Appeal of a COFC decision dismissing a contractor’s challenge to the legality of a FAR provision is reversed. The COFC found that the contractor had waived its challenge to the FAR provision because it failed to object to the provision before award. The Federal Circuit, however, held that the contractor had not waived its challenge because a pre-award objection would have been futile. The agency itself was bound by the FAR provision and thus was not in a position to address a challenge to its legality. The court also determined that the contractor could not have challenged the provision in a judicial proceeding. The contractor could not have brought a pre-award challenge under the Contract Disputes Act because as pre-award objection, there was not yet an extant contract to give the court CDA jurisdiction. The contractor could not have challenged the provision under the APA because the challenge concerned costs accounting standards, and disputes involving cost accounting are excluded from judicial review under the APA. Moreover, the contractor could not have brought a bid protest because its challenge concerned a matter of contract administration.
The Boeing Company entered a contract with the Navy in 2008. The contract was administered by the Defense Contract Management Agency. The contract incorporated various cost accounting FAR provisions that required the government to negotiate an equitable adjustment in the event of changes to Boeing’s cost accounting practices.
In 2010, Boeing informed the DCMA contracting officer that it was making changes to its cost accounting practices. The contracting officer found that some of these proposed changes were undesirable because they could increase the government’s costs. The contracting officer asked Boeing to submit a proposal to calculate the cost impact of the accounting changes. Boeing’s proposal indicated that two of its changes would increase costs to the government by $940,000. But two other changes would save the government over $2 million. Because the net effect of the changes would save the government money, Boeing proposed that it didn’t need to pay the government anything because its changes did not result in an aggregate increased cost to the government.
Several years after Boeing submitted its proposal, DCMA determined that Boeing owed the government over $1 million for the 2010 changes to its cost accounting practices. DCMA noted that under FAR 30.606, a contracting officer cannot combine the cost impacts of accounting changes unless the changes result in increased costs to the government. Thus, DCMA determined, under this FAR provision, Boeing could not offset the cost of the accounting changes that cost the government money against the changes that saved government money. DCMA concluded that Boeing was liable for the $940,000 for cost increases created by its accounting changes.
Boeing began paying the government $8,900 a month to cover the cost increases. But Boeing also filed an action in the Court of Federal Claims contesting the DCMA’s determination. In its complaint, Boeing alleged that the government breached the contract’s cost accounting standards clauses by failing to negotiate an equitable adjustment for the accounting changes. Specifically, Boeing claimed that FAR 30.606, which prohibits the offsetting of cost increases and costs resulting from changes in accounting practices, was unlawful because it conflicted with a cost accounting statute, 41 U.S.C. § 1503(b), which states that the government may not recover costs resulting from accounting changes that are greater than the aggregate of increased costs to the government. Thus, Boeing argued, by refusing to offset costs in accordance with FAR 30.606, the government was collecting more than the aggregate of increased costs in violation of 41 U.S.C. § 1503. As an alternative theory, Boeing alleged that the government’s demand for payment in violated of 41 U.S.C. § 1503 was an “illegal extraction.”
The COFC, however, dismissed Boeing’s suit. The court found that the alleged conflict between FAR 30.606 and 41 U.S.C § 1503 was a patent ambiguity in the contract that Boeing should have raised before award. Because Boeing failed to raise a pre-award objection, the COFC found that Boeing had waived its claim under Blue & Gold Fleet, L.P. v. United States, 492 F.3d 130-8 (Fed. Cir. 2007). As to the illegal extraction claim, the COFC determined that Boeing’s claim failed because the statute giving rise to the alleged extraction, 41 U.S.C. § 1503, was not a money mandating statute—i.e., it did not provide a remedy for its violation that entailed a return of the money unlawfully extracted. Boeing appealed this dismissal of its suit to the Federal Circuit.
The court reversed the COFC, holding that Boeing had not waived its challenge to the legality of FAR 30.606 because any pre-award objection to the provision would have been futile. As an initial matter, if Boeing had raised the issue concerning FAR 30.606 before award, the agency could not have done anything about it. The government’s adherence to the provision was mandatory and could not be waived. Indeed, the court noted that the government had not pointed to any Federal Circuit precedent in which the court had held that a waiver had occurred even though the agency could not itself grant the relief the contractor later requested in court.
Moreover, the court continued, it was unlikely that Boeing could have raised a pre-award objection in a judicial proceeding. The costs accounting statute provided that judicial disputes concerning cost accounting standards are decided under the Contract Disputes Act (CDA). But a party cannot make a claim under the CDA unless it has a contract. Thus, it would have been impossible for Boeing to bring a CDA suit before it was awarded the contract.
Additionally, Boeing could not have raised it objection in a suit under the Administrative Procedures Act. The cost accounting statutes expressly state that the functions exercised under these statutes are not subject to judicial review under the APA.
The government argued that the Boeing could have brought a bid protest. But the court noted that Boeing’s challenge involved a matter of contract administration—that is, it challenged the government’s decision to follow FAR 30.606 in determining a price adjustment. Matters of contract administration can only be challenged under the CDA, not in a bid protest.
In fact, the court opined that it was doubtful any pre-award challenge to FAR 30.606 would have been ripe. A claim is not ripe for judicial review when it is contingent on future events. The government had not shown how Boeing could have met this ripeness standard in 2008, long before it made the changes to accounting system and before DCMA had applied FAR 30.606.
The court also found that the COFC had erred in dismissing Boeing’s illegal extraction claim. The court reasoned that the “money-mandating” requirement applied by the COFC only applies to claims for money damages arising from government action; it does not apply to claims for illegal extraction, that is, claims seeking to recover money unlawfully paid to the government. Indeed, the court noted, it had assumed jurisdiction over many illegal extraction claims without regard for whether they premised on a “money-mandating” statute.
Boeing is represented by Michael W. Kirk, Charles J. Cooper, and John David Ohlendorf of Cooper & Kirk as well as Suzette Derrevere of the Boeing Company and Seth Locke of Perkins Coie, LLP. The government is represented by Erin Murdock-Park, Ethan P. Davis, Marie Hosford, and Robert Edward Kirschman, Jr. of the Department of Justice.