cost Proposals at Nonprofit Organizations” (available at )
• U.S. Government Accountability Office, GAO-15-200, December 22, 2014, “Federal Subcontracting: Further Actions Needed to Improve Oversight of Pass-through Contracts” (available at
• DCAA MRD 14-PAC-021(R), December 18, 2014, “Audit Alert Distributing a Listing of Cost Principles That Identify Expressly Unallowable Costs” (available at

V.Additional Business

As always, if you have ideas for upcoming meetings, guest speakers, special programs, etc. we want to hear from you. Please feel free to contact any of the Co-Chairs to discuss.

AMERICAN BAR ASSOCIATION – SECTION OF PUBLIC CONTRACT LAW

ACCOUNTING, COST & PRICING COMMITTEE

Agenda for April 14, 2015 Meeting

The Accounting, Cost & Pricing Committee is pleased to invite you to a meeting on the subject of “Commercial Item Determinations and Price Reasonableness Determinations”on Tuesday,April 14, 2015, at 12:00 noon (eastern).

Meeting Location: We will meet at the Washington, DC office ofWiley Rein LLP. Their office is located at1776 K Street, NW, Washington, DC 20006. The location is near the Farragut West Metro station on the blue, orange and silver lines and the Farragut North station on the red line. Limited two-hour metered parking on the street is available. Limited garage parking is available at Mid-Town Parking, 1750 K Street NW (entrance is on K Street NW) and 1776 K Street NW (entrance is on 18th Street NW). For those who do attend in-person, lunch will be provided for a contribution of $10. Please arrive by noon. The Receptionist will guide attendees to the conference room. If you plan to attend in-person, please RSVP to no later than April 9, 2015. You must RSVP if you will attend in-person so that we can notify the building manager. For those who cannot attend in-person, there is a dial-in number: 1-877-211-3621; passcode/participate code, 870 390 4006. We will connect the phone link at about 12:10 PM.

PLEASE NOTE THAT THE MEETING LOCATION AND CALL-IN INFORMATION ARE DIFFERENT THAN OUR NORMAL COMMITTEE MEETINGS.

I.Meeting Subject: Commercial Item Determinations and Price Reasonableness Determinations

Please join us for a meeting of the ABA Accounting, Cost and Pricing Committee for a panel discussion led by Nicole Owren-Wiest of Wiley Rein regarding Commercial Item Determinations and Price Reasonableness Determinations. The panelists include Tom Walker, Director, DCMA Commercial Contract Cost and Pricing Team, and Ron Youngs, Assistant Vice President, Acquisition, Aerospace Industries Association, National Security and Acquisition Policy Division (and former Director, DCMA Cost and Pricing Center). The panel will provide an overview of DCMA’s new Commercial Contract Cost and Pricing Team and they will share with us observations, recent developments and upcoming DoD guidance.

If time allows, we may discuss select recent cases and regulatory developments.

II.Recent Regulatory Items of Interest

• Department of Defense, General Services Administration, and National Aeronautics and Space Administration; Federal Acquisition Regulation; Management and Oversight of the Acquisition of Services: On January 29, 2015, the DoD, GSA and NASA issued a final rule at amending the FAR to strengthen guidance on service acquisitions on uncompensated overtime. The effective date was March 2, 2015.

• Department of Defense, Defense Federal Acquisition Regulation Supplement; Business Systems Compliance: On February 4, 2015, DoD closed the Business Systems Compliance (Case No. 2012-D042) final rule at

III.Recent Cases of Interest

• Kellogg Brown & Root Serv., Inc., ASBCA No. 59557 (January 22, 2015) available at The Government awarded the LOGCAP contract to KBR. DCAA audited KBR’s FY2007 incurred cost proposal and questioned the subcontractor Defense Base Act (DBA) insurance costs. The ACO issued a final decision demanding payment of the unallowable DBA insurance costs billed to the Government. KBR filed a motion for an order directing the Government to file the complaint. The Board examined the final decision, the DCAA audit report, and the communications between the parties and determined that none articulated a basis for the Government’s claim. The Board granted KBR’s motion holding that this appeal would be facilitated by the Government’s filing of the initial pleading setting forth the basis or bases for its claim.

• Group Health Inc., CBCA 3407 (January 22, 2015) available at In May 2011, the Department of Health and Human Services (HHS) partially terminated Group Health Inc.’s (GHI’s) contract, which eliminated the work performed by a subcontractor, Douglas Consulting and Computer Services, Inc. (DCCS).