I.         Guest Speaker - Howard A. Rubel, Managing Director, Schwab Soundview Capital Markets on the Topic of "What Next Now That The Industrial Base Has Become Rationalized"

Howard brings more than 20 years of experience following aerospace and defense and diversified companies to Schwab SoundView Capital Markets. He has been recognized by numerous publications including the Wall Street Journal for stock picking and earnings accuracy and has been ranked ten times by Institutional Investor magazine's All-American Analysts Survey. Most recently, he was with Goldman Sachs for nearly ten years, and prior to that he was with C.J. Lawrence, where he began his career in 1981. Howard has a BS in Accounting, magna cum laude, from Washington and Lee University and earned a Masters of Management from Northwestern University in 1981.

 

II.        Informational Items

1. General Electric v. US, COFC No. 99-172C, May 27, 2004. This matter comes before the court on the parties' cross-motions for partial summary judgment. 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.
2. 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.


3. 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).
4. 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.
5. Career Quest, a division of Syllan Careers, Inc., B-293435.2; B-293435.3, August 2, 2004. Protest is sustained where, under Office of Management and Budget Circular A-76 cost comparison, record shows that in-house "most efficient organization" was misevaluated regarding key aspects of intended in-house staffing levels, and this could have affected the decision to continue to perform the requirement in-house rather than to contract out.
6. Glendale Federal Bank, FSB, v. US, CAFC No. 03-5136,, 0-5139, August 9, 2004. Winstar case. In this second appeal of the damages issue the CAFC affirms the COFC opinion by Senior Judge Smith awarding $381 million in this "wounded bank" damages decision. In an opinion by Judge Plager, he notes "However denominated, the focus of a recovery based on the reliance interest is the real costs incurred for capital and services that the thrift would not have incurred but for the contract and its subsequent breach. Whether in a given case this properly includes the higher costs to a thrift of conducting its general business after FIRREA -- the "wounded bank" claim -- is a matter of proof; if too speculative, it can and should be denied as the burden lies with the plaintiff to establish its damages. In the case before us, we are unpersuaded that the trial court's factual findings and conclusions regarding reliance damages, based on the earlier record, are clearly erroneous; the judgment in that regard is fully consistent with the law as we enunciated it. The award of reliance damages in the amount of $381 million is affirmed."


7. 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.

III.      Regulatory Developments

1. DCMA/DCAA Joint Guidance Implementing The Teledyne Decision On CAS 413.50(c)(12) Segment Closing Adjustments, July 23, 2004. 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.
2. DOD Proposed Rule Re: DFARS – Bonds, 69 FR 48444, August 10, 2004. Proposed rule that would amend the Defense FAR Supplement to update text pertaining to the use of fidelity and forgery bonds under Department of Defense (DOD) contracts. Draft comments should be received by September 28, 2004.
3. DOD Proposed Rule Re: DFARS – Resolving Tax Problems, 69 FR 48445, August 10, 2004. Proposed rule that would amend the Defense FAR Supplement to update text pertaining to the resolution of tax problems under DOD contracts. Draft comments should be received by September 28, 2004.
4. Department of Veterans' Affairs Proposed Rule Re: Audits Of States, Local Governments, And Non-Profit Organizations; Grants And Agreements With Institutions Of Higher Education, Hospitals, And Other Non-Profit Organizations, 69 FR 52334, August 25, 2004. Proposed rule that would amend the Department of Veterans Affairs regulations to codify the provisions of revised OMB Circular A-133. That circular provides standards for consistency and uniformity among federal agencies for the audits of States, local governments, and non-profit organizations expending Federal awards. Further, this document proposes to codify the provisions of former OMB Circular A-110. Draft comments should be received by October 8, 2004.
5. NASA Final Rule, Removal of MidRang Procurement Procedures, 69 FR 53652, September 2, 2004. Final rule revises the NASA FAR Supplement (NFS) by removing Part 1871, MidRange Procurement Procedures. The FAR provides contracting officers with broad discretion and flexibility in the source selection process in order to achieve a best value outcome. A separate NASA MidRange process is no longer necessary.
6. Postal Service Final Rule – Issue 3 of the Purchasing Manual; Incorporation by Reference 69 FR 51364, August 19, 2004. The Postal Service announces the publication of Issue 3 of the Postal Service Purchasing Manual. Issue 3 supersedes pervious editions of the Purchasing Manual, and is incorporated by reference in the Code of Federal Regulations. This final rule is effective on August 19, 2004.
7. ABA Issues "White Paper" On Publication Of Agency Procurement Regulations. The recent Atlanta meeting of the ABA Public Contract Law Section Council resulted in the Council receiving a paper "addressing the effect of removing materials from agency supplements and moving such into guidance which would include the effect on business relations." An overview of various agency actions is provided. The paper recommended that "agencies should carefully consider and apply the criteria for publication for comment. Some agencies are not doing as well as others in meeting the Freedom of Information Act publication requirements. It is important for agencies to recognize the need for public accessibility, even for what the agency may view as purely internal guidanceä." (emphasis added)

 

8. "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.
9. 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.

 

10. 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.


11. 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.

 

The next meeting will be on Tuesday, October 12, 2004.