Allison Transmission, Inc.
Docket: ASBCA 59204
Decision date: 2014-07-17

ARMED SERVICES BOARD OF CONTRACT APPEALS 
Appeal of -- ) 
) 
Allison Transmission, Inc. ) 
) 
Under Contract No. DAAE07-99-C-N031 ) 
APPEARANCES FOR THE APPELLANT: 
APPEARANCES FOR THE GOVERNMENT: 
ASBCA No. 59204 
Scott E. Pickens, Esq. 
William M. Jack, Esq. 
Barnes & Thornburg LLP 
Washington, DC 
E. Michael Chiaparas, Esq. 
DCMA Chief Trial Attorney 
Arthur M. Taylor, Esq. 
Samuel W. Morris, Esq. 
Trial Attorneys 
Defense Contract Management Agency 
Manassas, VA 
OPINION BY ADMINISTRATIVE JUDGE DELMAN 
PURSUANT TO BOARD RULE 12.2 
In this appeal Allison Transmission, Inc., (appellant or Allison) disputes the 
government's entitlement to compound interest on an acknowledged liability to pay 
increased costs arising out of a voluntary cost accounting change. Appellant elected to 
prosecute the appeal under Board Rule 12.2, 1 Expedited Procedures, and both parties 
have agreed to waive oral hearing and to submit their positions on the record. 2 The 
Board has jurisdiction under the Contract Disputes Act (CDA), 41 U.S.C. §§ 7101-7109. 
1 The Contract Disputes Act, implemented by Board Rule 12.2, provides that this 
decision shall have no value as precedent, and in the absence of fraud shall be 
final and conclusive and may not be appealed or set aside. 
2 Allison's record submission is entitled "APPELLANT'S MOTION FOR JUDGMENT 
AND MEMORANDUM IN SUPPORT." The government's record submission is 
entitled "GOVERNMENT'S CROSS MOTION FOR SUMMARY 
JUDGMENT." Notwithstanding these captions, this appeal is being adjudicated 
on the record at the parties' request pursuant to Board Rule 11. 

SUMMARY FINDINGS OF FACT 
1. Contract No. DAAE07-99-C-N031 (Contract N03 l) was awarded by the 
U.S. Army Tank Automotive Command (government) to Allison on 12 July 1999. This 
contract contains the following CAS-related contract clauses in the FAR which are 
incorporated by reference at Section I of the contract: FAR 52.230-2, COST 
ACCOUNTING STANDARDS (APR 1998); FAR 52.230-3, DISCLOSURE AND CONSISTENCY 
OF COST ACCOUNTING PRACTICES (APR 1998); and FAR 52.230-6, ADMINISTRATION OF 
COST ACCOUNTING STANDARDS (APR 1996). 3 (R4, tab 1) 
2. By letter dated 30 April 2007, Allison submitted to the Defense Contract 
Management Agency (DCMA) a notification of a change to its cost accounting practices, 
effective 1 January 2008. The change eliminated Allison's Engineering Cost Center 
Group 4C, previously disclosed in Allison's CAS Disclosure Statement. Allison advised 
the government as follows: 
The departments within this cost center group [ 4C] will 
become part of burden center group 4 Y and will no longer 
write time tickets to be charged direct. The functions 
currently being performed in 4C are to be allocated over the 
remaining cost center groups based on charge-out labor. 
Appellant requested the "concurrence" of the DCMA Administrative Contracting Officer 
(ACO) with the change. The ACO signed his name on the concurrence line of this letter 
on 30 May 2007. (App. supp. R4, tab 14; gov't reply br., ex. G-8, Stout decl. if 3) 
3. By letter to the ACO dated 9 October 2008, Allison submitted to DCMA a cost 
impact proposal related to the cost accounting practice change. Allison determined that 
as a result of the change, the government paid increased costs in the amount of 
$599,019.79. (App. supp. R4, tab 15) 
4. On 25 March 2010 the Defense Contract Audit Agency (DCAA) issued a 
memorandum to the ACO returning the impact proposal to appellant for failing to follow 
the prescribed format (gov't mot., ex. G-4). Allison was so advised by letter of that same 
date (gov't mot., ex. G-5). 
3 The parties have stipulated that the April 1998 CAS clause cited herein is the 
controlling CAS clause in this appeal, and that the 2012 CAS clause cited by 
appellant in its motion is not materially different insofar as pertinent here. The 
parties have also stipulated that FAR Subpart 30.6, effective 8 April 2005, may be 
consulted and used by the Board as appropriate. (App. reply, attach. 1, 
Stipulation) 
2 

5. By letter to DCMA dated 15 April 2010, Allison resubmitted its cost impact 
proposal related to this cost accounting practice change. Again, Allison determined 
that 
as a result of the change the government paid increased costs in the amount of 
$599,019.79. (App. supp. R4, tab 16) 
6. By memorandum to the ACO dated 17 January 2013, DCAA provided a Rough 
Order of Magnitude (ROM) estimate on the cost impact to the government resulting from 
the cost accounting practice change. DCAA described the change as a unilateral change. 
The ROM covered the cost impact to one prime contract between Allison 
and the 
government, Contract N031, and two subcontracts awarded to Allison by prime 
contractor General Dynamics (projects "P920" and "P929"). DCAA concluded that 
Allison overstated the cost impact by $443,904.79, and therefore the total increased costs 
paid by the government were $155,115.00. DCAA linked the overstated cost impact 
figure to several errors committed by Allison in its cost impact calculation methodology. 
(R4, tab 2) 
7. By letter to appellant dated 7 March 2013, the ACO stated that "ATI owes a net 
overstatement amount of$155,115.00." The ACO also stated that, "[i]n accordance with 
FAR 52.230-2(a)(5), interest will be applicable to the final negotiated amount." 
(R4, tab 3) 
8. By letter to the ACO dated 12 March 2013, Allison agreed to pay the 
government the principal amount of $155,115. With respect to interest, appellant stated: 
"The interest shall start to accumulate 30 days from the 
receipt of the demand letter .... 
ATI has not received a demand letter so the estimated interest would be $0." 
(R4, tab 4) 
9. By letter to Allison dated 27 September 2013, the ACO advised that she had 
"privity" over Contract N031, but not over the two subcontracts. Based upon revised 
calculations, the 
ACO agreed to settle Contract N031 for $165,424. 4 Again, the ACO 
stated, "[i]n accordance with FAR 52.230-2(a)(5), interest will be applicable to the final 
negotiated amount." (R4, tab 5) 
10. By letter to the ACO dated 11 October 2013, Allison agreed to pay the 
principal amount of $165,424. With respect to interest, appellant stated as follows: 
2. ATI will pay interest on the $165,424 starting on 
October 1, 2013 in the amount of $408.38. This 
calculation is based on the interest starting to accumulate 
4 This upward adjustment is attributable to the removal of the subcontracts "P920" and 
"P929" from the original cost impact calculation. 
3 

effective October I, 2013 until October 31, 2013 when we 
anticipate payment would 
be made. 
Allison attached a 2009 letter from an ACO on an unrelated 2004 cost accounting change 
in support of its position on interest. (R4, tab 6) 
11. On 23 December 2013, the ACO issued a contracting officer's final decision 
(COFD) to Allison, asserting a government claim of$199,101.00, inclusive of interest to 
the date of the decision, for the cost impact to the government resulting from Allison's 
cost accounting practice change. The COFD identified Contract N03 l as the 
representative contract. The government's claim of$199,101.00 was comprised of the 
principal amount of $165,424.00, plus compound interest in the amount of $33,676.62 
covering the period of time between the estimated government overpayment of the 
increased costs (30 June 2008), through the 
date of the final decision. (R4, tabs 7-8) 
12. Insofar as pertinent, the COFD stated: 
Even if a unilateral change is otherwise acceptable, increased 
costs to the government as a result of not consistently 
following the prior practice in contracts awarded under the 
prior practice are to be recovered by the government, with 
compound interest. While making no determination in this 
final decision as to the ultimate CAS compliance or 
non-compliance of the change, recovery as above is 
appropriate in any event. 
(R4, tab 7 at 2) 
13. By letter to the ACO dated 17 January 2014, Allison requested that the ACO 
rescind her 23 December 2013 COFD. Among other things, Allison stated that the 
government had no legal basis to assess any interest: 
Absent a CAS noncompliance, the Government should 
review our previous communications under FAR 
52.230-2(a)(4) that requires the Contractor and the 
Government to negotiate and agree to an equitable adjustment 
as provided in the Changes 
clause of the contract. Because 
there is no CAS noncompliance associated with this 
accounting change, there is therefore no legal basis for the 
assessment of interest. 
(R4, tab 9 at 1) 
4 

14. By letter to Allison dated 3 February 2014, the ACO refused to rescind the 
COFD (R4, tab 10). 
2014. 
15. Appellant timely appealed the COFD to this Board by notice dated 7 March 
16. The following Title 41 statutory provisions govern this appeal: 
§ 1502. Cost accounting standards 
(f) IMPLEMENTING REGULA TIONS.-The Board shall 
prescribe regulations for the implementation of cost 
accounting standards prescribed or interpreted under this 
section. The regulations shall be incorporated into the Federal 
Acquisition Regulation and shall require contractors and 
subcontractors as a condition of contracting with the Federal 
Government to-
( 1) disclose in writing their cost accounting 
practices ... ; and 
(2) agree to a contract price adjustment, with interest, 
for any increased costs paid to the contractor or 
subcontractor by the Federal Government because of a 
change in the contractor's or subcontractor's cost 
accounting practices or a failure by the contractor or 
subcontractor to comply with applicable cost accounting 
standards. 
§ 1503. Contract price adjustment 
(b) AMOUNT OF ADJUSTMENT .-A contract price 
adjustment undertaken under section 1502(f)(2) of this title 
shall be made, where applicable, on relevant contracts 
between the Federal Government and the contractor that are 
subject to the cost accounting standards so as to protect the 
Federal Government from payment, in the aggregate, of 
5 

increased costs, as defined by the Cost Accounting Standards 
Board .... 
(c) INTEREST.-The interest rate applicable to the 
contract price adjustment is the annual rate of interest 
established under section 6621 of the Internal Revenue Code 
of 1986 (26 U.S.C. 6621) for the period. Interest accrues 
from the time payments of the increased costs were made to 
the contractor or subcontractor to the time the Federal 
Government receives full compensation for the price 
adjustment. [Emphasis added] 
17. The following provisions of the CAS clause, FAR 52.230-2, COST 
ACCOUNTING STANDARDS (APR 1998) pertain to this appeal: 
COST ACCOUNTING STANDARDS (APR 1998) 
(a) Unless the contract is exempt under 48 CFR 
9903.201-1and9903.201-2, the provisions of 48 CFR Part 
9903 are incorporated herein by 
reference and the Contractor, 
in connection with this contract, shall-
(4)(i) Agree to an equitable adjustment as provided in 
the Changes clause of this contract if the contract cost is 
affected by a change which, pursuant to subparagraph (a)(3) 
of this clause, the Contractor is required to make to the 
Contractor's established cost accounting practices. 
(ii) Negotiate with the Contracting Officer to 
determine the terms and conditions under which a change 
may be made to a cost accounting practice, other than a 
change made under other provisions of subparagraph (a)(4) of 
this clause; provided that no agreement may be made under 
this provision that will increase costs paid by the United 
States. 
(iii) When the parties agree to a change to a cost 
accounting practice, other than a change under subdivision 
(a)(4)(i) of this clause, negotiate an equitable adjustment as 
provided in the Changes clause of this contract. 
6 

(5) Agree to an adjustment of the contract price or cost 
allowance, as appropriate, if the Contractor or a subcontractor 
fails to comply with an applicable Cost Accounting Standard, 
or to follow any cost accounting practice consistently and 
such failure results in any increased costs paid by the United 
States. Such adjustment shall provide for recovery of the 
increased costs to the United States, together with interest 
thereon computed at the annual rate established under section 
6621 of the Internal Revenue Code of 1986 (26 U.S.C. 6621) 
for such period, from the time the payment by the United 
States was made to the time the adjustment 
is effected. In no 
case shall the Government recover costs greater than the 
increased cost to the Government, in the aggregate, on the 
relevant contracts subject to the price adjustment, unless the 
Contractor made a change in its cost accounting practices of 
which it was aware or should have been aware at the time of 
price negotiations and which it failed to disclose to the 
Government. 
DECISION 
Under Section 1502(f)(2) of the CAS statute, Congress unequivocally expressed 
its intent that as a condition of contracting with the government, the CAS 
clause/regulation provide that a contractor agree to a contract price adjustment, "with 
interest, for any increased costs paid to the contractor ... because of a change in the 
contractor's cost accounting practices." 
There is no question that appellant initiated a change in its cost accounting 
practices here and agreed to pay a contract price adjustment for the increased costs paid 
by the government, consistent with the statute. As per the plain terms of the statute, 
interest must also be included on these increased costs. Section 1503(c) of the statute 
spells out the interest to be paid by the contractor. This interest has been held to be 
compound interest. See Gates v. Raytheon Co., 584 F.3d 1062 (Fed. Cir. 2009), 
rehearing and rehearing en bane denied, 636 F.3d 1363 (Fed. Cir. 2011) (contractor 
liable for compound interest on CAS noncompliance). The CAS statute makes no 
distinction between the treatment of a contract price adjustment for increased costs paid 
due to a CAS noncompliance, and a contract price adjustment for increased costs paid 
due to a cost accounting change of the type here. Both are subject to the same statutory 
interest provision. As the former requires assessment of compound interest, so must the 
latter. 
Appellant contends, however, that the government erred in processing this change 
under CAS clause FAR 52.230-2(a)(5) because it involved neither a CAS noncompliance 
7 

nor a failure to follow any cost accounting practice consistently. 5 According to appellant, 
the ACO should have processed this change under CAS clause FAR 52.230-2(a)(4)(ii) 
and (iii), which subsections provide for the negotiation of terms and conditions of the 
change, the parties' agreement to the change and an equitable adjustment under the 
Changes clause of the contract, and do not provide for the payment of interest. 
In any event, assuming, arguendo, that the ACO selected the "wrong" subsection 
of the CAS clause to process this contract price adjustment, it is nevertheless clear that 
this contract price adjustment for increased costs paid by the government due to this 
contractor-initiated cost accounting change is subject to interest under the CAS statute, 
and as concluded above, this interest must be compound 
interest. Congress 
unequivocally expressed its intent to mandate interest and the amount of that interest 
under these circumstances, and this controls the result here. See Raytheon, 584 F.3d at 
1071-72 n.12 ("The intentions of the CAS Board in promulgating the CAS clause are 
clearly influenced by the authorizing statute, and we look to§ 422(h)(4) [now Section 
1503(c)] as part of this interpretation of the regulation that is incorporated into the 
contracts at issue."); see generally Chevron US.A., Inc. v. Natural Resources Defense 
Council, Inc., 467 U.S. 837, 842-43 (1984) (court must give effect to the unambiguous 
expressed intent of Congress); Coalition of New York State Career Schools, Inc. v. Riley, 
129 F.3d 276, 279 (2nd Cir. 1997) (where plain language of statute speaks directly to the 
issue, regulations must give effect to the unambiguously expressed Congressional 
intent.). 
Accordingly, it is the decision of the undersigned, pursuant to Board Rule 12.2, 
that appellant is obligated to pay compound interest on the increased costs paid by the 
government due to the subject cost accounting change. 6 
5 Given the fact that appellant timely notified the government of this cost accounting 
change, see FAR 30.603-2(c)(l)(2), it also appears that this contract price 
adjustment does not precisely fit under FAR 52.230-2(a)(5). 
6 This Rule 12.2 decision does not address whether the specific compound interest 
amount in the COFD was accurately calculated. The Board expects the parties to 
reach agreement on the interest amount due and owing, consistent with this 
decision, based upon the appropriate math and the documentation necessary and 
available 
to make the appropriate calculation. 
8 

ASBCA No. 59204 is denied. 
Dated: 17 July 2014 
\ JA DELMAN 
'~---A.a~inistrative Judge 
Armed Services Board 
of Contract Appeals 
I certify that the foregoing is a true copy of the Opinion and Decision of the 
Armed Services Board of Contract Appeals in ASBCA No. 59204, Appeal of Allison 
Transmission, Inc., rendered in conformance with the Board's Charter. 
Dated: 
9 
JEFFREY D. GARDIN 
Recorder, Armed Services 
Board of Contract Appeals