I. Panel Discussion of DCMA / DCAA Joint Guidance Implementing The Teledyne Decision On CAS 413.50(c)(12) Segment Closing Adjustments, July 23, 2004.
Discussion Leaders
Howard J. Stanislawski of Sidley & Austin
To Be Determined
Background:
The US Court of Federal Claims decision in Teledyne, Inc. v. United States, which was affirmed by the US Court of Appeals for the Federal Circuit, required certain exclusions when calculating the Government's share of the CAS 413 segment closing adjustment. Specifically, the portion of a closed segment's pension surplus or deficit that is attributable to pension costs that were allocated to contracts that predate CAS 413, as well as the portion that is attributable to pension costs allocated to firm-fixed price (FFP) contracts entered into under the original CAS 413 must be excluded from the calculation of the Government's share of the CAS 413 segment closing adjustment.
General Electric v. US, COFC No. 99-172C, May 27, 2004. In 1993, the plaintiff, General Electric Company (GE), sold to Martin Marietta Corporation (MMC) GE's aerospace business units (GE Aerospace). These units provided airplane engines and related products and services to the government pursuant to various government contracts. Under the terms of the sale, several government contracts were transferred from GE to MMC . Prior to finalizing the transaction with MMC, GE entered into an agreement with the government regarding the treatment of "costs" arising from the sale and transfer of GE Aerospace to MMC (the "Advance Agreement"). The pending motions concerned the treatment of pension costs under the Advance Agreement. GE contends that the Advance Agreement addressed all issues associated with pension costs arising from GE's sale and transfer of contracts to MMC. The government contends that the Advance Agreement did not address all pension costs issues. The court rules for the government, stating the GE's interpretation of the Agreement is not consistent with CAS 413.
II. Informational Items
A. P. R. Burke Corporation v. United States, COFC, Nos. 96-232C and 96-445C, November 25, 2003. P. R. Burke sued the government to recover cots incurred for alleged additional work performed for improvements to a sewage treatment facility. The government moved for partial summary judgment under Ct. Fed. Cl. R. 56. The government modified the construction to be performed under the contract and concomitantly refused to grant time extensions for the modifications. Genuine issues of material fact existed as to whether the contractor was entitled to payment for its schedule consultant's fees under the "changes" clause. The court ruled in favor of the government on one contract clause and with the contractor or the rest.
B. Department of Energy – Disposition Of Interest Earned On State Tax Refund Obtained By Contractor, B-302366, July 12, 2004. The federal government is legally entitled to a refund of state taxes plus interest that the state of Washington gave to Fluor Hanford, Inc. (FHI) for taxes that FHI paid under a contract with the Department of Energy. Because the department previously reimbursed FHI for those taxes, the department is entitled to retain and to credit to its appropriations the principal portion of the state tax refund. However, the department may not retain or credit to its appropriations interest amounts paid by the state along with refunded taxes. The interest amounts must be credited to the general fund of the Treasury as miscellaneous receipts, pursuant to 31 U.S.C. 3302(b).
C. McDonnell Douglas Corporation vs. US Air Force, USCOA, No. 02-5342, July 27, 2004. McDonnell Douglas challenged the decision of the Air Force to release to Lockheed Martin Aircraft Center pricing information contained in the contract the Air Force awarded to McDonnell Douglas for the maintenance and repair of KC-10 and KDC-10 aircraft. The court affirmed the judgment of the district court to uphold the decision to release the Over and Above Work Contractor Line-items (CLINs) but reversed the judgment to approve release of option year prices and Vendor Pricing CLIN.
D. Public Utility District No. 1 of Snohomish County, Washington vs. Federal Emergency Management Agency, Court Of Appeals Ninth Circuit, No. 03-35104, July 14, 2004. After a series of storms, the District worked to complete utility repairs. The President stated that public utilities could apply for federal disaster relief grants administered by FEMA. The District applied for relief, and as part of its application, the District included a 36% "fringe benefit overhead rate" for each hour worked to capture employee fringe benefits. However, the 36% did not reflect actual expenses because some costs such as employee leave remained constant no matter how many overtime hours were worked. In an audit, FEMA's Inspector General recommended that FEMA reduce the District's amount eligible due in part to this discrepancy. The court affirmed the lower court's decision that FEMA's audit determinations did not violate the Administrative Procedure Act.
E. Sanford Cohen & Associates, Inc. IBCA No. 4239, September 8, 2004. EPA contract. Claim for breach of a level of effort, cost reimbursement, term contract with five renewal options. At the time of award the contract provided that EPA "will order 119,000 direct labor hours for the base period which represents the Government's best estimate of the level of effort required to fulfill these requirements." At the time of the exercise of the options EPA unilaterally modified the contract to delete the above and replaced with language which stated "The Government's best estimate of the level of effort required to fulfill these requirements is [119,000 direct labor hours]." EPA ordered significantly less than the stated quantities in each period. Appellant claims entitlement to a fee adjustment based on the negligent estimates. The Board sustains the appeal. In an opinion by Chief Judge Steel, the Board adopts the proposal by Nash & Cibinic that makes the government liable for negligently prepared estimates in ID/IQ and requirements contracts. Although the instant contract is not such a contract the Board finds that appellant reasonably relied on the government's estimate and is entitled to an equitable adjustment for EPA's negligent estimates.
F. Individual Development Associates, Inc., ASBCA No. 53910, September 9, 2004. Contract for educational services for various military schools. Appellant's proposal indicated that each CLIN was "...offered as an inseparable whole and cannot be divided in any way." The commercial termination clause included in the contract provided that in the event of a termination for convenience the contractor "shall be paid a percentage of the contract price reflecting the percentage of the work performed prior to the notice of termination, plus reasonable charges..." The government terminated the contract for convenience and the appellant claimed it was entitled to the full price, rather than percentage based on the "inseparable" language of its proposal. The Board disagreed, finding that the appellant's interpretation would read the government's termination for convenience rights out of the contract.
III. Regulatory Developments
A. FAR Case 2004-006, Accounting for Unallowable Costs, Proposed Rule, 69 FR 58014, September 28, 2004. The Civilian Agency Acquisition Council and the Defense Acquisition Regulation Council (Councils) are proposing to amend the Federal Acquisition Regulation (FAR) by revising language regarding accounting for unallowable costs. Draft comments should be received by November 15, 2004 to be considered in the formulation of a final rule.
B. FAR Case 2003-027, Additional Commercial Contract Types, Advanced Notice Of Proposed Rulemaking, 69 FR 56315, September 20, 2004. The Civilian Agency Acquisition Council and the Defense Acquisition Regulations Council (Councils) are issuing this advance notice of proposed rulemaking (ANPR) to solicit comments that can be used to assist in the implementation of section 1432 of the National Defense Authorization Act for Fiscal Year 2004 (Public Law 108-136) in the Federal Acquisition Regulation (FAR). Section 1432 amends section 8002(d) of the Federal Acquisition Streamlining Act (FASA) to expressly authorize the use of time-and-materials (T&M) and labor-hour (LH) contracts for the procurement of commercial services. Implementation of section 8002(d) will require revisions to the FAR to address the risks associated with T&M and LH contracting. Current policies were designed only to support purchases through firm-fixed price contracts and fixed-rice contracts with economic price adjustments. Draft comments should be received by November 19, 2004.
C. "Selection Of Contractors For Subsystems And Components", July 12, 2004. Department of Defense outlines general strategies for selecting subcontractors for DOD contracts to ensure fairness and the best value for DOD.
D. Department of the Navy, Navy-Marine Corps Award Fee Guide (July 2004) has been issued and contains policy and procedures for awarding and administering Award Fee contracts.
E. Defense Finance and Accounting Service in Columbus, Ohio, issued a memorandum on the subject of "Electronic submission of Payment Requests, Policy Number 03-CP-04." Provides guidance for DFARS 252.232-7003 (March 2003) covering the requirement that "all new contracts awarded October 1, 2003, or later, should include DFARS 252.232-7003" and, if not, those contracts should be modified to include it. In the absence of electronic invoices the DFARS stipulates that the parties must mutually agree to alternative payment method.
F. Acting Under Secretary of Defense, Acquisition Technology and Logistics Michael Wynne on August 16, 2004, issued a memorandum on the subject of "Performance Based Logistics (PBL): Purchasing Using Performance Based Criteria." PBL "performance" guidance criteria is specified in the memorandum for the areas of operational availability, operational reliability, cost per unit usage, logistics footprint, and logistics response time. Metrics are encouraged.
G. General Services Administration Acquisition Regulation; Acquisition Of Leasehold Interests In Real Property; Historic Preference, 69 FR 66938, September 16, 2004. Enclosed for your information is a final rule amending the General Services Administration Acquisition Regulation by revising the provision on Historic Preference.
IV. Terminations Decanted - ABA Section Of Public Contract Law Meeting in Napa, California – November 4 -6, 2004
The next meeting of the Accounting Cost and Pricing committee will be on Friday, November 4, 2004 in Napa, California. Wine will be served.