Appeal of the government’s claim for repayment of unallowable costs as untimely is denied, where the appellant could not demonstrate the government knew or should have known of its claim as early as 2006, because much of the evidence the appellant relied upon was not in the record. The board also declined to consider applying the doctrine of laches, because the appellant did not raise this argument in its appeal.
DRS Global Enterprise Solutions Inc. appealed the government’s demand for payment of $8.6 million in unallowable costs, arguing that the claim is untimely.
The dispute involved DRS’s incurred cost proposals under several time-and-materials contracts. On February 28, 2008, DRS submitted its fiscal year 2006 ICP for the period from November 1, 2005 to January 31, 2006. On March 31, 2008, DRS submitted its FY 2006A ICP for the period from February 1, 2006, to March 31, 2006. On April 3, 2012, DCAA informed DRS that its FY 2006 and FY 2006A ICPs were inadequate, contending that the schedules included with the submission lacked various information.
After DRS submitted additional information, DCMA concluded it had adequate information to perform its audits. However, in September 2013, DCAA requested additional documentation from DRS, which it did not provide. On November 7, 2013, DCAA officially advised DRS that it had been denied access to data/documentation for labor transactions, direct material transactions and the other direct cost transactions. On December 30, 2013, DCAA issued an audit report in which it questioned more than $54 million in costs for the fiscal years at issue.
On September 11, 2017, a DCMA contracting officer issued a final decision demanding repayment of $8,607,879.23. Of this amount, $8,416,435.16, was for “other direct costs” that the CO found unallowable. The final decision listed the purportedly unallowable costs and identified various reasons for the disallowance, including the lack of an invoice for the costs, proof of payment, or a signed purchase order. The remainder of the amount sought arose from the difference between DRS’s billing rates and the indirect cost rates established in the final decision. DRS appealed.
DRS argued the government’s claim was untimely because it accrued more than six years before the September 11, 2017 final decision. DRS identified three alternative accrual dates. First, the appellant argued that the government’s claims for direct costs accrued no later than December 15, 2006, when it paid the last of the invoices at issue. Second, for the indirect costs, DRS identified accrual dates of February 28, 2008, the submission date for the FY 2006 ICP and March 31, 2008, the submission date for the 2006A ICP. It also argued that the claim for direct costs began to accrue on that date, if it did not accrue in 2006. Finally, DRS argued that the claim accrued no later than the July 17, 2009 DCAA entrance conference by which point DRS contends that the auditor should have been aware that the costs in the vouchers and ICPs were not sufficiently substantiated.
In response, the government argued that interim vouchers by their very nature do not contain supporting documentation, nor do ICPs. Further, the government noted it could not have known that DRS could not substantiate the amounts billed until it failed to provide DCAA with requested documents in October 2013.
First, the board rejected DRS’s contention that the claim for direct costs accrued when the government paid the invoices. While the board has previously found that government claims did accrue on the date invoices were paid, in those cases the government admitted it had received certain types of information when the contractor submitted its invoices and its ICP. The board explained that determining when the government should have known of its claim requires consideration of the facts at hand.
In previous cases, the board had rejected government claims for costs that it should have known were expressly unallowable when the contractor submitted its ICP. In the current claim, the costs were not on their face unallowable. For example, the CO sought reimbursement of $1,117,645 as unallowable because DRS was unable to provide proof of payment. DRS argued the government should have known the costs were unsupported in 2006, as a cursory review of the vouchers or ICPs would have revealed the costs were not substantiated. However, the board noted that the voucher at issue was not in the record, and therefore, it was impossible for the board to conclude what the government knew or did not know in 2006.
Further, the ICPs in the record do not mention this specific voucher. nor was there anything in the record providing uncontroverted proof that the DCAA auditor was aware of the lack of proof at the time of the entrance conference. Accordingly, the board concluded there was no evidence the government knew or should have known the basis of its claim prior to September 11, 2011.
ASBCA also cited letters in the record in which DRS complained that the audit did not take place until seven years after the fiscal year closed, and alleged that a series of corporate acquisitions and consolidations, combined with its bank’s policy of purging records after seven years, resulted in the loss or destruction of the requested documentation. The board questioned how the government could have known about the lack of substantiation in 2006, if the records disappeared over the course of seven years.
Finally, the board noted that DRS’s motion raised only the statute of limitations, and therefore, the board did not address whether the more than 10 years that elapsed between payment of the invoices at issue and the issuance of the contracting officer’s final decision called for the application of the doctrine of laches.
DRS Global Enterprise Solutions Inc. is represented by David Z. Bodenheimer and Skye Mathieson of Crowell & Moring LLP. The government is represented by Arthur M. Taylor, DCMA Deputy Chief Trial Attorney, and Michael T. Patterson, Trial Attorney Defense Contract Management Agency.
