ARMED SERVICES BOARD OF CONTRACT APPEALS 
 
Appeals of - )  
 )  
Parsons Government Services, Inc. ) 
) 
ASBCA Nos. 62269, 62270, 62425  
                       62426, 62680, 62974 
Under Contract No. W912DY-09-D-0062 et al. )  
   
APPEARANCES FOR THE APPELLANT: Michael R. Rizzo, Esq.  
Aaron S. Ralph, Esq. 
    Pillsbury Winthrop Shaw Pittman LLP 
    Los Angeles, CA 
 
APPEARANCES FOR THE GOVERNMENT: Samuel W. Morris, Esq. 
    DCMA Chief Trial Attorney 
 Srikanti Schaffner, Esq. 
    Trial Attorney 
    Defense Contract Management Agency 
    Carson, CA 
 
OPINION BY ADMINISTRATIVE JUDGE MCLISH 
Parsons Government Services, Inc. (Parsons) appealed six contracting officer’s 
final decisions issued by the Defense Contract Management Agency (DCMA or 
government).  Five of the final decisions disallowed certain lease costs and unilaterally 
established final indirect rates for fiscal years (FY) 2014-2018; one denied Parsons’ 
certified claim requesting that the contracting officer issue a final decision finding that 
the lease costs for FY 2014-2017 were allowable.1  The parties’ dispute is over how 
the amount of allowable lease costs is calculated following the sale and leaseback of a 
depreciable asset, in this case Parsons’ headquarters building.  
 
The parties have elected to proceed solely upon the record submitted, pursuant 
to Board Rule 11.  The assigned Board judge heard oral argument on October 8, 2024.  
Only entitlement is under review.  We deny the appeals.  
 
1 Parsons previously pursued similar claims for FY 2011-2013, which were also the 
subject of unilateral rate determinations, certified claims and appeals to the 
Board.  Without reaching the merits, the Board ruled that the FY 2011 claim 
was barred by the statute of limitations and failed to assert a valid CDA claim.  
See Parsons Gov’t Servs., Inc., ASBCA No. 62113, 20-1 BCA ¶ 37,586 
at 182,507 (Apr. 15, 2020).  Parsons thereafter withdrew its claims for FY 2012 
and 2013 (R4, tab 15 at 425-26).     

2 
 
 
FINDINGS OF FACT (FOF) 
I. Background 
 
1.  Parsons is a wholly owned subsidiary of Parsons Corporation (PC), with its 
headquarters located in Pasadena, California (joint stipulation of material facts (stip.) ¶ 
1; first amended compl. ¶ 1).  Parsons and various government entities are parties to a 
number of contracts which are subject to the Contract Disputes Act of 1978, 41 U.S.C. 
¶¶ 7101-7109 (CDA) and assigned for contract administration purposes to DCMA.  
This includes Contract No. W912DY-09-D-0062 (contract), which the U.S. Army 
Corps of Engineers awarded to Parsons on September 17, 2009.  (Stip. ¶ 3; R4, tab 1 
at 12)  The contract provided for work to be ordered via task orders, some of which 
would be fixed-price and some flexibly priced (R4, tab 1 at 2, 4-23, 66-67). 
 
2.  For flexibly priced task orders, the government would make payments in 
accordance with FAR 52.216-7, ALLOWABLE COST AND PAYMENT 
(DEC 2002).  Under that clause, the contracting agency is required to make payments 
to the contractor “in amounts determined to be allowable by the Contracting Officer in 
accordance with [FAR] subpart 31.2 in effect on the date of this contract and the terms 
of this contract.”  (Stip. ¶ 4; R4, tab 1 at 66-67, 84-85)   
 
3.  The dispute in these appeals concerns the allowability of rental costs paid by 
Parsons following its sale and leaseback of the Pasadena Tower Building (Building), 
located in Pasadena, California.  
 
4. Parsons initially owned the Building, having constructed it between 1973 and 
1974 at a cost of approximately $19 million.  Parsons began depreciating the Building 
in August 1974, and it was fully depreciated by December 1991.  Parsons also made 
improvements to the Building over the years, which cost approximately $13.5 million.  
The government partially reimbursed the costs of depreciation for the Building and the 
improvements through payments to Parsons under its government contracts.  See 
FAR 31.205-11, DEPRECIATION.  (Stip. ¶¶ 7-9; app. reply br., ex. B, Decl. of 
N. Cotton (Cotton Decl.), attach. 1 at 3)   
 
 
2 The parties numbered pages in their Rule 4 submissions with a prefix of letters and 
leading zeros.  We have dropped the prefix and leading zeros and cite only the 
numeric page number. 

3 
 
5.  In 1991, the parties executed an advance agreement in accordance with 
FAR 31.109 and 31.205-11.  The advance agreement provided that Parsons would 
include, “as a component of the overhead cost, a use charge of $754,201 per year” for 
the Building (stip. ¶¶ 10, 12).  That use charge was to continue from 1992 to 2011 
without increase.  In addition to the use charge, Parsons incurred costs for commercial 
property insurance, personal property taxes and real estate taxes.  Parsons charged the 
government separately for those costs and the government paid for them.  (Stip. 
¶¶ 13-14) 
 
II. Sale and Leaseback Arrangement 
 
6.  In May 2011, Parsons sold the Building, along with other facilities on its 
headquarters campus, to a third party for $319.9 million.  The parties to the transaction 
allocated approximately $149.3 million of the sale price to the Building.  (Stip. ¶ 16)   
 
7.  The improvements to the Building were not fully depreciated when it was 
sold.  The Building had a net book value (the difference between the acquisition cost 
and the accumulated depreciation, as discussed below) of approximately $4.2 million 
at that time (stip. ¶ 15). 
 
8.  Shortly thereafter, Parsons leased back the Building for a 15-year term.  The 
monthly rent began at $752,000 and increased to $993,000 per month by the end of the 
lease term.  Under the lease, Parsons’ parent corporation PC was required to pay 
separately for insurance, taxes, maintenance, storage, and other facilities charges.  In 
2012, the first full year of the leaseback arrangement, Parsons incurred approximately 
$14.4 million in lease and other facility costs, which it allocated to its business units.  
(Stip. ¶¶ 16-18) 
 
9.  The sale of the Building triggered the application of FAR 31.205-16, GAINS 
AND LOSSES ON DISPOSITION OR IMPAIRMENT OF DEPRECIABLE 
PROPERTY OR OTHER CAPITAL ASSETS.  As discussed in more detail below, 
that cost principle requires, upon the sale of a tangible asset, the calculation of a “gain” 
or “loss” from the sale that is then credited or charged to the government.  Id. at (c).  
Gains or losses are “the difference between the net amount realized . . . and its 
undepreciated balance.”  Gains, however, are capped at the difference between the 
acquisition cost of the asset and its undepreciated balance.  Id. at (c), (d).   
 

4 
 
10.  Pursuant to -163, Parsons’ sale of the Building resulted in a gain that was 
credited to the government.  The difference between the net amount realized from the 
sale ($149.3 million) and the undepreciated balance of the Building on the date 
Parsons became a lessee ($4.2 million) was $145.1 million (R4, tab 18 at 926).  
Pursuant to -16(d), the recognized gain was limited to the difference between the 
acquisition cost of the Building ($19.1 million to construct + $13.5 million in 
improvements = $32.6 million) and its undepreciated balance ($4.2 million).  
Accordingly, the net gain was approximately $28.4 million.  (Cotton Decl, attach. 1 
at 3; R4, tab 15 at 755-58).  This resulted in the government recapturing approximately 
$17 million in depreciation payments previously made to Parsons (the remainder of the 
gain was allocated to other entities under PC) (Cotton Decl. at ¶ 7 and attach. 2).     
 
11.  Having sold the Building and become a lessee, Parsons’ ability to recover 
from the government its costs of leasing the Building were now governed by the cost 
principle at FAR 31.205-36, RENTAL COSTS.  Under that cost principle, reasonable 
rental costs are generally allowable, but special rules govern where the rental costs are 
incurred pursuant to a sale and leaseback arrangement.  Specifically,  
 
[r]ental costs under a sale and leaseback arrangement [are 
allowable] only up to the amount the contractor would be 
allowed if the contractor retained title, computed based on 
the net book value of the asset on the date the contractor 
becomes a lessee of the property adjusted for any gain or 
loss recognized in accordance with 31.205-16(b). 
 
FAR 31.205-36(b)(2); (stip. ¶¶ 20, 22) 
 
12.  Subsection (b) of FAR 31.205-16 provides that, in the case of a sale and 
leaseback, gains and losses are calculated as “the difference between the net amount 
realized and the undepreciated balance of the asset on the date the contractor becomes 
a lessee.”  Id. at (b)(1).  It then prescribes limitations on losses.  Id. at (b)(2).   
 
13.  The allowability of Parsons’ lease costs following the sale was addressed in 
the final indirect cost rate proposals (FICRPs) that it submitted annually to DCMA.  
By March 2018, Parsons had submitted FICRPs for FY 2014-2016.
4   In each of those 
 
3 For convenience and readability, we at times refer to FAR 31.205-36 as “-36”, 
FAR 31.205-16 as “-16” and FAR 31.205-11 as “-11”.     
4 Parsons had also submitted FIRCPs for FY 2011-13.  Those years are not at issue 
here.  See note 1 above. 

5 
 
proposals, Parsons claimed that approximately $2.2 million of its annual lease costs for 
the Building were allowable.  As prescribed in -36(b)(2), it calculated this amount by 
adjusting the $4.2 million net book value by the $28.4 million gain (see FOF ¶ 10) and 
spreading that amount over the 15-year term of the lease: 
 
Net Book Value (a) $4.2 million 
Gain from Sale (b) $28.4 million 
Total Allowable Lease 
Cost (c = a + b) 
$32.6 million 
Annual Allowable Lease 
Costs (15 years) (c/15) 
$2.2 million 
 
(Stip. ¶¶ 23, 32; R4, tab 15 at 757) 
 
14.  Parsons took a new position as to the allowability of its rental costs during 
discussions with DCMA regarding its FY 2011 FICRP (stip. ¶¶ 24-25).  In a letter to 
the Corporate Administrative Contracting Officer (CACO), Parsons argued that far 
more of its annual lease costs for the Building were allowable than it had proposed 
(R4, tab 8).  Parsons’ new position as to the allowable rental costs for the Building was 
based on its interpretation of revisions to -36(b)(2)5 and -16 that had been made in 
2005.  Parsons contended that the cap on gains provided in -16(d) did not apply when 
calculating the allowable rental lease costs under -36(b)(2).  (Id. at 330-34)  According 
to Parsons, $9.7 million of its annual lease costs were allowable, rather than the $2.2 
million it had proposed (id. at 332).  This new amount was calculated by determining 
the gain pursuant to -16(b) (i.e., the difference between the net amount Parsons 
realized from the sale of the Building and the undepreciated balance), without 
reference to -16(d).  This would make the gain $145.1 million.  Parsons deemed that 
amount to be the total allowable lease cost under -36(b)(2), which equated to $9.67 
million per year over 15 years.  (Id.; first amended compl. ¶ 117)  
 
 
5 Parsons actually referred to FAR 31.205-11(h)(1), which addresses capital leases 
rather than FAR 31.205-36(b)(2), which deals with operating leases.  As 
Parsons noted, the provisions are identical (R4, tab 8 at 328 n.1).  In their 
briefing here, both parties reference FAR 31.205-36(b)(2) as the applicable 
provision and therefore we treat it as such.    

6 
 
15.  DCMA disagreed with Parsons’ new position.  It maintained that -16(d) 
applied and capped the recognized gain at the difference between the acquisition cost 
and the undepreciated balance.  (Stip. ¶ 27; R4. tab 18 at 925-26, tab 19 at 937-39)   
 
16.  When Parsons submitted its FY 2017 FIRCP, as with its FIRCPs for 2011-
2016, it did not include in that proposal the full amount of rental costs for the Building 
that its earlier letter to the CACO argued were allowable (stip. ¶¶ 32-34).   
 
III. Unilateral Rate Determinations for FY 2014-2017 (ASBCA Nos. 62269,  
 62270, 62425 and 62426) 
 
17.  The CACO issued final decisions unilaterally establishing final indirect 
rates for FY 2014-2017 based upon Parsons’ FICRPs for each of those fiscal years and 
each year’s associated DCAA audit reports.  The final decisions did not accept 
Parsons’ contention that $9.67 million of its annual lease costs were allowable, rather 
than the $2.17 million it had originally proposed.  (Stip. ¶¶ 29-30, 33-34; R4, tabs 6-7, 
13-14)  In November 2019 and March 2020, Parsons timely appealed these 
determinations to the Board (stip. ¶¶ 31, 35).  
 
IV. Parsons’ Certified Claim – ASBCA No. 62680 
 
18.  Parsons filed a certified claim with the CACO seeking an upward 
adjustment of leaseback costs incurred during FY 2014-2017 and a decision that the 
lease costs at issue in these appeals were allowable.  Parsons asserted that for those 
years, it was entitled to a total increase in corporate allocations of adjusted leaseback 
costs of $12,912,324.  (Stip. ¶ 36; R4, tab 15 at 420)  A new CACO responded via 
email stating that “[t]he prior CACO issued the [final decisions] for these years 
without allowing Parsons to adjust for leaseback rental cost.  Therefore, Parsons is not 
allowed to submit a certified claim for additional adjustments after issuance of the 
[final decisions].  All prior Final Decisions remain final.”  (Stip. ¶ 37; R4, tab 16 
at 887)  Parsons interpreted that email as a final decision and timely appealed it to the 
Board (stip. ¶ 38).   
 
V. FY 2018 Unilateral Rate Determination – ASBCA No. 62974 
 
19.  In August 2019, Parsons submitted its FIRCP for FY 2018 (stip. ¶ 39).  
Unlike the FIRCPs submitted for FY 2014-2017, Parsons included the amount of lease 
costs that it had been contending since March 2018 were allowable – i.e., the 
difference between the net amount realized from the sale of the Building and its 
undepreciated balance.  Parsons reported a total realized gain of $145,046,186 for the 
Building and lease improvements.  (Id.) 

7 
 
 
20.  DCAA’s audit report on the FY 2018 FIRCP stated:  
We identified that [Parsons] changed its method for 
computing allowable annual lease.  When [Parsons] had 
the sales leaseback arrangement effective FY 2011, it 
calculated $2,172,667 in allowable annual lease using 
recognized gain (acquisition cost less undepreciated 
balance).  However, in [its] FY 2018 incurred cost 
submission, [Parsons] revised its calculation to use 
realized gain (sale price less undepreciated balance) 
resulting in $9,669,746 in allowable annual lease [costs], a 
significant increase from the FY11 through FY17 proposed 
amount. 
 
 . . . .  
 
FAR 31.205-36(b)(2) limited the rental costs under a sale 
and leaseback arrangement up to the amount the contractor 
would be allowed if it retained title, computed based on the 
net book value adjusted for gain or loss recognized in 
accordance with 31.205-16(b).  We considered both 
FAR 31.205-16(b) and FAR 31.205-16(d) together when 
computing the allowable lease under the sale and leaseback 
arrangement as FAR 31.205-16(d) is specifically for 
contract costing purposes and limited the recognized gain 
to the difference between the acquisition cost and the 
undepreciated balance.  These FAR provisions collectively 
ensure that the recovery of allowable lease [costs] does not 
exceed amounts that would have been allowed had the 
contractor retained title to the asset.  
 
(R4, tab 18 at 925-26) (emphasis in original) 
 
21.  By letter dated April 8, 2021, the CACO issued a unilateral rate 
determination finding that $1,786,234 of Parsons’ facility costs in its FY 2018 FIRCP 
were unallowable.  The CACO found that Parsons overstated the allowable annual 
lease costs because it used realized gain instead of recognized gain to calculate the 
allowable amount: 
 

8 
 
In FY 2011, Parsons sold Pasadena Tower building and 
leased it back.  Parsons initially calculated the allowable 
leaseback cost based on the recognized gain, which was 
the difference between the total Pasadena Tower 
acquisition cost and the undepreciated net book value on 
lease date.  However, in FY 2018, Parsons revised its 
allowable leaseback cost calculation based on the net 
amount realized from the sale according to their 
interpretation of FAR 31.205-36(b)(2). 
 
(R4, tab 19 at 937)  The CACO found that “the difference between the ‘recognized 
gain’ and the ‘realized gain,’” based upon the Building’s sales price, was unallowable 
(id. at 938).  Parsons timely appealed this determination to the Board (stip. ¶ 41). 
 
DECISION 
 
I. Standard of Review 
 
Board Rule 11 permits the parties “to waive a hearing and to submit [their] case 
upon the record.”  Rule 11 allows the Board to make “findings of fact on disputed 
facts” where it is appropriate to our resolution of these appeals.  Reed Int’l, Inc., 
ASBCA No. 61451 et al., 20-1 BCA ¶ 37,587 at 182,513 (citations omitted).   
 
Under FAR Part 31, costs incurred in connection with the performance of a cost 
reimbursement contract are allowable if they are reasonable, allocable, and comply 
with CAS (if applicable) or with generally accepted accounting principles and 
practices appropriate to the circumstances, the terms of the contract, and any 
limitations set forth in FAR Subpart 31.2.  See FAR 31.201-2(a)(1)-(5); Fiber 
Materials, Inc., ASBCA No. 53616, 07-1 BCA ¶ 33,563 at 166,251.  Unilateral rate 
determinations are government claims.  See Allard Nazarian Grp, Inc. dba Granite 
State Mfg., ASBCA Nos. 62413, 62414, 23-1 BCA ¶ 38,408 at 186,622 (citing 
Northrop Grumman Corp., ASBCA No. 62165, 21-1 BCA ¶ 37,922 at 184,170).  If a 
cost is allocable to a contract and reasonable, the government bears the burden to 
demonstrate that the cost is unallowable due to a contract provision, statute or 
regulation.  Fiber Materials at 1166,252 (citing Lockheed Martin Western 
Development Laboratories, ASBCA No. 51452, 02-1 BCA ¶ 31,803 at 157,102).  See 
also Technology Sys., Inc., ASBCA No. 59577, 17-1 BCA ¶ 36,631 at 178,389; 

9 
 
Johnson Controls World Servs., Inc., ASBCA No. 46674, 96-2 BCA ¶ 28,464 
at 142,166.6 
 
II. The Parties’ Contentions 
 
The parties’ dispute is over the proper interpretation of FAR 31.205-36(b)(2), 
which, as described above, addresses the allowability of rental costs incurred by a 
contractor following a sale and leaseback of a depreciable asset.  FAR 31.205-
36(b)(2) limits allowable rental costs to “the amount the contractor would be allowed 
if the contractor retained title,” and goes on to state that the amount is to be 
“computed based on the net book value of the asset on the date the contractor 
becomes a lessee of the property adjusted for any gain or loss recognized in 
accordance with 31.205-16(b).”  Both parties contend that this provision is clear and 
unambiguous. 
 
DCMA contends that, although -36(b)(2) specifically references -16(b), the 
limitation on gains for contract costing purposes set forth in -16(d) also applies when 
determining the proper adjustment to net book value called for by -36(b)(2).  Thus, if 
the gain as calculated under -16(b) (“the difference between the net amount realized 
and the undepreciated balance . . .”) exceeds the cap imposed by -16(d) (limiting gain 
to “the difference between the acquisition cost . . . of the asset and its undepreciated 
balance”), then the gain is also so limited for purposes of -36(b)(2).  (Gov’t br. 
at 13-20)  DCMA argues that this reading ensures compliance with the “primary 
instruction” of -36(b)(2) that the rental costs are allowable “only up to the amount the 
contractor would be allowed if [it] retained title” (id.  at 16-17 (quoting FAR 
31.205-36(b)(2)).  DCMA also contends that its interpretation gives proper meaning to 
the term “recognize[]” as used in both -36(b)(2) and -16(d) (id. at 15-18).  DCMA also 
finds support for its interpretation in the regulatory history describing the purpose of 
amendments to -16 and -36(b)(2) made in 2005 (id. at 20-27). 
 
 Parsons contends that the limitation on gains contained in -16(d) does not apply 
when assessing the gain for purposes of -36(b)(2).  Parsons argues that -36(b)(2) 
“specifically calls for ‘adjustment’ of the allowable costs to be measured in accordance 
 
6 Here, there is no dispute as to allocability.  The government argues that, even if 
Parsons’ interpretation of the applicable cost principles is correct, its claimed 
costs are unreasonable.  Because of how we resolve the interpretation issue, we 
need not reach the government’s reasonableness argument.  For purposes of our 
analysis of the regulatory scheme, we assume, without deciding, that the costs 
are reasonable.   

10 
 
with 31.205-16(b), which, in turn, clearly calls for the measurement to be based upon 
the realized gain of the sale.”  (App. br. at 12-13) (emphasis in original)  In its view, 
because -36(b)(2) contains no reference to -16(d), that provision is not part of the 
adjustment called for in -36(b)(2) (app. br. at 13; app. reply at 6).  Therefore, the 
“gain” referred to in -36(b)(2) is “the difference between the net amount realized and 
the undepreciated balance” as provided by -16(b)(1), regardless of whether that 
amount exceeds the cap on gains imposed by -16(d).  Parsons contends that the 2005 
amendment to -36(b)(2) meant that -36(b)(2) “no longer limited allowable leaseback 
rental costs to ‘the amount the contractor would be allowed if the contractor retained 
title’” (app. br. at 8).  Parsons argues that, while there is no need to resort to the 
regulatory history because the language is unambiguous, the regulatory history 
supports its interpretation.  It further argues that, if the language is ambiguous, it 
should be construed against the government under the rule of contra proferentum (id. 
at 16-18).     
 
III. Regulatory Interpretation  
 
Our resolution of these appeals turns on the proper interpretation of 
FAR 31.205-36(b)(2).   The rules governing regulatory interpretation are largely the 
same as those used to interpret statutes.  Lengerich v. Dep’t of Interior, 454 F.3d 1367, 
1370 (Fed. Cir. 2006); Tesoro Hawaii Corp. v. United States, 405 F.3d 1339, 1346-47 
(Fed. Cir. 2005); Pub. Warehousing Co., K.S.C., ASBCA No. 59020, 16-1 ¶ 36,366 
at 177,269 (citing Lengerich).  We are to ascertain the regulation’s plain meaning.  
Lengerich, 454 F.3d at 1370. 
 
Our analysis begins by examining “the text of the regulation as a whole, 
reconciling the section in question with sections related to it.”  Id.  We seek an 
interpretation that is “harmonious with the regulatory scheme,” meaning we “look not 
only to particular language but to [the] design of the provision as a whole.”  Garco 
Constr., Inc., ASBCA Nos. 57796, 57888, 15-1 BCA ¶ 36,135 at 176,380 (citing 
Space Gateway Support, LLC, ASBCA Nos. 55608, 55658, 13 BCA ¶ 35,232 
at 172,979).  We must therefore “read the disputed language in the context of the entire 
regulation as well as other related regulatory sections in order to determine the 
language’s plain meaning.”  Vazquez-Claudio v. Shinseki, 713 F.3d 112, 115 (Fed. Cir. 
2013) (citing Lengerich, 454 F.3d at 1370).  See also Reflectone, Inc. v. Dalton, 
60 F.3d 1572, 1577-78 (Fed. Cir. 1995) (en banc) (proper regulatory interpretation 
“examines and reconciles the text of the entire regulation, not simply isolated 
sentences.”); SWR, Inc., ASBCA No. 56708, 15-1 BCA ¶ 35,832 at 175,222 (plain 
meaning rule requires reading language “in the context of the entire clause, as well as 
other related regulatory sections . . . .”) (citing Vazquez-Claudio, 713 F.3d at 115). 
 

11 
 
These appeals present an issue of first impression.  We addressed predecessor 
versions of -36(b)(2) in LTV Aerospace Corp., ASBCA No. 17130, 76-1 BCA 
¶ 11,840 at 56,626 (concluding that the contractor had not engaged in “a sale and 
leaseback of the nature intended to limit cost allow-ability to those of ownership.”), 
and Talley Def. Sys., Inc., ASBCA No. 39878, 93-1 BCA ¶ 25,521 at 127,158 
(concluding that the contractor had engaged in a sale and leaseback and that the 
government correctly limited recovery of subsequent rental costs to “the costs of 
ownership.”).  The primary issue in those appeals was whether a sale and leaseback 
had occurred.  Here, there is no such dispute.  In addition, the regulations at issue in 
LTV and Talley did not contain the language added to -36(b)(2) in 2005 describing the 
appropriate computation, or anything similar.  Nor did they cross-reference -16; 
indeed, the current -16(b) referenced in -36(b)(2) did not exist until 2005.  And, unlike 
the situation presented here, both Talley and LTV involved assets for which the 
government had paid no depreciation (see LTV, 76-1 BCA at 56,621 (finding 29) and 
Talley, 93-1 BCA at 127,157) and thus those decisions did not address a key aspect of 
the dispute before us now.  Accordingly, LTV and Talley provide little guidance to us 
here.   
 
IV. The Regulatory Scheme 
 
We begin by examining the relevant regulatory scheme as a whole.  The parties’ 
dispute here is centered on the allowability of a contractor’s rental costs incurred on a 
building that it has sold and then leased back from the new owner.  To understand how 
the regulatory scheme operates in that context, we must examine the interplay of three 
cost principles found in FAR 31.205: -11, DEPRECIATION; -16, GAINS AND 
LOSSES ON DISPOSITION OR IMPAIRMENT OF DEPRECIABLE PROPERTY 
OR OTHER CAPITAL ASSETS; and -36, RENTAL COSTS.   
 
We find it helpful to consider first how the regulatory scheme works when a 
contractor simply sells a depreciable asset, such as a building, before moving on to 
address the sale and leaseback scenario that is at issue here. 
 
A. Sale of a Depreciable Asset With No Leaseback  
 
1. Depreciation   
 
When a contractor sells a depreciable asset like a building, the asset’s 
depreciation history has an important impact on the accounting treatment of the sale.  
Therefore, the first aspect of the regulatory scheme we address is depreciation, which 
is governed by the cost principle at FAR 31.205-11. 
 

12 
 
When a contractor owns property that it uses to perform government contracts, 
a portion of the depreciation of the property is considered a cost to the contractor.  The 
allocable portion of such depreciation costs are allowable as provided in -11.  
“Depreciation is a method of distributing the cost of a tangible capital asset over its 
useful life.”  Manos, Government Contract Costs & Pricing, § 18.2 (citing FAR 2.101, 
definition of depreciation).  For an asset like a building, the depreciation is calculated 
based on the acquisition cost of the building, spread out over the building’s expected 
useful life.  Id.  As the government reimburses the contractor’s depreciation costs over 
time, the amount of depreciation remaining declines.  The remainder is called the 
undepreciated balance, also known as net book value.7   
 
A key concept is that when the property is fully depreciated and the government 
has paid the contractor all of its depreciation costs, the contractor can no longer charge 
the government for the cost of using the property, unless the parties agree on a use 
charge: 
 
No depreciation or rental is allowed on property fully 
depreciated by the contractor…. However, a reasonable 
charge for using fully depreciated property may be agreed 
upon and allowed (but see 31.109(h)(2)).  In determining 
the charge, consideration shall be given to cost, total 
estimated useful life at the time of negotiations, effect of 
any increased maintenance charges or decreased efficiency 
due to age, and the amount of depreciation previously 
charged to Government contracts or subcontracts. 
 
FAR 31.205-11(f).  Thus, once it has covered the depreciation costs, the government 
gets the benefit of the contractor’s continued use of the property at no additional use 
cost, unless it chooses to enter into an agreement to pay a use charge.  See Union 
Boiler Works, Inc. v. Sec’y of the Army, 156 F.3d 1374, 1376 (Fed. Cir. 1998).   
 
 
7 The parties agree that the net book value of an asset is the difference between the 
acquisition cost and the accumulated depreciation, also referred to as the 
undepreciated balance.  Gov’t br. at 16; R4, tab 8 at G329.  See Lockheed 
Martin Corp., ASBCA No. 54169, 07-2 BCA ¶ 33,702 at 166,862 (equating net 
book value and undepreciated balance).   

13 
 
2. Gains and Losses on Sales 
 
If the contractor sells a depreciating asset, such as the Building at issue here, 
FAR 31.205-16 comes into play.8  Under that cost principle, the sale may result in an 
 
8 In pertinent part, FAR 31.205-16 provides: 
(a) Gains and losses from the sale, retirement, or other 
disposition (but see 31.205-19) of depreciable property 
shall be included in the year in which they occur as credits 
or charges to the cost grouping(s) in which the depreciation 
or amortization applicable to those assets was included 
(but see paragraph (f) of this subsection).  However, no 
gain or loss shall be recognized as a result of the transfer of 
assets in a business combination (see 31.205-52). 
(b) Notwithstanding the provisions in paragraph (c) of this 
subsection, when costs of depreciable property are subject 
to the sale and leaseback limitations in 31.205-11(h)(1) or 
31.205-36(b)(2) –  
(1) The gain or loss is the difference between the net 
amount realized and the undepreciated balance of the asset 
on the date the contractor becomes a lessee; and 
(2) When the application of (b)(1) of this subsection results 
in a loss— 
(i) The allowable portion of the loss is zero if the fair 
market value exceeds the undepreciated balance of the 
asset on the date the contractor becomes a lessee; and  
(ii) The allowable portion of the loss is limited to the 
difference between the fair market value and the 
undepreciated balance of the asset on the date the 
contractor becomes a lessee if the fair market value is less 
than the undepreciated balance of the asset on the date the 
contractor becomes a lessee. 
(c) Gains and losses on disposition of tangible capital 
assets, including those acquired under capital leases (see 
31.205–11(h), shall be considered as adjustment of 
depreciation costs previously recognized.  The gain or loss 
for each asset disposed of is the difference between the net 
amount realized, including insurance proceeds from 
involuntary conversions, and its undepreciated balance.
   

14 
 
adjustment to the amount of depreciation costs for which the government is 
responsible.  The adjustment depends on whether the net amount the contractor 
receives from the sale exceeds the sold asset’s undepreciated balance.  FAR 31.205-
16(a), (c) and (d).  If the property sells for more than its undepreciated balance, the 
difference is deemed a “gain.”  FAR 31.205-16(c).  The government is entitled to a 
credit in the amount of the gain up to the amount of depreciation costs it has previously 
paid.  Id.  The gain, however, is capped at the difference between the acquisition cost 
of the property and its undepreciated balance, which generally equals the amount of 
depreciation the government has previously paid.  FAR 31.205-16(d) (“The gain 
recognized for contract costing purposes shall be limited to the difference between the 
acquisition cost . . . of the asset and its undepreciated balance . . .”).  Conversely, if the 
property sells for less than the undepreciated balance, the difference is a “loss,” which 
the contractor charges to the government.  FAR 31.205-16(a), (c).   
 
To begin to see how this works, consider a building that is fully depreciated.  
Because the undepreciated balance (net book value) is zero, the gain is the net amount 
received from the sale.  Assume the contractor acquired the building for $10 million, 
all of which the government has reimbursed in depreciation payments.  If the 
contractor sells the fully depreciated building for a net of $10 million, the government 
is credited with that gain.  In this way, the government recaptures its previously paid 
depreciation costs.  If the sale is for a net of $11 million, the government’s credit is 
still $10 million, not $11 million, because it has only made $10 million in depreciation 
payments.  FAR 31.205-16(d).  The contractor pockets the remaining $1 million.  If 
the building fetches only $3 million, the gain, and thus the government’s credit, is 
$3 million, but it does not recapture the additional $7 million previously paid in 
depreciation.
9   
 
(d) The gain recognized for contract costing purposes shall 
be limited to the difference between the acquisition cost (or 
for assets acquired under a capital lease, the value at which 
the leased asset is capitalized) of the asset and its 
undepreciated balance (except see paragraphs (e)(2)(i) or 
(ii) of this subsection). 
 
FAR 31.205-16(a)-(d). 
9 This and the other hypothetical scenarios discussed in this decision are for illustrative 
purposes only to aid in understanding the regulatory scheme as pertinent to 
these appeals.  Complicating factors not addressed in these examples could 
result in different outcomes than depicted here.     

15 
 
 
It becomes more complicated if the property is not fully depreciated when it is 
sold.  Let’s revise our scenario so that the building acquired by the contractor for 
$10 million has an undepreciated balance of $2 million, the government having made 
$8 million in depreciation payments.  Now if the building sells for a net of $9 million, 
the gain is $7 million (net amount realized less undepreciated balance).  That amount 
does not exceed the acquisition cost less the undepreciated balance ($8 million), so -
16(d) does not come into play and the full $7 million gain is credited to the 
government.  In this way, of the $17 million total the contractor has received for the 
building ($8 million in depreciation payments plus $9 million in sale proceeds), the 
contractor keeps $10 million.  If the sale is instead for a net of $12 million, the gain 
would be $10 million, but for the fact that this amount exceeds the government’s 
previous depreciation payments of $8 million, so the gain credited to the government is 
capped at $8 million pursuant to -16(d). 
 
The result in each of these scenarios is that the total amount the contractor 
keeps in depreciation payments plus proceeds from the asset sale equals at least the 
amount of its acquisition costs.  For its part, the government shares in the proceeds of 
the sale up to, but never exceeding, the amount necessary for it to recapture its 
depreciation payments to date.  
  
Now revise the scenario so it involves a loss.  If the building fetches a net of 
only $1.5 million, there is a loss of $500,000 ($1.5 million sale proceeds - $2 million 
undepreciated balance).  The contractor recovers the $500,000 loss via a charge to the 
government.  This ensures that the contractor is reimbursed for the full acquisition cost 
of the building ($8 million in prior depreciation payments + $1.5 million in sales 
proceeds + $.5 million charge to the government = $10 million acquisition cost), as it 
would have if it had kept the building.   
 
In this regulatory scheme, then, gains on sales of depreciable property are 
treated as credits to the government which allow it to recapture some or all of its prior 
depreciation payments, while losses are charges to the government that ensure the 
contractor recoups the full acquisition cost.     
 
B. Sale and Leaseback of a Depreciable Asset 
 
Now we consider what happens when the contractor sells property and 
immediately leases it back.  Having sold the property, the contractor can no longer 
charge depreciation to the government.  Its costs of using the property are now in the 
form of rental payments to the new owner.  At this point, two questions arise: (1) how 
much is the government credited or charged based on the gain or loss determined 

16 
 
under -16; and (2) to what extent are the contractor’s lease costs going forward 
allowable?  Answering the first question is necessary to answer the second.   
 
1. Applying -16(b) to Determine Gain or Loss 
 
Subsection (b) of -16 answers the first question.  As we saw above, subsection 
(c) describes the calculation of gains and losses that would apply to the sale of 
property asset without a leaseback.  Subsection (b) applies, “[n]otwithstanding the 
provisions in paragraph (c) of this subsection, when costs of depreciable property are 
subject to the sale and leaseback limitations in 31.205-11(h)(l) or 31.205-36(b)(2).”  
Under subsection -16(b)(1), the gain or loss is the difference between the net amount 
realized from the sale and the undepreciated balance on the date the contractor 
becomes a lessee.  Except for possible differences resulting from timing,
10 this should 
yield the same gain or loss as under subsection (c).  Compare FAR 31.205-16(b) 
(“gain or loss is the difference between the net amount realized [from the sale] and the 
undepreciated balance of the asset on the date the contractor becomes a lessee”) with 
FAR 31.205-16(c) (“The gain or loss for each asset disposed of is the difference 
between the net amount realized … and its undepreciated balance.”). 
 
For losses, however, subsection (b)(2) limits the allowable loss in situations 
where the asset sells for an amount different than its fair market value.  If the 
property’s fair market value exceeds the undepreciated balance, the allowable loss is 
zero.  FAR 31.205-16(b)(2)(i).  If the fair market value is less than the undepreciated 
balance, any loss is limited to the difference between the fair market value and the 
undepreciated balance.  FAR 31.205-16(b)(2)(ii).   
 
The parties here do not dispute that, in a sale and leaseback scenario governed 
by -16(b), the gain or loss calculated under subsection (b) is applied as a credit or 
charge to the government, just as under subsection (c).  The government gets a credit 
for a gain in order to recapture some or all of its prior depreciation payments.  The 
government is charged for losses so that the contractor ultimately recovers its full 
acquisition cost, subject to the limits on losses set forth in -16(b)(2) for sales at other 
than fair market value. 
 
There is also no dispute that -16(d) applies when calculating the amount of 
credit the government receives upon the sale of a building that results in a gain under -
 
10 Subsection -16(b) makes clear that the gain or loss is calculated as of the date the 
contractor becomes a lessee, whereas under -16(c) it is calculated at the time of 
the sale.  

17 
 
16(b)(1).  Subsection (d) caps the amount of gain that can be recognized for contract 
costing purposes to the difference between the acquisition cost and the undepreciated 
balance.  This prevents the government from being credited with more than the 
accumulated depreciation it has paid at the time of the sale.   
 
That is what occurred here.  When Parsons sold the Pasadena Tower, it 
calculated the gain under -16(d) by calculating the difference between the acquisition 
costs of the Building and the undepreciated balance (see FOF ¶ 10).  That amount, 
approximately $28.4 million (of which $17 million was allocated to Parsons), was 
credited to the government, thereby allowing the government to recapture the 
depreciation payments it had made (FOF ¶ 10).  Had -16(d) instead been ignored, and 
the gain calculated as the difference between the net amount realized from the sale and 
the undepreciated balance, the government would have enjoyed a credit of $145.1 
million, far more than it had paid in depreciation.  The parties agree that it was 
appropriate to apply -16(d) when calculating the gain and that the gain on the sale of 
the Building was properly determined (Cotton Decl.; tr. at 91-92).   
 
2. Applying -36(b)(2) to Determine Allowable Lease Costs 
 
This allows us to answer the second question: how much of the lease costs that 
the contractor pays going forward under the leaseback arrangement may it recover 
from the government?  As we have seen, the allowability of rental costs is covered by -
36, and subsection (b)(2) applies to sale and lease back arrangements.  To review, 
subsection (b)(2) provides: “[r]ental costs under a sale and leaseback arrangement [are 
allowable] only up to the amount the contractor would be allowed if the contractor 
retained title, computed based on the net book value of the asset on the date the 
contractor becomes a lessee of the property adjusted for any gain or loss recognized in 
accordance with 31.205-16(b).” 
 
We read this provision as having two operative portions.  The first sets an upper 
limit on allowability, i.e., “only up to” the amount the contractor would be allowed if it 
had retained title.  The second directs how that allowable amount is determined: 
“computed based on the net book value of the asset . . . adjusted for any gain or loss 
recognized in accordance with 31.205-16(b).”  Important to Parsons’ argument is that 
this provision was amended in 2005 to add the language beginning with the word 
“computed.”  See Federal Acquisition Regulation; Gains and Losses, 70 

18 
 
Fed. Reg. 33673 at 33676 (June 8, 2005) (publishing final rule).11 
 
To begin with, we disagree with Parsons that the phrase “the amount the 
contractor would be allowed if the contractor retained title,” was essentially no longer 
operative after the language beginning with the word “computed” was added in 2005.  
According to Parsons, the new language describes how the allowable amount is to be 
calculated, and that calculation should be made without regard to whether it results in 
an amount that equals, or even resembles, what the contractor would have received had 
it retained title.  (App. br. at 8 (“The updated FAR 31.205-36(b)(2) no longer limited 
allowable leaseback rental costs to ‘the amount the contractor would be allowed if the 
contractor retained title.’”)).  Parsons’ interpretation functionally rewrites the 
regulation to read the initial phrase out of the regulation.  We decline to adopt an 
interpretation that so fundamentally alters the cost principle’s plain meaning.  See 
Tesoro, 405 F.3d at 1347 (declining to read word “contractor’s” into FAR clause on 
economic price adjustments that would have changed the clause’s meaning); Lockheed 
Corp. v. Widnall, 113 F.3d 1225, 1227-28 (Fed. Cir. 1997) (in analyzing cost principle 
on interest and other financial costs, declining to interpret phrase “interest on 
borrowings” in a way that “improperly read the words ‘on borrowings’ out of the 
regulation.”).   
 
Moreover, we are not to interpret regulatory language in a way that leaves 
language superfluous.  “It is ‘a cardinal principle of statutory construction’ that ‘a 
statute ought, upon the whole, to be so construed that, if it can be prevented, no clause, 
sentence, or word shall be superfluous, void, or insignificant.’”  ITServe All., Inc. 
v. United States, 122 F.4th 1364, 1370 (Fed. Cir. 2024) (citing TRW Inc. v. Andrews, 
534 U.S. 19, 31 (2001) (quoting Duncan v. Walker, 533 U.S. 167, 174 (2001)).  Under 
Parsons’ reading, the reference to the amount the contractor would have been allowed 
if it retained title is unnecessary – the drafters could have deleted that language and 
included only the computation.  Because the “retain[] title” language remains in the 
regulation, however, we must assume it has meaning when interpreting the 
surrounding language.  See Boeing Co. v. Sec'y of Air Force, 983 F.3d 1321, 1327-28 
(Fed. Cir. 2020) (rejecting interpretation that would disregard the first sentence of a 
regulation).  We must also consider the regulatory scheme as a whole.  Tesoro Hawaii, 
405 F.3d at 1347.  Accordingly, we are required to interpret the phrase beginning with 
“computed” so that it effectuates the requirement that allowable rental costs after a sale 
 
11 At the same time -36(b)(2) was amended in 2005, -16 was amended in various ways, 
including the addition of subsection (b) addressing sale and leaseback 
arrangements, discussed above.  Id. at 33675-76. 

19 
 
and leaseback are limited to the amount that would have been allowable had the 
contractor retained title.   
 
Our analysis of the regulatory scheme so far has shown that, if a contractor 
retains title to a depreciable asset rather than selling it, it is able to (1) continue to 
charge the government until the asset is fully depreciated and (2) keep the depreciation 
payments made by the government.  A sale of the property for a gain has two effects 
on the contractor’s recovery of the costs it would have been able to recover if it 
retained title:  (1) the contractor is no longer able to recoup the remaining 
undepreciated balance through depreciation charges, and (2) it must credit to the 
government some or all of the depreciation payments it had received to date.  To put 
the contractor in the position it would have been had it retained title, therefore, requires 
effectively reversing those two effects. 
 
With that in mind, we turn to the phrase “computed based on the net book value 
of the asset on the date the contractor becomes a lessee of the property adjusted for any 
gain or loss recognized in accordance with 31.205-16(b).”  The two components of this 
equation (net book value and the gain/loss adjustment), correspond to the two effects 
caused by the sale.  Including the net book value in the allowable amount of rental 
costs addresses the first effect by permitting the contractor to recover an amount equal 
to the remaining depreciation it would have been able to charge but for the sale.  The 
gain/loss adjustment takes care of the second effect by effectively reversing the credit 
or charge to the government dictated by -16(b) upon an asset sale.   
 
For example, return to our hypothetical building with a $10 million acquisition 
cost on which the government has paid $8 million in depreciation, leaving $2 million 
of undepreciated balance (the net book value).  Assume the contractor sells the 
building for $9 million and leases it back.  Pursuant to -16(b) the contractor’s gain is 
$7 million (the net amount realized ($9 million) minus the undepreciated balance 
($2 million)).  Under -16, the government receives a credit for this $7 million gain and 
the contractor retains the remaining $1 million of depreciation payments made to date.  
(Note that -16(d) is not implicated because the net received from the sale is less than 
the acquisition cost).  Had it kept the building, the contractor would have been able to 
(1) continue to charge deprecation to the government to recoup the remaining 
$2 million undepreciated balance, and (2) keep all of the $8 million in depreciation 
payments the government had made to date, rather than just $1 million. 
 
Under -36(b)(2), to determine the amount of allowable rental costs that would 
put the contractor in the position it would have been had it retained title, we take the 
net book value of $2 million and add it to the $7 million gain, resulting in allowable 
rental costs of $9 million.  Together with the $1 million in depreciation payments not 

20 
 
recaptured by the government, the $9 million in allowable rental costs puts the 
contractor in the same position that it would have been had it kept the building and 
eventually recovered the $10 million acquisition cost through depreciation charges.   
 
What if the contractor sells the property for less than the amount it has received 
from the government in depreciation payments?  For example, assume our hypothetical 
building sells for only $7 million, $1 million less than the $8 million of accumulated 
depreciation.  Under -16, the government recaptures $5 million of the $8 million of 
paid depreciation ($7 million realized - $2 million undepreciated balance), and the 
contractor retains the remaining $3 million.  (Again, -16(d) does not come into play).  
And again, the contractor is no longer able to charge the government for the remaining 
depreciation, as it could have if it had retained title.  Applying -36(b)(2) to determine 
the amount of allowable rental cost going forward, we adjust the net book value of 
$2 million by the $5 million gain, resulting in $7 million in allowable rental costs.  
Together with the $3 million in retained depreciation payments, the contractor 
ultimately recovers its full $10 million acquisition cost, as it would have if it retained 
title.     
 
 Now consider a loss.  Assume the acquisition cost is $10 million and the 
government has paid $6 million in depreciation, leaving a net book value of $4 million.  
If the building sells for a fair market value of $3 million, the contractor now has a loss 
of $1 million, which it charges to the government.  The rental cost calculation under -
36(b)(2) is $4 million net book value minus $1 million loss, resulting in allowable 
rental costs of $3 million.  Again, this results in the contractor being able to recover up 
to the same $10 million it would have if it had retained title ($6 million in retained 
depreciation payments, plus $1 million loss charged to the government, plus $3 million 
in rental costs). 
 
 From this perspective, the addition of the second clause to -36(b)(2) in 2005 had 
a significant effect.  Prior to the change, -36(b)(2) was not linked to -16 and thus did 
not account for the depreciation recapture scheme set out in that section.  Instead, the 
allowable rental cost was described only as the amount the contractor would be 
allowed if it retained title.  If read to mean that the allowable rental cost was simply the 
remaining undepreciated balance, the results could be skewed because of the 
recognition of a gain or loss under -16.  If there were a gain, the contractor could be 
worse off than if it had retained title because the government’s recapture of some or all 
of its prior depreciation payments would make the undepreciated balance insufficient 
to cover the contractor’s full acquisition costs.  If there were a loss, the government 
might be worse off than if the contractor had retained title, because its payment of the 
loss charge would result in the undepreciated balance being more than the amount 
necessary to cover the contractor’s acquisition costs. 

21 
 
 
In this way, the 2005 amendment linking -16 to -36(b)(2) preserved the 
regulatory scheme’s evident goals of ensuring that (1) the contractor ultimately 
receives no more and no less than its acquisition costs and (2) neither the government 
nor the contractor are worse off because of a sale and leaseback than they would have 
been had title been retained.   
 
V. Applying 31.205-36(b)(2) When Sales Proceeds Exceed Acquisition Cost 
  
At long last, we turn to the scenario presented in this case, where the net sale 
proceeds in a sale and leaseback scenario exceed the contractor’s acquisition cost.  The 
parties dispute how -36(b)(2) is to be applied in this scenario to determine the 
allowable amount of rental costs going forward.   
 
Assume our hypothetical building with an acquisition cost of $10 million, on 
which the government has paid $8 million in depreciation, sells for $15 million and the 
contractor leases it back.  Under Parsons’ interpretation, the proper calculation under -
36(b)(2) is to adjust the $2 million net book value by the gain described in -16(b) (the 
difference between the net amount realized and the undepreciated balance), while 
ignoring the cap on gains imposed by -16(d).  The gain would be $13 million.  
Adjusting the net book value by that gain as prescribed by -36(b)(2), the contractor 
would be permitted to charge lease costs up to $15 million.  This would result in the 
contractor ultimately receiving $5 million more than the $10 million it would have 
eventually recovered had it retained title.  Under the government’s interpretation, the 
gain would be capped by -16(d) at $8 million ($10 million acquisition costs - 
$2 million undepreciated balance), which would result in total allowable lease costs of 
$10 million under -36(b)(2). 
 
The government’s interpretation is correct.   
 
1. The -16(d) Gain Limitation Applies 
  
First, the government’s interpretation is the only reasonable reading of 
FAR 31.205-36(b)(2) when considered in the context of the regulatory scheme as a 
whole, discussed at length above.  Specifically, it gives effect to -36(b)(2)’s primary 
admonition, which is that the allowable rental costs under a sale and leaseback 
arrangement are to be no more than the amount the contractor would have recovered if 
it had retained title.  It also avoids either the contractor or the government being better 
or worse off than if the sale and leaseback had not occurred.  Parsons’ interpretation, 
by contrast, is irreconcilable with the regulatory scheme.  In situations where, as here, 
the net amount realized from the sale exceeds the acquisition cost, Parsons’ reading 

22 
 
results in the contractor recovering an amount that exceeds what it would have if it 
retained title, leaving it considerably better off than if it had retained title.  Parsons’ 
interpretation, therefore, is contrary to the regulatory scheme and unreasonable. 
 
Second, the government’s interpretation results in -16(b) being applied 
consistently when determining the amount of a gain from the sale of an asset and when 
determining the allowable amount of rental costs under a leaseback.  By its terms, -
16(b) describes the general method for determining the amount of gain from a sale 
“when costs of depreciable property are subject to the sale and leaseback limitations in 
. . . 31.205-36(b)(2).”  However, -16(b) is not applied in isolation from the rest of -16, 
including -16(d), when determining the gain to be recognized for depreciation 
recapture purposes.  As both parties agree, -16(d) applies and sets an upper limit on the 
amount of gain for which the government receives a credit, despite the absence of any 
reference to -16(d) in -16(b).  Under the government’s interpretation, the same logic 
applies when applying -16(b) for purposes of -36(b)(2):  rather than apply -16(b) in 
isolation, it is read in conjunction with -16(d). 
 
This interpretation also results in the word “gain” in -36(b)(2) referring to the 
same amount as the “gain” calculated under -16 for depreciation recapture purposes.  
Parsons’ interpretation, in contrast, results in inconsistent applications of -16, with 
“gain” meaning one thing for purposes of -16 and something else for purposes of -
36(b)(2).  This is further cause to reject it.  See IBP, Inc. v. Alvarez, 546 U.S. 21, 34 
(2005) (noting “the normal rule of statutory interpretation that identical words used in 
different parts of the same statute are generally presumed to have the same meaning.”) 
(citation omitted); United States v. Thompson/Center Arms Co., 504 U.S. 505, 512 n.5 
(1992) (“normal canons of construction caution us to read the statute as a whole, and, 
unless there is a good reason, to adopt a consistent interpretation of a term used in 
more than one place within a statute”).    
 
Third, the government’s interpretation is consistent with the use of the word 
“recognized” in -36(b)(2).  While the parties differ on how the terms “recognized” and 
“realized” should be understood in -36(b)(2) and -16(b) and (d), the key point is that -
16(d) uses “recognized” when setting a limit on the amount of gain for which the 
government can receive a credit for contract costing purposes, while -16(b), if 
considered in isolation as Parsons would have us do, does not set an amount of gain to 
be “recognized.”  The fact that the adjustment called for by -36(b)(2) is “for any gain 
or loss recognized in accordance with 31.205–16(b)” (emphasis added) thus further 
supports the conclusion that -16(d)’s limitation on gain recognition for contract costing 
purposes is applicable when making the adjustment.   
 

23 
 
Fourth, the conclusion that -36(b)(2)’s specific reference to -16(b) does not 
mean that -16(d) is to be ignored is further bolstered by the opening phrase of -16(b) 
stating that -16(b) applies “notwithstanding the provisions in paragraph (c) of this 
subsection.”  Parsons’ interpretation is that, for purposes of -36(b)(2), -16(b) should be 
read as if it also states that it applies “notwithstanding the provisions in in paragraph 
(d) of this subsection.”  But it does not.  The explicit exclusion of -16(c) indicates that 
there was no intent to also exclude -16(d). 
 
Parsons argues that the government’s interpretation is wrong because, had 
Parsons retained title to the Building, it may have been able to recover more than the 
acquisition cost through an agreement with the government for a reasonable use charge 
pursuant to -11(f).  Indeed, the government had agreed to pay a reasonable use charge 
from 1992-2011 (FOF ¶ 5), and it is not unreasonable to believe that the government 
would have made a similar agreement in the future had Parsons not sold the Building.  
Restricting the post-leaseback rental costs to the amount necessary for Parsons to 
recoup its acquisition costs, the argument goes, does not put Parsons in the same 
position it would have been in had it retained title and entered into an agreement on a 
reasonable use charge.  Accordingly, Parsons contends -16(d) should not be applied, 
and instead the “gain” for purposes of 36(b)(2) should be the difference between the 
net amount realized and the undepreciated balance per -16(b). 
 
This argument suffers from two main flaws.  To begin with, it assumes that, 
under a hypothetical use agreement Parsons might have reached with the government 
had it retained title, the government would have paid Parsons the same amount Parsons 
realized from the sale.  In effect, it assumes that a reasonable use charge would be the 
amount necessary for the contractor to recover an amount equal to the asset’s fair 
market value.  But -11(f) does not indicate that a reasonable use charge should be 
based on the fair market value.  Rather, it provides that “consideration shall be given to 
cost, total estimated useful life at the time of negotiations, effect of any increased 
maintenance charges or decreased efficiency due to age, and the amount of 
depreciation previously charged to Government contracts or subcontracts.”  
FAR 31.205-11(f).  The use charge determined using those factors could differ 
considerably from the amount the contractor could recover under Parson’s 
interpretation of -36(b)(2).   
 
The other principal flaw in Parsons’ argument is that -11(f) does not require the 
government to enter into use agreements and, in any event, it contemplates that the 
amount will be subject to negotiation based on the listed factors.  Parson’s 
interpretation, however, would result in -36(b)(2) effectively forcing the government to 
not only accept a use agreement that it might otherwise have declined to enter, but also 
accept an amount of use charge dictated solely by the sale price the contractor is able 

24 
 
to obtain, leaving the government without any ability to negotiate the amount or apply 
the required factors.  By locking in the benefits of a favorable use agreement that 
might be unavailable if it retained title, this interpretation could result in the contractor 
having a financial incentive to engage in a sale and leaseback solely for that reason.  
Absent any indication in the regulatory language, structure or history that -36(b)(2) 
was intended to have this result, we reject Parsons’ argument. 
 
Parsons also argues that the government’s interpretation is unfair to the 
contractor.  It points out that, under that interpretation, a contractor that sells a building 
may be significantly worse off leasing the building back than if it moves to a different 
facility.  If it moves, its allowable rental costs will not be limited by -36(b)(2).  This, 
however, is a result of policy decisions made by the drafters of the FAR, evidently 
intended to reduce the possibility of sale and leaseback arrangements being misused.  
It is not within the Board’s power to reverse such policy decisions.  See Artuz 
v. Bennett, 531 U.S. 4, 10 (2000) (“Whatever merits these and other policy arguments 
may have, it is not the province of this Court to rewrite the statute to accommodate 
them. We hold as we do because respondent's view seems to us the only permissible 
interpretation of the text.”); Boeing, 983 F.3d at 1331 (citing Artuz, 531 U.S. at 10). 
 
We hold that, when the language of -36(b)(2) is construed in the context of the 
regulatory scheme as a whole, the meaning is clear and unambiguous.  The only 
reasonable interpretation is that, when adjusting an asset’s net book value “for any gain 
or loss recognized in accordance with FAR 31.205-16(b),” -16(d) applies as a cap on 
the amount of gain that may be recognized.     
 
2. The Regulatory History Supports Applying -16(d) When Determining 
Allowable Lease Costs 
 
The regulatory history of -16 and -36(b)(2) supports our conclusion that 
FAR 31.205-16(d) applies when determining the gain “recognized in accordance with 
31.205-16(b)” under -36(b)(2).  See Lockheed Corp., 113 F.3d at 1227 (examining 
regulatory history of provision at issue even where its plain language was clear as to its 
meaning); Exelis, Inc., ASBCA No. 58966, 17-1 BCA ¶ 36,708 at 178,748 (same).  
See also Perry v. Martin Marietta Corp., 47 F.3d 1134, 1137 (Fed. Cir. 1995) (court’s 
task in interpreting meaning of FAR provisions implementing the Cost Accounting 
Standards is to ascertain the CAS Board’s intended meaning).   
 
The relevant regulatory history is the commentary published in the Federal 
Register leading up to the amendments to -16(b) and -36(b)(2) finalized in 2005.  The 
Civilian Agency Acquisition Council and the Defense Acquisition Regulations 
Council (the “Councils”) originally issued proposed amendments regarding gains and 

25 
 
losses in sale and leaseback arrangements in 2003.  See Federal Acquisition 
Regulation; Gains and Losses, Maintenance and Repair Costs, and Material Costs, 
68 Fed. Reg. 40466 (July 3, 2003).  Following consideration of public comment, they 
revised those proposed rules in 2004.  Federal Acquisition Regulation; Gains and 
Losses, 69 Fed. Reg. 29380 (May 21, 2004).  Following further public comments, the 
Councils issued the final rule on June 8, 2005.  See Federal Acquisition Regulation; 
Gains and Losses. 70 Fed. Reg. 33673 (June 8, 2005). 
 
The regulatory history confirms our conclusion above that Parsons is incorrect 
in contending that, after the 2005 amendments, -36(b)(2) “no longer limited allowable 
leaseback rental costs to ‘the amount the contractor would be allowed if the contractor 
retained title’” (app. br. at 8).  To the contrary, the commentary provided by the 
Councils that adopted the amendment repeatedly confirms that the intent was to 
preserve that long-standing limitation.  
  
The Councils explicitly rejected the recommendation of two commenters “to 
permit the contractor to recover the lease payments that result from the sale and 
leaseback arrangement.”  69 Fed. Reg. at 29381.  The Councils reiterated that the 
original limitation would still apply:  
 
[A]llowable lease costs relating to a sale and leaseback 
arrangement have long been limited in the cost principles 
to what the contractor would have received had they 
retained title.  The basic tenet that underlies this provision 
is that a contractor should not benefit for entering into a 
sale and leaseback arrangement.  The Councils believe this 
basic tenet continues to be appropriate.  It is important to 
note that a sale and leaseback arrangement is a voluntary 
financing mechanism entered into by the contractor.  The 
Councils do not believe the contractor should be entitled to 
recover additional monies simply because of a paper 
transaction that provides no significant benefit to the 
Government. 
 
Id.  See also 68 Fed. Reg. at 40466 (“the Government should reimburse the contractor 
the same amount for the subject asset as if the contractor had retained title . . . .”); 
69 Fed. Reg. at 29381 (soliciting input from interested parties “based on the 
assumption that the FAR will specify a disposition date and will continue to limit 
future lease costs to the costs of ownership.”); 70 Fed. Reg. at 33673 (June 8, 2005) 
(publishing final rule and noting that “[i]n addition, revised language is also added to 
recognize that an adjustment to the lease/rental cost limitations [is] required to ensure 

26 
 
that the total costs associated with the use of the subject assets do not exceed the 
constructive costs of ownership.”). 
 
When adopting the final rule in 2005, the Councils addressed a commenter’s 
suggestion that “the sale and leaseback transaction should . . . [e]ither apply the 
depreciation recapture at the time of sale, or limit the lease cost for the period of time 
necessary to liquidate an amount equal to the depreciation recapture.”  70 Fed. Reg. 
at 33674.  The Councils disagreed with this recommendation, emphasizing what had 
been stated in the 2004 proposed revisions: that “the FAR ‘will continue to limit future 
lease costs to the costs of ownership.’”  Id.  Nevertheless, the Councils acknowledged 
that language needed to be added to -36(b)(2) to ensure that both parties’ interests were 
protected: 
 
The intent of this longstanding limitation in the cost 
principles is that, for Government contract costing 
purposes, the contractor should not benefit, nor should the 
contractor be harmed, for entering into a sale and 
leaseback agreement, and that the recovery of costs should 
be limited to the normal cost of ownership.  As the 
respondent has noted, under the current proposed rule, the 
recognition of a gain may limit the contractor in its ability 
to recoup what would otherwise be considered allowable 
costs up to the original acquisition cost.  Likewise, the 
recognition of a loss may have the opposite effect that 
being the Government would actually reimburse the 
contractor for costs in excess of the original acquisition 
cost.  As a result, the limitation at . . . FAR 31.205-
36(b)(2) has been modified to reflect these concerns. 
 
Id.  This confirms our observation above that the effect of the added language was to 
ensure that the recovery of costs would continue to be limited to those that would be 
allowable had the contractor retained title (i.e., the costs of ownership) and neither the 
government nor the contractor would be worse off because of a sale and leaseback than 
they would have been had title been retained.  Id. 
 
Nothing in the regulatory history suggests that the amendment to -36(b)(2) was 
intended to accomplish the drastic change that Parsons argues that it did.  Parsons’ 
view that the amendment was intended to correct an inequity flowing from restricting 
the allowable rental costs to those the contractor would have been allowed had it 
retained title finds no support at all in the Councils’ commentary.  There is no 
discussion of allowing a contractor who sold and leased back an asset to now charge 

27 
 
rental costs up to the amount it obtained for the asset in the sale, rather than the amount 
necessary to ensure that it recouped its original acquisition costs as had long been the 
approach.  Had the Councils intended to so dramatically change the amount of 
allowable lease costs that a contractor could potentially recover following a sale and 
leaseback, presumably they would have mentioned it.  To the contrary, the regulatory 
history indicates that the intent, with respect to gains, was to ensure that the contractor 
would retain the “ability to recoup what would otherwise be considered allowable 
costs up to the original acquisition cost.”  70 Fed. Reg. at 33674 (emphasis added).   
 
Finally, the regulatory history of the simultaneous changes made to -16 supports 
our conclusion that -16(d) applies when determining the gain for purposes of -36(b)(2).  
Prior to the 2005 amendments, the language that is now in -16(d) —which limits gains 
to the acquisition cost minus the undepreciated balance—was in the paragraph that was 
then -16(b).  When the Councils proposed a new -16(b) that would apply to sales and 
leasebacks, they redesignated what was then -16(b), including the limitation on gains, 
as -16(c).  The new -16(b) began with “[n]othwithstanding the language in paragraph 
(c) of this subsection...”  A commenter pointed out that this exclusion of -16(c) 
appeared to mean that, when calculating a gain under the new -16(b), the limitation on 
gains in -16(c) would not apply, and thus “could [be] interpreted to entitle the 
Government to recover more than the amount of depreciation that has been taken.”  
See 69 Fed. Reg. at 29381.   
 
The Councils responded:  
 
This was not the intent of the proposed language.  
Paragraph (b) includes the statement ‘Notwithstanding the 
language in paragraph (c) of this subsection....’  Paragraph 
(c) is currently where the limitation exists.  The Councils 
have therefore revised the language in paragraph (c), and 
added a new paragraph (d) to eliminate this concern.  The 
language on the limitation is now contained in paragraph 
(d), which applies to all asset dispositions, including sale 
and leaseback arrangements. 
 
Id. (emphasis added).  This clearly stated intent that -16(d) applies to determinations of 
gains under both -16(b) and -16(c) confirms our conclusion that -16(b) is not to be read 
in isolation, but rather in conjunction with -16(d).  This undermines Parsons’ insistence 
that the “gain . . . recognized in accordance with 31.205-16(b)” under -36(b)(2) is to be 
determined without reference to the limitation for contract costing purposed provided 
in -16(d).  Rather, the regulatory history establishes that applying the limitation -16(d) 
is “in accordance” with -16(b).  

28 
 
CONCLUSION 
 
DCMA’s determination of Parsons’ allowable rental costs following the sale 
and leaseback of the Building accords with our interpretation of -36(b)(2) and the 
related cost principles.  In calculating the “net book value of the asset … adjusted for 
any gain or loss recognized in accordance with 31.205-16(b),” the contracting officer 
was correct to apply -16(d) and thus cap the recognized gain at the difference between 
Parsons’ acquisition cost of the Building and the undepreciated balance at the time of 
the sale and leaseback (FOF ¶¶ 15-19).  Parsons’ contention that the contracting officer 
was required to disregard -16(d) when determining the gain for purposes of -36(b)(2) 
and allow rental costs equal to the difference between the net amount realized from the 
sale of the Building and the undepreciated balance is without merit. 
 
DCMA has met its burden of proving that it properly applied FAR 31.205-
36(b)(2) in determining the allowability of Parson’s rental costs following its sale and 
leaseback of the Pasadena Tower Building.  The appeals are denied.   
 
 Dated:  March 26, 2025 
 
 
 
 
 
 
 
 
 
 
 
THOMAS P. MCLISH 
Administrative Judge 
Armed Services Board 
of Contract Appeals 
I concur 
 
 
 
OWEN C. WILSON 
Administrative Judge 
Acting Chairman 
Armed Services Board 
of Contract Appeals 
 I concur 
 
 
 
 MICHAEL N. O’CONNELL 
Administrative Judge 
Vice Chairman 
Armed Services Board 
of Contract Appeals 
 
 


29 
 
 I certify that the foregoing is a true copy of the Opinion and Decision of the 
Armed Services Board of Contract Appeals in ASBCA Nos. 62269, 62270, 62425, 
62426, 62680, 62974, Appeals of Parsons Government Services, Inc., rendered in 
conformance with the Board’s Charter. 
 
 Dated:  March 26, 2025
 
 
 
 
 
 
 
PAULLA K. GATES-LEWIS 
Recorder, Armed Services 
Board of Contract Appeals