United States: ASBCA Does Not Bar A Government Claim To Disallow A Contractor's Direct Costs Paid 11 Years Earlier

The Armed Services Board of Contract Appeals (ASBCA) recently held in DRS Global Enterprise Solutions, Inc.  that the government's 2017 claim disallowing fiscal year 2006 direct costs was not necessarily time-barred by the Contract Disputes Act's (CDA) six-year statute of limitations.  The DRS decision is another in a line of statute of limitations cases that tend to enable the government's practice of conducting untimely audits and subsequently asserting stale cost disallowance claims.

In September 2017, the government issued DRS a contracting officer's final decision disallowing approximately $8 million of direct costs incurred in fiscal year 2006. DRS moved for summary judgment, arguing that undisputed facts establish that the government's claim accrued more than six years before the final decision was issued and, therefore, the claim was time-barred by the CDA's six-year statute of limitations. DRS set forth three alternative arguments for the date the government's claim accrued. The ASBCA rejected all of these arguments.

First, DRS argued that the government's claim for unallowable direct costs accrued no later than December 15, 2006, when the last voucher for the costs was paid. The ASBCA, citing to its prior precedent, stated that there is no "blanket rule" providing that the statute of limitations begins to run when the government pays a voucher or invoice. The ASBCA also distinguished its contrary holding in Spartan DeLeon Springs, LLC, ASBCA No. 60416, 17-1 BCA ¶ 36,601, from the facts of this case noting that, unlike in Spartan DeLeon Springs, DRS was not able to offer undisputed facts demonstrating that DRS's vouchers contained sufficient information concerning the government's potential claim.

Second, DRS argued that the government's claim accrued no later than March 31, 2008, when DRS submitted its final indirect cost rate proposal containing the costs at issue. The ASBCA rejected this argument because the undisputed facts did not support that the final indirect cost rate proposal information addressed the specific bases for the government's disallowance claim and, thus, DRS failed to establish that the government's potential cost disallowance claim was "reasonably knowable."

Finally, DRS argued that the government's claim accrued no later than July 17, 2009, the date of the Defense Contract Audit Agency entrance conference. The ASBCA rejected this argument as well, reasoning that there was nothing in the undisputed record establishing that the auditor should have been aware of the government's potential claim at the time of the entrance conference. In sum, the ASBCA found that DRS failed to offer sufficient undisputed facts to supports its positions.

The takeaway for contractors

While the DRS decision is not favorable, there remains some hope for contractors confronted by untimely direct cost disallowance claims: the ASBCA did not abandon entirely its Spartan DeLeon Springs decision, which stands for the reasonable proposition that government direct cost disallowance claims may accrue at the time the government initially reviewed and decided to pay the direct costs. Additionally, the Civilian Board of Contract Appeals (CBCA) recently held in United Liquid Gas Co. v. GSA that the government's cost disallowance claim was untimely because it began to accrue on the date that the government paid each invoice. It rejected the government's argument that its cost disallowance claim was timely because a separate agency paid the invoices. The CBCA concluded that the government would have recognized the overbillings as they occurred if it had properly monitored the contract. Accordingly, contractors have some decisional law on which to rely when challenging untimely direct cost disallowance claims.

Nevertheless, the takeaway from the DRS decision for contractors is that it remains difficult to dispense with stale government cost disallowance claims. Consistent with the DRS decision, and a string of similar decisions, the more information that accompanies vouchers, invoices, and final indirect cost rate proposals concerning the nature of the claimed costs, the more likely a stale government cost disallowance claim is barred.

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