I. Informational Items

1. Rumsfeld v. General Dynamics Corp., CAFC No. 03-1209, April 29, 2004. Court reverses-in-part a decision by the ASBCA. 10 U.S.C. section 2324 (k) does not require or permit the apportionment of contractor costs associated with a proceeding among various claims where the proceeding is resolved through consent or compromise, and no such costs are allowable except as expressly provided by the settlement agreement.

 

2. Indiana Michigan Power Co. v. US, COFC No. 98-486C, May 21, 2004. In 1983, the U.S. Department of Energy (DOE) executed contracts with Indiana Michigan and other utilities to collect spent nuclear fuel and dispose of it in a safe repository, starting in 1998. In 1994, the DOE stated that it would not comply with the contract until 2010 at the earliest. Indiana Michigan sued for partial breach of contract in 1998. Judge Hodges held that costs incurred in anticipation of the breach are not permitted in the instance of a partial breach and further, that Indiana Michigan did not demonstrate that its past costs resulted from the breach or were incurred in anticipation of the breach. Judge Hodges also ruled that future damages cannot be claimed in a partial breach case.

 

3. Appeals Of Lockheed Martin Corporation, Naval Electronics & Surveillance Systems Surface Systems, ASBCA Nos. 53032, 54064, March 10, 2004. Court finds that in a termination for convenience situation, the terminated contractor has the burden of showing that it is entitled to payment. In cost-reimbursement contracts, it would be necessary for the contractor "to prove the actual cost incurred in manufacture in order to secure the 'plus' profit." In fixed-price contracts, however, the court allows adjustment upon terminating a contract to be made on the basis of estimate.

 

4. B.V. Construction, Inc., ASBCA Nos. 47766, 49337, 50553, April 22, 2004. On this NASA construction contract the ASBCA grants the appeals on most issues, converts a termination for default to one for convenience, vacates an assessment of excess procurement costs and allows a claim for damages including unabsorbed overhead. Judge Hartman finds that NASA waived the contracts completion date and never established a new reasonable date before terminating for default. The Board also found appellant had been damaged as a result of differing site conditions and defective specifications. The Board found appellant entitled to Eichleay damages for 727 days.

 

5. Virginia Sales Tax Increase Issue. The Virginia legislature recently increased the state sales tax from 4.5% to 5%. This means that the cost of contractor purchases in Virginia charged to overhead will increase in proportion. Fixed price and fixed price incentive negotiated , noncompetitive contracts with the Government include the Taxes clause at FAR 52.229-4, which grants a right to a price increase for new or increased state and local taxes occurring after contract award. The courts have not decided whether this right to a contract price increase applies to sales taxes included in overhead purchases. During the California refund process in 1991-1996, the Government took the position that the clause applied to refunds of sales taxes charged to overhead. It would thus necessarily follow that the clause would apply as well to tax increases on overhead purchases.

6. Emerging Issues in Iraq Reconstruction Contracting-Audits, Investigations, and the Transition of Sovereignty, The Government Contractor, May 5, 2004. This article states that the US will be nation-building in Iraq for years to come, and will continue to outsource much of that effort. Contractors are reaping significant rewards, both financial and otherwise, but the risks of this participation are among the most significant that a company can face. The author focuses on the rising amount of audits and investigations targeting Iraqi contracts, and the impending government transition on June 30 and its impact on security and reconstruction activities.

    

7. Coalition Provisional Authority Procurement Order Number 87, May 14, 2004. This order establishes rules for procurement of goods, services, and construction services by the State of Iraq. The order establishes full, fair, and open competitive public bidding procedures, international standards of transparency, procurement process integrity, offerors right to file tender protests, and tender dispute resolution mechanisms.

 

8. DCAA Audit Guidance on Orders Under GSA Schedule Rates, April 9, 2004. Relying on FAR 52.232-7 payments under T&M and Labor Hour contracts, DCAA has questioned time charges under subcontracts with small businesses where a portion of the work was performed by a second-tier subcontractor on non-GSA rate contracts. This is contrary to GSA rules where the subcontractor is permitted to charge based on its negotiated labor rates. In some instances a significant portion of the work would be non profit-bearing under this interpretation by the DCAA.

 

9. DCAA Audit Guidance on Employee Compensation For Contractor Employees Located In Foreign Countries And Performing Work Under Iraq Reconstruction Contracts, April 12, 2004. This memo summarizes responses to a survey performed to give assistance in determining the reasonableness of compensation costs. FAR states that compensation for each employee or job class of employees must be reasonable for the work performed, and that to test reasonableness, one factor is conformity with compensation practices of other firms (i) of the same size; (ii) in the same industry; (iii) in the same geographic area. The memo summarizes other firms policies on hardship pay, danger pay allowances, sign-on bonuses, rest and relaxation allowances, assignment completion bonuses, and foreign service premiums for contractors in Iraq.

 

II. Regulatory Developments

 

A.     Determination of Executive Compensation Benchmark Amount; OMB 69 FR 26897, May 14, 2004. The Office of Management and Budget (OMB) published the maximum "benchmark" compensation amount that will be allowable under government contracts during contractors' FY 2004 $432,851. This applies equally to both defense and civilian procurement agencies.

B.     FAR Case 204-006, Gains and Losses, Proposed rule, 69 FR 29379, May 21, 2004. The Civilian Agency Acquisition Council and the Defense Acquisition Regulations Council (Councils) are proposing to amend the FAR by revising the cost principle regarding gains and losses on disposition or impairment of depreciable property or other capital assets. Interested parties should submit comments in writing on or before July 20, 2004, to be considered in the formulation of a final rule. [Comments of the ACP Committee have been incorporated]

C.     DOD, GSA, NASA, Payment Withholding, Proposed rule, 69 FR 29838, May 25, 2004. The DOD, GSA, and NASA are proposing a rule that would amend the FAR by removing the requirement that a contracting officer withhold 5 percent of the payments due under a time-and-materials or labor-hour contract, unless otherwise prescribed in the contract schedule.

 

The next meeting will be on Tuesday July 13, 2004.