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"Accrual" of Government Claims under the Contract Disputes Act




by:
Elizabeth Leavy
Husch Blackwell LLP - Washington Office

 
December 5, 2013

Previously published on December 2, 2013

The Contract Disputes Act imposes a six-year statute of limitations on all claims, whether they are asserted by the contractor or by the Government. See 41 U.S.C. § 7103(a)(4)(A). The limitations period begins to run upon accrual of a claim, which is “the date when all events . . . that fix the alleged liability of either the Government or the contractor and permit assertion of the claim . . . were known or should have been known.” FAR 33.201. Because six years must pass before the claim expires, the precise date of accrual is often little more than an academic question. Indeed, there have been relatively few cases applying the CDA limitations period to Government claims. But accrual has recently become a real and sometimes insurmountable obstacle to Government claims. Here is a short summary of the basic concepts that have emerged from the decisions that have addressed the issue.

1.         The government has the burden of proving timeliness.

The CDA limitations period is "jurisdictional." When the government asserts a claim against a contractor, the government has the burden of proving jurisdiction. To do so, the government must establish that the claim was timely asserted. If the government cannot show that the claim was asserted within six years of accrual, the Board or the Court lacks jurisdiction to hear the claim. Raytheon Missile Systems, ASBCA No. 58011 (Jan. 28, 2013) [pdf].

2.         Accrual won’t wait for an audit report.

Many contracting officers look to a DCAA audit report before making a decision about whether to bring a potential claim against a contractor. There are practical reasons for taking this approach, but it won’t save an old claim if the underlying facts should have been known earlier. The CDA statutory period begins to run when the Government knows or reasonably should know of an alleged violation and the resulting impact, not when DCAA identifies it. Raytheon Company, Space & Airborne Systems, ASBCA Nos. 57801 et al. (Apr. 22, 2013) [pdf].

3.         Known or should have known is an objective test.

A CDA claim accrues when events that permit the assertion of the claim were “known or should have been known.” This is an objective test. The fact that the contracting officer did not have actual knowledge of the violation or the magnitude of the cost impact is not important. In Raytheon Missile Systems, ASBCA No. 58011 (Jan. 28, 2013) [pdf], for example, Raytheon sought to dismiss a 2011 government claim arising from a 1999 pricing proposal as untimely. In response to Raytheon’s motion, the government argued that the claim did not accrue until 2005, when the contracting officer received a government pricing analyst’s report identifying the claim. The Board rejected the argument completely. In the Board’s words, “claim accrual does not turn upon what a party subjectively understood; it objectively turns on what facts are reasonably knowable.” Because the information giving rise to the claim was within the government’s possession, and therefore knowable, the fact that the government failed to interpret or report the data was irrelevant to the claim accrual.

4.         A claim won’t accrue without an actual impact to the government.

Government knowledge of a contractor violation is necessary for accrual, but it is not sufficient. The government must also be able to recognize the impact of the violation. See Raytheon Co., ASBCA Nos. 57576 & 57679 (Dec. 17, 2012) [pdf]; Raytheon Co., Space & Airborne Systems, ASBCA Nos. 57801 et al. (Apr 22, 2013) [pdf]. The latter case addresses Raytheon’s motion to dismiss four government claims arising from a 2004 change in Raytheon’s accounting practices. Raytheon moved to dismiss the claims as untimely, since they were filed in 2011. The Board dismissed three of the claims, which were asserted more than six years after the government received Raytheon’s cost impact statement. But the Board held that that the fourth claim was timely because although the government had information that gave rise to the claim, Raytheon “did not say whether the change would result in cost increases.” The government was not expected to recognize the claim until it received Raytheon’s cost impact statement in 2006, which revealed the adverse impact.

The Board’s 2012 decision in Lockheed Martin Corp., ASBCA No. 57525 (Mar 28, 2012) [pdf] contains similar reasoning. In that case, the government questioned the allowability of Lockheed Martin’s individual research and development costs in 2002. But it was not aware that they had an actual impact on the government until 2004, when DCAA issued a draft report on the issue. Lockheed Martin moved to dismiss the 2010 claim us untimely because it was asserted more than six years after the government questioned the allowability of the R&D costs. The Board denied the motion, holding that, despite the government’s investigation in 2002, the claim had not accrued until 2004, when the government became aware of injury to the government. In the Board’s view, the government was not reasonably aware of the actual impact of the unallowable R&D costs until it received DCAA’s draft report.

The Court of Federal Claims has also tied the accrual of a government claim to knowledge of an actual impact. In Sikorsky Aircraft Corp. v. United States, 110 Fed. Cl. 210 (2013) [pdf], the government asserted a claim against Sikorsky in 2008. Sikorsky argued that the claim was untimely because it arose from a draft DCAA audit report issued in 1999, which identified Cost Accounting Standards compliance issues underlying the government’s claim. Although the draft report identified the CAS-compliance issue, the final version of the 1999 audit report concluded that there was no compliance problem and that there was no material cost impact to the government. The government argued, therefore, that it did not have knowledge of the cost impact of the violation until a subsequent audit report in 2004, which concluded that Sikorsky’s cost accounting practices were in violation of CAS. Finding there were still factual questions about whether the government should have reasonably known about the cost impact of the CAS violation until 2004, the court denied the government’s motion to dismiss Sikorsky’s affirmative defense based on the timeliness of the claim.

5.         Contractor misconduct might extend the limitations period.

Despite the generally strict enforcement of the CDA limitations period, both the Court of Federal Claims and the ASBCA have recognized that the government’s ability to “know” the grounds of a claim may be precluded by contractor misconduct. In Raytheon Co. v. United States, 104 Fed. Cl. 327 (2012) [pdf], the court stated that the Accrual Suspension Doctrine would prevent the accrual of a claim if “one party has ‘concealed its acts with the result that [the other party] was unaware of their existence.’” The Board’s decision in The Boeing Co., ASBCA No. 57490 (Jan. 6, 2012) [pdf], also recognizes the potential impact of contractor misconduct on the accrual of a government claim.

While these cases recognize the possibility that contractor misconduct might prevent the accrual of a government claim, neither case applies the rule. Indeed, the circumstances under which contractor misconduct might be relevant to the accrual of a CDA claim are rare. Where true contractor misconduct is involved, the government would probably pursue the action under the False Claims Act, which has its own separate limitations period.



 

The views expressed in this document are solely the views of the author and not Martindale-Hubbell. This document is intended for informational purposes only and is not legal advice or a substitute for consultation with a licensed legal professional in a particular case or circumstance.
 

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Elizabeth Leavy
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Government Contracts
 
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