Appeal of a denied claim seeking reimbursement of withheld funds is granted, where the agency did not provide the contractor the proper notice that it intended to withhold funds from its invoices pending its investigation into the allowability of increased billable rates for certain of its employees.
In a series of separately filed claims that were later consolidated for the court’s consideration, CB&I AREVA MOX Services LLC sought damages and declaratory relief under its contract to construct a mixed oxide fuel fabrication facility for the Department of Energy’s National Nuclear Security Administration.
MOX Services sought payment of costs withheld after DOE discovered that certain subcontractor employees received salary increases, thereby increasing their billing rates to the government under the contract at issue. In an earlier decision, the court rejected the government’s motions to dismiss. Currently before the court is MOX Services’ motion for partial summary judgment on one of its claims.
MOX Services argued the withholdings were arbitrary and punitive, and did not follow proper procedure. The government argued that its withholdings were reasonable because it never received sufficient information to justify the salary increases, and that it gave proper notice of its intent to disallow these costs.
MOX Services was awarded a cost-reimbursement type contract for the design, construction, and operation of a Mixed-Oxide Fuel Fabrication Facility at the Savannah River Nuclear Site. MOX Services is an unpopulated entity with no employees and does not directly perform any services. All services are performed by subcontractors, including principal subcontractor CB&I Project Services Group, which is also MOX Services’ parent company.
In 2015, CPSG engaged in an extensive overhaul of its employees’ titles, duties, and compensation. CPSG created new titles and position descriptions, then placed nearly all of its non-union workforce of 863 employees into one of these new positions. Second, CPSG reviewed compensation for these re-slotted employees, and it chose to increase salaries for 55 of the 863 employees. In line with this pay increase, CPSG increased these 55 employees’ billable rates charged to the government.
While MOX Services provided CPSG’s vouchers, which included the employees’ billing rates, it did not notify the agency that CPSG had re-slotted and increased salaries for certain employees at the time those changes were made. In 2016, the agency noticed that the billing rates for two employees had changed. When the agency asked MOX Services to explain and justify the billing rate increases, it informed the agency about the re-slotting and salary increases. By May 2017, MOX Services had forwarded information to NNSA that MOX Services believed would confirm the scope of the re-slotting and support the decision to re-slot and increase pay for certain employees.
However, on October 6, 2017, the agency notified MOX Services through the invoice review process that the previously presented information was insufficient and that further supporting materials needed to be submitted to facilitate a cost-allowability decision. NNSA alerted MOX Services that if this additional documentation was not provided by October 12, 2017, it would take appropriate remedies. Ultimately, NNSA withheld two percent of the total direct non-craft labor expenses starting with those costs beginning on October 16, 2017 and continuing through the May 27, 2018 billing cycle. In total, the agency withheld $1,142,112 as of the May 27 cycle. It has withheld additional costs since that period.
On March 1, 2018, MOX Services submitted a certified claim to NNSA for payment of withheld costs and requested that a final decision be issued within 60 days. This claim was denied and MOX Services appealed.
MOX Services argued that the agency never issued proper notice of its intent to disallow. NNSA disagreed, claiming that notice was given on October 6, 2017, when it notified MOX Services in writing through the invoice review process that supporting data to facilitate NNSA’s determination of cost allowability was required.
The court found that MOX Services successfully argued that this writing merely warned MOX Services that the agency intended to withhold costs pending further investigation, and it did not constitute notice of NNSA’s intent to disallow costs. The court found that NNSA’s warning that it would take “appropriate action” did not convey to MOX Services that NNSA intended to disallow costs. Indeed, the word “disallow” or other language indicating an intent to disallow did not appear in that notice. The court noted the agency cited to no other written communication as constituting notice of its intent to disallow costs. Moreover, the agency did not offer any evidence that this October 6 writing contained any of the other required elements of notice.
Since the agency’s communication did not meet the required conditions of notice, the court held that NNSA could not have properly disallowed these costs. The court remanded the matter back to the agency to determine the costs withheld from MOX Services since the May 27, 2018 billing period and directed the agency to pay MOX Services that amount in addition to the $1,142,112 already calculated.
CB&I AREVA MOX Services LLC is represented by Mark J. Linderman, with whom were Dennis J. Callahan and Stephen L. Bacon of Rogers Joseph O’Donnell, PC, and W. Brad English, J. Andrew Watson, III, Jon D. Levin, Noah M. Hicks, II, Emily J. Chancey, and Michael W. Rich of Maynard, Cooper & Gale, P.C., and Paul A. Debolt, Emily A. Unnasch, Christopher G. Griesedieck, and Chelsea B. Knudson, Venable LLP.
The government is represented by Joseph E. Ashman and P. Davis Oliver, Senior Trial Counsel, with whom were Chad A. Readler, Acting Assistant Attorney General, Robert E. Kirschman, Jr., Director, Allison Kidd-Miller, Assistant Director, and Sosun Bae and Anthony Schiavetti, Trial Attorneys, Commercial Litigation Branch, Civil Division, Department of Justice, and Mary-Ellen Noone, Site Counsel, Savannah River Field Office, National Nuclear Security Administration.
