Judges: Peacock
Filed: Mar. 30, 2016
Latest Update: Mar. 02, 2020
Summary: APPEARANCES FOR THE APPELLANT: James J. Gallagher, Esq.Additional reasons justify a conclusion that the GTA's proposed revision of the, amount of expressly unallowable costs and associated penalty constitute a new claim, that we are not empowered to address in the Penalty appeal (ASBCA No. 58598).
ARMED SERVICES BOARD OF CONTRACT APPEALS
Appeals of -- )
)
AeroVironment, Inc. ) ASBCA Nos. 58598, 58599
)
Under Contract No. W58RGZ-05-C-0338 )
APPEARANCES FOR THE APPELLANT: James J. Gallagher, Esq.
Mary E. Buxton, Esq.
Pillsbury Winthrop Shaw & Pittman LLP
Los Angeles, CA
APPEARANCES FOR THE GOVERNMENT: E. Michael Chiaparas, Esq.
DCMA Chief Trial Attorney
Srikanti Schaffner, Esq.
Carol L. Matsunaga, Esq.
Trial Attorneys
Defense Contract Management Agency
Carson, CA
OPINION BY ADMINISTRATIVE JUDGE PEACOCK ON APPELLANT'S
MOTION TO DISMISS AND THE GOVERNMENT'S
MOTION TO AMEND PLEADINGS
AeroVironment, Inc. (appellant or AV) has filed a motion to dismiss the
captioned appeals. AV alleges that all government claims disallowing costs (ASBCA
No. 58599) and assessing penalties for inclusion of alleged expressly unallowable
costs (ASBCA No. 58598) related to appellant's final incurred cost proposal for fiscal
year (FY) 06 were resolved by settlement or payment and accordingly are moot. The
government opposes dismissal and has filed a motion for approval to file amended
answers (motion to amend) in both appeals allegedly to clarify the scope of its claims
asserted in the contracting officer (CO) decisions from which these appeals were
taken. Appellant alleges, inter alia, that the proposed amendments of the pleadings
constitute new government claims beyond the scope of those asserted in the final
decisions and are therefore beyond the Board's jurisdiction to address. We grant
appellant's motion to dismiss and deny the government's motion to amend.
STATEMENT OF FACTS FOR PURPOSES OF THE MOTIONS
1. On 22 February 2013, the Defense Contract Management Agency (DCMA
or government) administrative contracting officer (ACO) issued two final decisions
regarding A V's FY 06 final incurred cost proposal (ICP), dated 20 September 2006.
One final decision (the Unallowability decision) disallowed various costs totaling
$1,857,114. The amounts disallowed included over-cap executive compensation
totaling $1,169 and misallocated taxes totaling $1,022,000, precisely in accordance
with the conclusions in an underlying audit report prepared by the Defense Contract
Audit Agency (DCAA). The Unallowability decision demanded repayment of all
disallowed costs. (ASBCA No. 58599 (58599) R4, tab 4)
2. The second final decision (the Penalty decision) determined the disallowed
compensation and tax costs to be expressly unallowable and assessed corresponding
penalties of $429 for the $1, 169 over-ceiling executive compensation costs and
$455,812 for the misallocated taxes (both as determined in the DCAA audit report).
The Penalty decision demanded payment of those amounts plus the associated interest
component of the penalty under FAR 42.709. (ASBCA No. 58598 (58598) R4, tab 4)
3. On 21March2013, AV timely appealed each decision. The appeal from the
Penalty decision was docketed as ASBCA No. 58598 (sometimes referenced herein as
the Penalty appeal) and the appeal from the Unallowability decision was docketed as
ASBCA No. 58599 (sometimes referenced herein as the Unallowability appeal).
4. On 29 April 2013, AV filed its complaint in the Unallowability appeal
averring in pertinent part:
VIII. AV'S FY 06 EXECUTIVE COMPENSATION
COSTS DO NOT EXCEED THE CEILING
ESTABLISHED BY FAR§ 31.205-6
35. In the Final Decision, the Government alleges
that $1, 169 in AV' s FY 06 executive compensation costs
exceed the ceiling for such costs established at
FAR § 31.205-6(p).
36. AV's FY 06 executive compensation costs do
not exceed the ceiling for such costs established at
FAR § 31.205-6(p).
(58599, compl. at 8)
5. On 30 May 2013, the government filed its answer in the Unallowability
appeal admitting the above allegations in the complaint, paragraph 35, "to the extent
supported by the referenced Final decision" and alleging that the averments in the
complaint, paragraph 36, stated conclusions of law and denying them to the extent that
they may be deemed factual allegations (58599, answer at 5).
2
6. On 29 April 2013, appellant also filed its complaint in the Penalty appeal. As
pertinent to our decision, the following sections of the complaint address the penalty
related to alleged over-ceiling executive compensation costs:
VII. AV'S FY 06 EXECUTIVE COMPENSATION
COSTS DO NOT EXCEED THE CEILING
ESTABLISHED BY FAR§ 31.205-6
25. In the Final Decision, the Government alleges
that AV is liable for the impact of its inclusion of$ I, 169 in
FY 06 executive compensation costs that allegedly exceed
the ceiling for such costs established at FAR § 31.205-6(p).
26. AV' s FY 06 executive compensation costs do
not exceed the ceiling for such costs established at FAR
§ 3 I .205-6(p).
VIII. EVEN IF AV'S FY 06 EXECUTIVE
COMPENSATION COSTS HAD EXCEEDED
THE CEILING ESTABLISHED BY FAR§
31.205-6, THE GOVERNMENT MUST WAIVE
THE PENALTY
27. Under FAR§ 42.709-5(b), even ifthe
Government's calculation of AV's FY 06 executive
compensation costs was correct, and those costs exceeded the
ceiling established at FAR § 3 I .205-6(p), which AV does not
concede, the Government is required to waive the penalty
because the allegedly expressly unallowable executive
compensation costs at issue are less than $IO,OOO.
(58598, compl. at 6-7)
7. On 30 May 2013, the government also filed its answer in the Penalty appeal
admitting the allegations in the complaint, paragraph 25, "to the extent supported in
the referenced Final Decision" but otherwise denying paragraphs 25 through 27.
8. Following the filing of the pleadings in both appeals, the parties requested an
approximate I I-month suspension of proceedings in both appeals and engaged in
settlement discussions.
9. By letter dated 23 April 2014, the parties advised the Board that they had
reached a partial settlement of the disputed issues in the Unallowability appeal and
3
requested that the suspension of the appeals be terminated to address the following
remaining issues excepted from the settlement:
2. Unresolved Issues in ASBCA No. 58599:
a. Executive Compensation Costs In
Excess of FAR 3 l .205-6(p) Cap -- $1,169
3. Unresolved Issues in ASBCA No. 58598:
a. Penalty per FAR 42.709 on Inclusion of
Expressly Unallowable Federal Income Tax
Cost of $1,022,000 in Indirect Cost Claim--$455,812
b. Penalty per FAR 42.709 on Inclusion in
Indirect Cost Claim of $1, 169 in Executive
Compensation Costs in Excess of
FAR 3 l .205-6(p) Cap $429
c. Interest on Penalties $118,622.66
4. None of the issues in ASBCA No. 58598 were resolved
by the parties.
10. On 14 August 2014, the parties executed a partial settlement agreement
(First PSA). The First PSA stated in part:
[T]he Parties continue to dispute FY 06 executive
compensation costs which the Government alleges are in
excess of the cap established by FAR 3 l .205-6(p).
Accordingly, the Parties hereby reserve their respective
rights to litigate this issue before the ASBCA under Appeal
No. 58599. The Parties also recognize that there are
separate, unresolved penalties and interest issues pending
in ASBCA No. 58598 related to the inclusion of
overceiling executive compensation and federal income tax
expenses in [AV' s] FY 2006 Incurred Cost Submission.
(Gov't opp'n, ex. G-1 at 4-5, ~ 6)
11. The appeals were consolidated by the Board. The parties elected
Board-assisted mediation of the unsettled issues and entered into an Alternative
Disputes Resolution (ADR) agreement detailing procedures for the conduct of the
ADR mediation.
4
12. In its mediation filings and during a teleconference immediately prior to the
conduct of the mediation, the government trial attorney (GTA) raised additional
matters regarding the over-ceiling executive compensation amounts that resulted in an
increase in the over-cap executive compensation costs claimed by the government
from the $1,169 set forth in the CO's Unallowability decision to $97,828 now asserted
to be due according to the GTA, along with a corresponding increase in the penalty
from $429 (CO's Penalty decision) to $35,903 now claimed to be due by the GTA,
exclusive of interest. Appellant objected to the GTA' s proposed revisions of the
government claims asserting that they represented a new claim, the assertion of which
was time-barred by the CDA six-year statute of limitations.
13. After discussing the matter between the parties prior to the ADR, the
presiding judge concluded that new matters were raised by the GTA's computations
that involved extensive additional factual and legal issues and that it was apparent that
neither party was prepared to thoroughly address or resolve these matters in the ADR
process. Because of the impasse between the parties regarding matters related to
executive compensation and the associated penalty, executive compensation issues
were excluded from the scope of the ADR proceedings.
14. The ADR successfully resolved all issues associated with the government's
claimed tax penalty (including interest). On 12 May 2015, the parties executed a
second partial settlement agreement (Second PSA) reflecting their resolution of the
government's tax penalty claim and appellant's agreement to remit payment of the
settlement amount to the government (gov't opp'n, ex. G-2). The Second PSA again
stated, as summarized below, that the only matters excepted from the scope of the,
previous 14 August 2014, First PSA were:
1. The penalty assessed and claimed under FAR
42.709 in the amount of $455,812 as a result of the
inclusion of $1,022,000 of federal taxes in A V's FY 06
final indirect cost submission, exclusive of interest [later
resolved during the ADR];
2. Executive compensation costs of $1,169 in
excess ofthe FAR 31.205-6(p) ceiling;
3. A penalty per FAR part 42.709 in the amount of
$429 for the inclusion in its FY final indirect cost
submission of the $1, 169 exceeding the executive
compensation cap exclusive of interest; and,
4. The interest component of the aforementioned
penalties in the claimed amount of$118,622.66.
5
15. On 4 June 2015, AV filed a motion to dismiss the appeals with prejudice "on
the basis that all claims pending before this Board ... have been resolved" inasmuch as the
government claims had been satisfied by: 1. payment of the amount agreed to in the
12 May 2015 Second PSA related to the tax penalty; and, 2. subsequent remission of
payment to the government of the full amount demanded and claimed ($429) by the CO
in her Penalty decision, along with associated interest of an additional $111.64.
Accordingly, appellant alleged that all matters that were the subject of the disallowance
and penalty assessments were concluded and the appeals were therefore moot. 1
16. On 6 July 2015, the government filed an opposition to appellant's motion
to dismiss (opposition) and an accompanying motion to amend. In its opposition, the
government contends that, "The parties have not resolved the issue of the unallowable
executive compensation costs that exceed the statutory cap, which was the subject of
ASBCA No. 58599." The opposition asserts that the unallowable executive
compensation costs were excluded and reserved for further litigation in the First PSA.
It further maintains that the government, "has never agreed to accept [appellant's
payment of the $560.64 for the penalty including interest] in satisfaction of its claim,
and AV was aware, prior to making the payment, that the Government had revised
upwards the amount it believed AV had been overpaid for executive compensation"
subject to penalty. (Gov't opp'n at 3-4)
17. In its motion to amend of6 July 2015, the government requested that it be
permitted to amend its answers in each appeal to increase the over-ceiling executive
compensation amount determined by the CO from $1, 169 to $97 ,828 as well as
increase the corresponding penalty from $429 to $35,903 (plus interest). The basis for
the increase, sometimes referenced herein as the proration methodology, may be
summarized as follows (gov't mot. at 8-9):
a. AV's FY 2006 was 1May2005 to 30 April 2006.
1
Although not expressly stated therein, we construe the motion to dismiss and
associated payment of the penalty as an implicit concession by appellant that
the CO's disallowance in the Unallowability decision of $1,169 (upon which
the $429 penalty was based) in over-cap executive compensation was correctly
computed and is no longer disputed. Stated differently, necessarily subsumed
within the concession that AV owes the government a $429 penalty imposed for
the inclusion of expressly unallowable over-cap executive compensation costs
in its indirect cost submission, is the lesser concession that the associated
$1, 169 for over-cap executive costs were unallowable and properly disallowed
by the CO. The government has made no contention that the Unallowability
appeal should not be dismissed on the basis that the $1, 169 disallowed in the
Unallowability decision remains in dispute.
6
b. Because AV's FY spanned two calendar years,
the applicable pay cap for each year must be prorated as
the GTA interpreted FAR 3 l .205-6(p). In other words, the
cap for 2005 should be used to determine maximum
allowability for the first eight months falling within
calendar year 2005 and the cap for 2006 should be used for
the final four months of AV' s FY 06 falling within
calendar year 2006.
c. The GT A asserts that the ACO "erroneously
relied upon the 2006 calendar year benchmark to
determine that AV exceeded the cap for its 2006 fiscal
year" (id. at 9).
d. Therefore, the GTA'S proposed revisions correct
the ACO's "erroneous" calculations of unallowable
over-ceiling executive compensation.
e. Moreover, because the revised over-cap
compensation claim represented an "expressly
unallowable" cost according to the GTA, a commensurate
increase in the penalty originally demanded by the ACO
pursuant to FAR 42.709 is also appropriate.
18. The proration methodology was developed by DCAA's Mid-Atlantic
Region Compensation Team (MAR) after its review of appellant's executive
compensation (app. resp. to gov't opp'n, ex. 1). The MAR's opinions were furnished
to and considered by the cognizant DCAA auditor prior to issuance of her 31 October
2008 audit report regarding AV's FY 06 ICP. The MAR's methodology was rejected
by the DCAA auditor in her working papers for the following reasons:
Based on our evaluation of the MAR results, we take
exception to the pro-rated FAR Compensation Limit
utilized by MAR to evaluate the allowability portion of the
claimed FY 2006 executive compensation costs based on
FAR 3 l .205-6(p)(3 )(iii) Compensation for Personal
Services.
FAR 3 l .205-6(p)(3 )(iii) Compensation for Personal
Services, which says:
"Fiscal Year" means the fiscal year established by
the contractor for accounting purposes".
7
Therefore, it is unreasonable to pro rate the FAR
Compensation Limit per the Calendar Year when the
contractor[']s fiscal year runs May 31 to April 30.
(App. mediation reply br., ex. 7) As noted above, the CO in her final decision adopted
the auditor's conclusions in the audit report. The CO made no mention of the MAR
proration methodology in the final decision.
19. On 24 July 2015, appellant filed responses to the government's opposition
and motion to amend reasserting, inter alia, that both appeals should be dismissed and
that the government's motion to amend should be denied. In summary, appellant
challenged the government's proration methodology and interpretation of
FAR 31.205-6(p) contending that neither the regulation, nor the legislation on which it
is based, requires proration of the executive compensation cap as alleged by the GTA.
Moreover, appellant argued in its responses that the motion to amend should be denied
because the GTA's proposed amendment of its answer would constitute a new
government claim that had not been the subject of a CO decision and therefore was
beyond our jurisdiction to decide.
20. On 21 August 2015, the government filed replies to appellant's responses
contending, inter alia, that it would demonstrate that proration is required by
regulation and that the proposed amended answers did not assert a new claim. With
respect to its motion to amend, the government's reply stated, "Amendment of the
Answer to include the Counterclaim is requested to provide formal notice to AV of the
revised amount of unallowable executive compensation costs based on the
Government's revised legal position" (reply at 1). Because we determine that the
proposed amendments assert new government claims that we lack jurisdiction to
resolve, we do not reach or address the parties' arguments regarding FAR 3 l .205-6(p)
and the merits of the government's proposed proration methodology.
DECISION
General Rules
The Board generally has jurisdiction to entertain proposed amendments to the
pleadings upon conditions fair to both parties provided that the amendments relate to
matters that are otherwise within the scope of the appeal and do not assert new claims.
Lockheed Martin Aircraft Center, ASBCA No. 55164, 07-1BCAii33,472 at 165,933-34;
Environmental Chemical Corp., ASBCA No. 58871, 15-1BCAii36,110 at 176,288-90;
GSC Construction, Inc., ASBCA No. 59046, 15-1BCAii35,882 at 175,429. It is well
established that claims cannot properly be asserted for the first time in pleadings on
appeal to the Board. E.g., Consolidated Defense Corp., ASBCA No. 52315, 03-1 BCA
ii 32,099 at 158,668-69; Unconventional Concepts, Inc., ASBCA No. 56065 et al., 10-1
8
BCA i134,340 at 169,591 (government claim for failing to perform prescribed work
under one CLIN did not encompass government claim for double billing under other
CLINs which were the subject of a proposed amendment); Lasmer Industries, Inc.,
ASBCA Nos. 56946, 56966, 11-1 BCA ~ 34,671 at 170,800-01 (referred to hereinafter as
Lasmer II) (Board denied the contractor's request to amend its complaint after the
government had granted all the relief requested, because the proposed amendment set
forth new claims for different types of relief involving different operative facts in
addition to the alleged impossibility of the specifications submitted to the CO.).
Although these appeals involve government claims, the complaints were filed
by appellant. Because the contractor is the party required to appeal both its own and
government claims, contractors generally file the initial pleading (complaint) even
where the subject matter of the appeal involves a government claim absent grant of a
motion requesting that the first pleading be filed by the government party. E.g.,
Kellogg Brown & Root Services, Inc., ASBCA No. 59557, 15-1BCA~35,865 at
175,346; see ASBCA Rule 6; see generally 29 NASH & CIBINIC REPORT~ 51.
In the case of government claims, the CO decision generally defines not only
the scope of that claim but circumscribes the parameters of the appeal as well. The
CO decision is commonly referred to as a "linchpin" of the CDA disputes process and
establishes the "outer limits" of both the government claim and CO decision asserting
that claim. Neither the contractor nor the GTA can expand those limits. Honeywell,
Inc., ASBCA No. 47103, 95-2 BCA i127,835 at 138,792 (CO decision asserting
government claim and addressing CAS 413 segment closing and associated pension
cost issues for only one segment did not support jurisdiction over pension cost issues
related to the closing of other segments not addressed in the CO decision; however,
appellant could present evidence of inconsistent application and interpretation of
relevant CAS provisions as a defense to the government claim).
A primary purpose of the CDA with respect to government claims is to clearly
delineate the government's position as well as to resolve disputes informally at the CO
level. E.g., Applied Companies v. United States, 144 F.3d 1470, 1478 (Fed. Cir.
1998). FAR 33.21 l(a)(4)(iii) and (iv) requires the CO decision to identify areas of
factual agreement and disagreement and the supporting rationale for the decision.
There must be express mention of the specific factual issues in dispute and rationale
for the CO's decision. Implicit inclusion of other possible disputes is generally not
enough to serve as a basis for jurisdiction. In Motorola, Inc., ASBCA No. 46785, 95-2
BCA ii 27,645 at 137,807, the CO decision was limited to the issue of inclusion of
facilities capital in computing appellant's G&A rate. Accordingly, the fact that the
CO's demand for repayment in an amount that implicitly considered other G&A issues
did not expand the Board's jurisdiction to resolve other disputes involving them.
Similarly, in International Telephone & Telegraph Corp./Electro-Optical Products
Division, ASBCA No. 27802, 83-2 BCA ~ 16,773 at 83,389-90 (cited in Motorola),
the Board declined jurisdiction over a government claim for an additional CAS 40 l
9
violation not mentioned in the CO decision asserting a defective pricing claim even
though the alleged CAS 401 violation was mentioned in an underlying DCAA audit
report which the Board deemed a "second-tier documentary reference." With respect
to the debt determination and demand for payment included in the CO decisions, we
also note that FAR part 32.603(b)(l) and (2) state that "[t]he amount of the
indebtedness determined by the [CO] shall be an amount that (1) [i]s based on the
merits of the case; and (2) [i]s consistent with the contract terms."
In analyzing whether a new claim has been presented, the Board will examine,
inter alia, changes in the evidentiary predicate supporting the claim. Where the Board
is required to review only "the same or related evidence" it will generally find that
only one claim exists. Placeway Constr. Corp. v. United States, 920 F.2d 903, 907
(Fed. Cir. 1990).
Although increases or reductions in the amount claimed on appeal do not generally
deprive the Board of jurisdiction, quantum revisions must relate to the "same operative
facts." Todd Pacific Shipyards Corp., ASBCA No. 55126, 06-2 BCA ~ 33,421 at
165,687; Environmental Chemical, 15-1BCA~36,110 at 176,289-90 (permitting
amendment of complaint to include Eichleay damages supplementing appellant's
computation of delay claim quantum); cf Trepte Construction Co., ASBCA No. 38555,
90-1 BCA ~ 22,595 at 113,385-86 (striking amendment to complaint asserting new
constructive acceleration entitlement claim where appeal involved solely delay claim).
As the government contends, the Board's jurisdiction is de novo and the CO's
findings are not subject to any presumption of correctness nor are they binding on appeal.
Wilner v. United States, 24 F.3d 1397, 1401-03 (Fed. Cir. 1994) (en bane). However, the
parties' burden of proving their cases de novo does not expand the scope of claims or
authorize jurisdiction over government claims that have not first been asserted in a CO
final decision. Nova Group, Inc., ASBCA No. 55408, 10-2 BCA ~ 34,533 at 170,330-31
Uurisdiction required CO decision seeking recoupment); Lockheed Martin Services, Inc.,
ASBCA No. 58028, 13 BCA ~ 35,244 at 173,025 (contractor's price redetermination
claim sought the difference between the amount determined and paid by the CO pursuant
to a contract modification ($1,459,537) and the "not-to-exceed" amount ($2,600,000) of
the modification; CO final decision simply denied the claim for the difference; on appeal,
the government claimed that the contractor was not entitled to a license fee amount of
$779,089 included in the amount paid pursuant to the modification but not mentioned in
the CO decision; Board determined that the request for payment of the license fee
constituted a new government claim that it lacked jurisdiction to consider).
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The Proposed Amendments Represent New Government Claims
We apply the above principles to the facts of these appeals and conclude that
the proposed amendments based on the proration methodology constitute new claims
that we lack jurisdiction to address.
We consider that the proposed amendments would alter the "'essential nature"
and fundamental basis of the claim asserted in the final decisions. See Shams
Engineering and Contracting Co. and Ramli Co., ASBCA Nos. 50618, 50619, 98-2
BCA ~ 30,019 at 148,524-25. The OTA position is premised on a new and
fundamentally different interpretation of the executive compensation limitations than
underlay the CO decisions and assessments. The government claims set forth in the
CO's decisions merely alleged that the amount paid exceeded a compensation ceiling
computed in accordance with a methodology that neither party disputed. Both the
DCAA auditor and the CO implicitly considered and rejected the interpretation now
espoused by MAR and the GTA. The CO considered the costs to be unallowable
because they exceeded the compensation ceiling mutually agreed to by the parties.
As appealed, there was no need to present or evaluate evidence regarding the
proper methodology for computing the cap. The latter evidence encompasses a new
contract interpretation issue which in tum could necessitate examination into
legislative and regulatory history supporting each of the parties' positions. The proper
interpretation to be accorded the relevant executive compensation provisions is now
vigorously disputed by the parties on appeal. Consideration of the expanded
evidentiary predicate to resolve the claims as revised and computed by the OTA would
fundamentally change the scope and character of this appeal and greatly increase the
monetary stakes. Cf Grumman Aerospace Corp., ASBCA No. 46834, 48006, 97-2
BCA ~ 29,180 at 145,114-15 (denying contractor motion to amend complaint where
the proposed new entitlement theory for recovery of additional equipment costs
"replaced one set of facts with a completely different set of operative facts" altering
the "nature and magnitude" of the factual predicate for recovery). In essence, the
ostensible 2 difference between the parties on appeal involved an arithmetic issue.
Appellant contended that the amounts properly added together were under the cap
while the CO's calculations indicated the compensation claimed exceeded the cap. 3
2
The difference between the parties' calculations may have been attributable to a more
substantive issue regarding includable elements of executive compensation, but
neither party identified the source of the difference apparently due to its small
amount and appellant's ultimate concession and payment utilizing the CO's
calculations.
3 We emphasize that the government is seeking amendment of its answer in the face
of appellant's opposition. See Int'! Telephone & Telegraph, 83-2 BCA
~ 16,773 at 83,390. The parties recognize that ifthe amendment is not permitted
11
A simple arithmetic problem would be transformed by the proposed amendments into
a full-scale controversy challenging the correctness of the parties' prior conduct and
practice in computing the cap. In essence, the amendment would convert material
factual areas of agreement and methodology in the Unallowability and Penalty
decision into areas of disagreement. Moreover, AV alleges that the methodology used
by the CO to compute the ceiling has been used consistently by the parties in prior
years. Thus, the evidentiary predicate would be further expanded to include proof of
the alleged standard practice in prior FYs and the legal issues expanded to include
consideration of rules and considerations related to the prior conduct of the parties.
The government cites only one precedent involving a government claim in
support of its position, EJB Facilities Services, ASBCA No. 58314, 13 BCA i! 35,425
at 173,779. EJB concerned a claim by the Navy for fire damages for negligence
resulting from the one-time event. Although the CO's final decision stated "[t]he
Government's claim asserts EJB owes the Government $3,109,861.57" and alluded to
the Navy's $11.26 million estimation of costs to repair and provision of emergency
power previously sent to the contractor, the CO considered that EJB' s liability was
limited to $500,000 based on his reading of the contract's General Property and
Insurance clauses. On appeal, the Navy's answer sought damages of $12 million.
EJB, inter alia, moved to dismiss the alleged $12 million "counterclaim" contending
that it represented a new government claim. The Board denied the motion
emphasizing that the difference between the Navy's answer and the final decision
related solely to the measure of damages relating "to the same fire on the same date in
the same location." Id. at 173,781. There are several material distinctions between
EJB and the instant appeals. Among other things, the "operative facts" necessary to
establish the contractor's negligence and government entitlement to any damages
remained unchanged by the Navy's answer. In contrast, the GTA's new claims in the
instant appeals would expand the scope of the appeals to include new entitlement facts
related to the parties' course of conduct and revised computation methodology. In
addition, the CO decision in EJB placed the contractor fully on notice of the various
damages calculations, issues and methodologies by their express mention in the final
decision. In essence, the proposed revisions in EJB were quantum revisions and
adjustments that allegedly flowed from the contractor's negligence. They had no
impact on proving the "operative facts" essential to establishing government
entitlement or EJB' s liability for fire damages. In these appeals, the steps or elements
required to establish government entitlement and the propriety of the disallowance and
penalty would fundamentally change. We also note that the $12 million the Navy
sought in EJB for damages was also set forth in the initial government pleading. Here,
the revised methodology and recomputation of the disallowance was first resurrected
because it would result in assertion of a new claim, the new claim would
apparently be time-barred as to FY 06.
12
by the GTA years after it was rejected by the auditor and never mentioned in either the
CO final decision or audit report.
The fact that both the CO decision and proposed amendment involve executive
pay compensation issues is not conclusive. There could be numerous bases for
disagreement regarding the determination of whether the executive compensation in
dispute exceeded the statutory ceiling. The facts and rationale relied on by the CO
represent one of them. But the possibility that other disputes may exist between the
parties regarding executive compensation does not expand the scope of our jurisdiction
to consider what the CO elected not to address, much less government positions that
the CO elected implicitly to reject. Although the CO had the option of setting forth the
GTA's alternative methodology in her final decision she opted not to do so.
It also bears mention that, whereas the CO decision was based on a mutually-agreed
methodology for computing the compensation cap, the GT A proposes a different
methodology that materially changes quantum, as well as the essential nature and operative
facts forming the factual predicate of the original claims. Cf Environmental Chemical,
15-1 BCA 36,110 (quantum amendment permitted but not new entitlement claim). There
are wide disparities in the amounts sought in both the Unallowability and Penalty decisions
and the amounts set forth in the amendments proposed by the GTA in the related appeals.
The monetary relief sought by the GTA increases substantially that originally claimed, and
greatly escalates the stakes involved in the litigation. As emphasized above, the GTA's
methodology is based on a new method of determining the cap and is not a factor or
element that is either subsumed within or inherent in the CO's decisions. In Southwest
Marine, Inc., ASBCA No. 54550, 08-1 BCA ~ 33,786, the Board concluded that the
Navy's inclusion of an amount of$212,860 seeking recoupment of allegedly overpaid
interest included in a unilateral modification increasing the incentive contract's ceiling
price constituted a new government claim. Specifically, the Board granted a motion to
strike the interest component of the government's claim because it required proof of
different operative facts where the interest element included in the modification was
subsumed within the overall settlement and thereby "lost its character" as a discrete
element of the increased amount of the modification; the CO decision asserting the
government claim did not question the validity of the modification or amounts included
therein; and, the government's proposed recoupment constituted an "additional element of
quantum to account for the interest that depends upon reopening [the modification]." Id. at
167,220; see also Lockheed Martin Aircraft Center, 07-1BCA~33,472
We also note that all of the pertinent facts relating to the GTA's proposed
amendment were readily available at the time of issuance of the final decisions. They
were not adjustments in quantum amounts that reasonably can be said to be based on or
developed in the final evidentiary record or in the normal course of litigating the claim.
E.g., K-Con Bldg. Sys., Inc., 778 F.3d 1000, 1006 (Fed. Cir. 2015); see also Tecom, Inc.
v. United States,
732 F.2d 935 (Fed. Cir. 1984); Ball Aerospace & Technologies Corp.,
ASBCA No. 57558, 11-2 BCA ~ 34,804 at 171,273. The differences here do not pertain
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to additional explanatory details of the theory upon which the CO's decision was based or
quantum refinements based on that theory. Nor do they pertain to complementary,
alternative theories that are consistent with the basic thrust, approach and methodology of
the CO's decision. Instead, the GTA's position flatly rejects the CO's theory and
methodology because the GTA considers the CO (apparently as well as the cognizant
DCAA auditor) to have arrived at her decision "in error." If the CO agrees with the
GTA, the ordinary government recourse is to withdraw the erroneous claims and
demands and issue a new decision. The CO decision while on appeal is not binding on
either party and may be superseded by another CO decision during the pendency of the
appeal. The Ryan Company, Inc., ASBCA No. 53230, 02-1BCA~31,842 at 157,338.
Nevertheless, it is the CO that must issue the decision. Where the government claim is,
inter alia, materially "in error" or no longer viable, the proper course of action is to
withdraw the decision and/or issue a superseding CO decision. The CO's unequivocal,
good faith rescission or withdrawal of the final decision asserting a government claim
generally leaves no claim before the Board and no relief to be granted and therefore the
Board generally does not retain jurisdiction over the appeal. KAMP Systems Inc.,
ASBCA No. 54253, 09-2 BCA ~ 34,196 at 168,995; Wimberly, Allison, Tong & Goo,
Inc., ASBCA No. 56432, 09-2 BCA ~ 34,301 at 169,436-37, aff'd on recon., 10-1 BCA
~ 34,365; cf KBJ Architects, Inc., ASBCA No. 56434, 09-2 BCA ~ 34,298 at 169,421
(NAFI claim, CO rescinded decision asserting government claim "as it was issued
prematurely and incorrectly"). 4
Additional reasons justify a conclusion that the GTA's proposed revision of the
amount of expressly unallowable costs and associated penalty constitute a new claim
that we are not empowered to address in the Penalty appeal (ASBCA No. 58598). Prior
to imposing a penalty, FAR 42.709 requires a multi-step process and evaluation not
only in assessing the "express" unallowability of the costs in dispute and computing the
amount of any penalty. It also mandates the exercise of the CO's independent
discretion in determining whether any penalty should be waived. The GTA's analysis,
in particular, circumvents the requirement that the CO should consider, in her
discretion, whether the penalty should be waived when one or more of the factors
justifying waiver are present. In this regard, the fact that the CO determined that waiver
was not justified prior to issuance of her original decision, does not dictate that the
same conclusion necessarily would be warranted on facts forming the basis of the
GTA's proposed revision of the penalty claim. The proposed amendments substitute
the GTA' s judgment regarding the waiver of penalties that are the province of the CO
4
However, the CO generally cannot divest the Board of jurisdiction over a contractor
claim by subsequently withdrawing the final decision over appellant's objection
where the general subject matter of the claim remains clearly in dispute. Holmes &
Narver, Inc., ASBCA No. 51430, 99-1BCA~30,131at149,055 (essential dispute
regarding on-going rental costs over a number of years remained unresolved).
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to make. The CO, not the GTA, is charged with complying with the requisite FAR
procedures preceding issuance of the penalty demand and claim.
Government attorneys and auditors are advisors to the CO. They may present
their informed guidance in their areas of specialization for the CO's consideration in
reaching business decisions generally and more specifically asserting claims on behalf
of the government. However, the CO must exercise her "independent discretion" in
doing so. Prism Construction Co., ASBCA No. 44682 et al., 97-1BCA~28,909 at
144,124. Here the CO exercised her independent judgment and asserted the claims in
a manner that was consistent with conclusions in the audit report but now contrary to
the opinions of the GTA. Similarly prior to issuing the demand for payment contained
in the CO decisions, FAR 32.603(b)(i) and (ii) requires the CO to base the demand on
her assessment of the merits of the case and the proper interpretation of contract terms.
The GTA's proposed amendments effectively would reverse the CO's exercise of her
judgment and independent discretion. Cf RGL Inc., ASBCA No. 38722, 92-2 BCA
~ 24,839 at 123,932 (in the context of a contractor claim, the Board emphasized a
"critical test" in resolving whether a new claim has been first raised on appeal is
whether the CDA disputes process is "undermined" by "circumventing the statutory
role of the CO to ... pass judgment").
Dismissal with Prejudice of Moot Appeals
In the case of contractor claims, "[w ]here an appeal has been rendered moot by
the [CO] granting all of the relief requested in the claim on appeal, the Board should
dismiss it with prejudice since there is no longer a dispute between the parties on the
appealed claim." Lasmer II, 11-1 BCA ~ 34,671 at 170,801; Chapman Law Firm Co.
v. Greenleaf Construction Co., 490 F.3d 934, 939 (Fed. Cir. 2007) ("[w]hen, during
the course of litigation, it develops that. .. questions originally in controversy between
the parties are no longer at issue, the case should generally be dismissed"). In Lasmer
II, appellant sought a "no-cost" termination "because of the impossible specification
and the updating of government records "to reflect the satisfactory completion of the
contract." Previously in Lasmer Industries. Inc., ASBCA Nos. 56946, 56966, 10-1
BCA ~ 34,433, the government moved to dismiss after the CO offered appellant a no
cost termination but declined to base the offer on the "impossible specification." Since
the full relief requested was not granted, the Board declined to dismiss the appeals
because the issue of the impossibility of the specification was not moot. In Lasmer 11,
the CO terminated the contract at no cost "because of the impossible specification"
and updated the government's past performance records. The Board dismissed the
appeal with prejudice, noting that there was no longer any dispute as to the allegations
underlying the claim as submitted to the CO who granted all relief requested. The
Board also denied appellant's motion to amend its complaint "to escape dismissal"
with six new claims for monetary damages for breach of contract and reformation.
We consider that the same principles and objectives should be applied in the case of
government claims. Here AV has fully satisfied all government demands set forth in
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the CO's final decisions either via settlement in the First or Second PSA or through
payment of the full penalty claimed by the CO. Absent the GTA's proposed
amendment of the pleadings, no issues remain for the Board to resolve and no further
effectual relief is available. The motion to amend here was made after the settlement
of all other cost issues, including the tax penalty matter resolved pursuant to ADR, and
following appellant's agreement to pay in full the penalty associated with the
above-ceiling executive compensation sought by the CO in her decision. The belated
assertion of the new claims raised in the proposed amendment approximately nine
years following AV's disputed indirect cost submission and almost 2Yz years following
issuance of the CO decisions is jurisdictionally fatal. 5
CONCLUSION
We conclude that the GTA's proposed amendments to the government's
answers represent new claims which we lack jurisdiction to decide. Accordingly, the
government's motion to amend is denied. We further conclude that, inasmuch as the
government claims in these appeals have either been settled or paid in full, there are no
remaining justiciable issues in dispute for resolution. Therefore, we grant appellant's
motion to dismiss these appeals as moot.
Dated: 30 March 2016
(Signatures continued)
5 The government's contention that the language inserted in the First PSA in
August 2014 should have placed appellant on notice of a revised government
computation methodology is not only jurisdictionally irrelevant but specious.
No reasonable interpretation of that language alone would have alerted
appellant to the material deviation in the computation of the ceiling and
associated claims proposed in the GTA's amendment. We have found no
documentation that the appellant was apprised of the new claims prior to the
eve of the mediation.
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I concur I concur
Administrative Judge
Vice Chairman
Armed Services Board
of Contract Appeals
I certify that the foregoing is a true copy of the Opinion and Decision of the
Armed Services Board of Contract Appeals in ASBCA Nos. 58598, 58599, Appeals of
AeroVironment, Inc., rendered in conformance with the Board's Charter.
Dated:
JEFFREY D. GARDIN
Recorder, Armed Services
Board of Contract Appeals
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