APPELLANT’S MOTION FOR SUMMARY RELIEF GRANTED IN PART AND
DENIED IN PART; 
RESPONDENT’S MOTION FOR SUMMARY RELIEF DENIED: January 22, 2015
CBCA 3407
GROUP HEALTH INCORPORATED,
Appellant,
v.
DEPARTMENT OF HEALTH AND HUMAN SERVICES,
Respondent.
Karen L. Manos of Gibson, Dunn & Crutcher, LLP, Washington, DC; and Daniel P.
Graham of Wiley Rein LLP, Washington, DC, counsel for Appellant.
Jeffri Pierre and Anthony Marrone, Office of the General Counsel, Department of
Health and Human Services, Baltimore, MD, counsel for Respondent.
Before Board Judges, GOODMAN, STEEL, and KULLBERG.
GOODMAN, Board Judge.
Appellant, Group Health Incorporated (appellant or GHI), sponsors this appeal on
behalf of its subcontractor, Douglas Consulting & Computer Services, Inc. (DCCS), from
a final decision issued by a contracting officer of respondent, the Department of Health and
Human Services (respondent or DHHS), denying DCCS’s claim.  The parties have filed
cross-motions for summary relief.  Appellant’s motion for summary relief is granted in part
as to the issue of entitlement.  Respondent’s cross-motion for summary relief is denied.


CBCA 3407 2
Background
In 1994, DCCS developed the paper Initial Enrollment Questionnaire (IEQ) system
pursuant to a contract with respondent’s Health Care Financing Administration—now the
Centers for Medicare & Medicaid Services (CMS).  The paper IEQ system is used by CMS
to comply with statutory requirements and to determine when Medicare should not be the
primary payer for Medicare-covered services.
In 1999, respondent bundled the IEQ services into a cost reimbursement contract,
contract no. HHSM-500-00-00001 (the prime contract), which was awarded to GHI.  On
November 1, 1999, GHI entered into subcontract no. GHI-DCCS-500-00-0001/COB (the
subcontract) with DCCS, under which DCCS performed the paper IEQ portion of the prime
contract.
On May 18, 2011, CMS partially terminated the prime contract to eliminate
paper-based IEQs, and GHI notified DCCS that the subcontract was terminated in its entirety
effective May 20, 2011.  DCCS alleges that it terminated the employment of most of its
employees as a direct result of the termination of the subcontract, and has since that time
maintained a significantly reduced workforce to close out the subcontract. 
On June 8, 2011, DCCS submitted to GHI a termination settlement proposal in the
amount of $1,608,278.  GHI provided a copy of DCCS’s proposal to CMS on June 13, 2011,
and requested a meeting with CMS and DCCS to resolve the open cost issues.
Appellant states that after termination of the subcontract, during the summer and early
fall of 2011, DCCS migrated all of the electronic IEQ data stored to GHI, arranged for the
shipment of thousands of boxes of paper IEQs to GHI, obtained quotations from vendors for
salvage of the hardware purchased in support of the contract, and performed other tasks
associated with closing out the subcontract. 
Between June 16 and June 28, 2011, attempts were made to arrange a meeting among
GHI, DCCS, and the CMS contracting officer.  By email message dated June 28, 2011,
DCCS’s chief financial officer (CFO) asked the CMS contracting officer to meet regarding
CMS-requested audits that had been previously been performed and completed in 2011 by
the Defense Contract Audit Agency (DCAA) for fiscal years 2003 through 2007.  The CMS
contracting officer responded, asking what the purpose was for the meeting and why it was
necessary to include counsel. 

CBCA 3407 3
DCCS’s CFO replied:
The meeting is to discuss finalizing previous years’ indirect cost rates.  The
finalization of these rates is preventing GHI and DCCS from closing out the
subcontract, which will likely interfere with CMS’s ability to settle the partial
termination of GHI’s prime contract. 
In September 2011, DHHS began the audit of DCCS’s incurred cost proposals for
2008 through 2010, rather than have DCAA perform the audits as it had for 2003 through
2007.  At CMS’s request, DCCS on September 9, 2011, submitted its incurred cost proposals
for 2003 through 2010 to the CMS auditors, even though the incurred cost proposals for 2003
through 2007 had already been audited by DCAA. 
Appellant states that from October 2011 through October 2013, DCCS responded to
more than thirty auditor requests for information, providing supporting data and submitting
written responses to the draft audit findings.  Respondent states that its audit interaction with
DCCS began in May 2012, and not in October 2011.
During respondent’s audit of DCCS’s costs, DCCS’s termination costs were not
audited.  Respondent’s audit manager states that “[t]ermination costs were not included in
the scope of review . . . . We were not made aware by DCCS of the submission of a certified
claim and did not discuss anything in that regards with DCCS.”
On May 7, 2012, in response to an inquiry from the CMS contracting officer, GHI
stated that while “all DCCS operational work under the contract has been completed, DCCS
was continuing to incur costs to support final closeout.”  GHI’s email message further stated:
“We are awaiting CMS’s determination as to whether these costs are allowable.  Therefore,
the termination settlement costs have not been fully paid.  In addition, the costs for
2003-2007 have not been finalized and the costs from FY 2008 on are still awaiting audit and
settlement.”
On May 11, 2012, GHI requested that the contracting officer extend the one-year
period for submission of GHI’s final termination settlement proposal until completion of the
audit of DCCS’s indirect cost rates for 2008 through 2011.  The contracting officer
responded by stating:
I have been advised that the final settlement of termination and the audits are
two separate items. We do not have privity of contract with DCCS other than
to audit and settle their rates.  It is GHI’s decision if you want to continue to
pay DCCS.  Therefore, the Government will not authorize payments to GHI

CBCA 3407 4
for DCCS to standby until the audits are complete.  I cannot provide you an
estimate when the audits will be complete.  After the audits are complete then
we have to settle the results of the audits.
By email message transmitted May 11, 2012, GHI informed DCCS that CMS intended
to disallow DCCS’s costs of “standing by until an agreement is reached on the ongoing
audits.”  GHI requested that DCCS “submit a final termination settlement proposal
identifying all costs DCCS has incurred through April 30, 2012 that DCCS believes are
reimbursable.”  GHI also requested that DCCS separately identify costs that have not
previously been paid, costs incurred since termination, and costs that DCCS believes are
outstanding based on prior years’ audits for 2003 through 2007.  GHI requested that DCCS
include with its settlement proposal “an explanation for DCCS’s position that the costs
incurred since the cessation of work under the subcontract are allowable, as well as an
explanation why those costs are reasonable.”
In a letter dated July 11, 2012, the contracting officer informed GHI that costs
submitted on behalf of DCCS associated with maintaining staff after the termination for the
purpose of the DHHS indirect rate audits would be deemed unreasonable and unallowable.
On July 31, 2012, DCCS submitted its final termination settlement proposal to GHI. 
On August 21, 2012, GHI submitted a termination settlement proposal to CMS with respect
to its subcontractor’s costs. 
Between June 10, 2011, and October 23, 2012, DCCS submitted twenty-three interim
payment requests under the terminated subcontract.  On October 23, 2012, GHI informed
DCCS that CMS was not going to reimburse DCCS’s interim payment voucher nos. 162 and
163. CMS’s refusal to reimburse these interim payment vouchers was based primarily on
CMS’s contention that post-termination costs incurred in support of the DHHS audit are not
allowable. 
By letter dated November 16, 2012, and revised December 11, 2012, DCCS submitted
a certified claim in the amount of $997,651 for billed termination costs remaining unpaid.
DCCS’s claim requested that GHI submit a certified claim on DCCS’s behalf to CMS. 
GHI submitted the sponsored certified claim to the contracting officer on
December 14, 2012.  GHI’s certified claim demanded payment in the sum certain amount of
$815,128, and explained that there were two items of cost in the DCCS claim to GHI that
GHI was not presenting to CMS. Those two items of costs are not at issue in this appeal.

CBCA 3407 5
By final decision dated March 12, 2013, the contracting officer issued a decision
denying GHI’s sponsored claim in its entirety.  Appellant appealed the contracting officer’s
decision to this Board on June 7, 2013.  On September 12, 2013, after the complaint and
answer were filed, respondent filed a motion to dismiss, alleging defective certification of
the appellant’s claim.  After briefing of the motion concluded, the Board resolved the issue
of defective certification in appellant’s favor.  Group Health Inc. v. Department of Health
and Human Services, CBCA 3407, 14-1 BCA ¶ 35,487.
Between February 7 and April 15, 2014, proceedings were stayed in this appeal while
the parties attempted to resolve the appeal by negotiation.
In this appeal, appellant has alleged that closing out the subcontract has been
significantly delayed as a result of unresolved DCAA incurred cost audit issues for 2003
through 2007, and ongoing CMS incurred cost audits for 2008 through 2011.  By letter dated
February 21, 2014—more than three years after DCAA completed its audits—the contracting
officer unilaterally established DCCS’s final indirect cost rates for 2003 through 2007.  CMS
has not established final indirect cost rates for years 2008 through 2011, so that the
subcontract can be closed out.
On April 15, 2014, by joint status report, the parties advised the Board they were
unable to resolve the appeal.  A conference call was held with the Board on April 28, 2014,
during which appellant’s counsel advised the Board of appellant’s intent to file a motion for
summary relief.  Appellant filed a summary relief motion on June 18, 2014; respondent filed
a cross-motion for summary relief on July 23, 2014; and briefing on the motions concluded
on August 29, 2014.
Discussion
This appeal arises from respondent’s contracting officer’s denial of appellant’s
subcontractor’s termination settlement claim.  Appellant has filed a motion for summary
relief, alleging that the contracting officer’s reasons for denying the claim lack merit, and
appellant is therefore entitled to relief as a matter of law.  Respondent has filed a cross-
motion for summary relief, asserting that appellant’s recovery is precluded.
Resolving a dispute on a motion for summary relief is appropriate when the moving
party is entitled to judgment as a matter of law, based on undisputed material facts.  The
moving party bears the burden of demonstrating the absence of genuine issues of material
fact.  All justifiable inferences must be drawn in favor of the nonmovant.  Celotex Corp. v.
Catrett, 477 U.S. 317 (1986); Anderson v. Liberty Lobby, Inc., 477 U.S. 242 (1986); Au’
Authum Ki, Inc. v. Department of Energy, CBCA 2505, 14-1 BCA ¶ 35,727.

CBCA 3407 6
The Parties’ Cross-Motions for Summary Relief
The contracting officer’s decision cites three reasons for denying the claim. The first
reason—alleged defects in the claim certification—has been previously resolved by this
Board in its ruling on respondent’s motion to dismiss.  Appellant’s motion for summary relief
challenges the contracting officer’s second and third reasons for denying the claim. 
The contracting officer’s second reason for denying the claim was that the claimed
costs are not allowable because the “costs were incurred by DCCS for staff and legal fees to
continue the viability and operations of DCCS after termination of its subcontract with GHI.”
The contracting officer’s decision states:
There are limits on what subcontractor post-termination costs can be covered. 
In determining the reasonableness of any subcontractor termination, guidance
is found in the provisions of the FAR [Federal Acquisition Regulation] relating
to the settlement of prime contracts.  FAR 31.205-42(b) [48 CFR 31.205-
42(b)] cost principles acknowledge that there are situations where, despite
reasonable efforts, costs cannot be discontinued immediately after a
termination.  However, costs continuing after the effective date of the
termination due to willful failure of the contractor to discontinue costs are
unallowable.  Additionally, when a contractor is terminated for convenience,
the contractor is entitled to cover costs allowed under the contract and incurred
prior to the date of termination for completed work. Nothing indicates that
DCCS is seeking costs allowable under the contract for work completed prior
to termination.
Further, it is unreasonable for a contractor or subcontractor to expect to be put
in a better position than had the contract run its normal course.  As applied
here, had DCCS’s contract continued until the end of its term, which would
have been November 2011; there would be no basis for entitlement to the
majority of the costs claimed.  The contract would have ended by its own
terms.  In light of the fact that a contractor is not entitled to compensation from
the government even if it goes out of business after a contract reaches its
natural termination date, DCCS’ claim is unreasonable.
In its motion for summary relief, appellant takes issue with the contracting officer’s
reasoning, stating that DCCS could not discontinue all costs upon termination of its
subcontract, and has not been simply “standing by” since that time.  As a direct result of the
termination, DCCS terminated the employment of most of its employees.  Since that time,
DCCS has maintained a significantly reduced workforce to close out the subcontract.

CBCA 3407 7
However, DCCS had (and has) an unavoidable contractual obligation to support the
Government’s audit of its termination settlement proposal and indirect cost rates for all open
years.  FAR 31.205-42(b) expressly allows costs that cannot be discontinued immediately
after the effective date of the termination, despite all reasonable efforts of the contractor, but
disallows costs continuing after the effective date of the termination due to the negligent or
willful failure of the contractor to discontinue the costs.  Appellant alleges that DCCS
undertook reasonable efforts to discontinue costs, terminating the majority of its employees,
vacating its former offices, and moving its records to off-site storage.  Additionally, appellant
asserts that there is no evidence that supports the contracting officer’s implication that the
costs DCCS incurred after termination were the result of DCCS’s negligent or willful failure
to discontinue them.
Appellant describes its subcontractor’s reasons for incurring the post-termination costs
sought:
Had CMS audited and settled the open contract years or negotiated the
termination settlement proposal in a timely manner, DCCS could have placed
all of the audited records in permanent storage and discontinued operations.
However, CMS did not do either of these things.  Instead, CMS required
DCCS to undergo a protracted audit.  As a consequence, DCCS was compelled
to continue to incur costs in order to close out the subcontract in accordance
with the requirements of FAR 52.216-7.
Appellant argues further:
The final decision is also incorrect in asserting that DCCS expects to be put in
a better position than it would have been in had the subcontract run its normal
course.  Even if the subcontract had run its normal course, the post-completion
costs incurred by DCCS in supporting the Government’s audit and settling
final indirect cost rates would still be allowable and allocable to the
subcontract. Contractors frequently continue to incur costs for this purpose
after the end of a physically complete cost reimbursement contract since final
indirect cost rate proposals are not submitted until after the end of each fiscal
year.
In its cross-motion for summary relief, respondent counters that DCCS’s alleged post-
termination costs are out of proportion to the time spent by DCCS during the audit of the
claim.

CBCA 3407 8
The contracting officer’s third reason for denying appellant’s sponsored claim is that
DCCS’s claimed costs are not supported by accounting data and other information sufficient
for review by the Government.  Appellant counters by asserting that DCCS made all of its
accounting data and other information available for the Government’s review, but CMS
declined to review it.  Thus, appellant asserts that respondent’s “real complaint is that DCCS
declined to make copies of the supporting data, but nothing in DCCS’s subcontract or the
FAR requires a contractor or subcontractor to incur the cost of copying voluminous records
that are otherwise made available for the Government’s review and inspection. . . . DCCS
fully satisfied its contractual obligation by offering to make the records available for CMS’s
examination, audit and reproduction.”
In its cross-motion for summary relief, respondent counters by alleging that
termination costs were not included in the scope of the audit conducted and the auditors were
not made aware by DCCS of the submission of a certified claim.  Respondent asserts that
DCCS’s refusal to provide supporting documentation interfered with CMS’s ability to
consider which charges might constitute allowable charges.
The resolution of the parties’ motions is governed by FAR 31.205-42, which reads in
relevant part:
Termination Costs
Contract terminations generally give rise to the incurrence of costs or the need
for special treatment of costs that would not have arisen had the contract not
been terminated.  The following cost principles peculiar to termination
situations are to be used in conjunction with other cost principles in subpart
31.2:
 . . . .
(b) Costs continuing after termination. Despite all reasonable efforts by the
contractor, costs which cannot be discontinued immediately after the effective
date of termination are generally allowable.  However, any costs continuing
after the effective date of the termination due to the negligent or willful failure
of the contractor to discontinue the costs shall be unallowable.
Paragraph (g) of this FAR provision lists the various types of reimbursable settlement
expenses, including those sought in this appeal, and paragraph (h) allows reimbursement of
subcontractor claims.

CBCA 3407 9
Appellant is Entitled to Post-Termination Costs
While respondent has challenged DCCS’s entitlement to post-termination costs,
respondent has not provided evidence to create genuine issues of material fact as to
entitlement.  First, respondent implies that DCCS’s costs continued after the effective date
of the termination due to the willful failure of the contractor to discontinue costs.  There is
no evidence to support this allegation of willful failure to discontinue the types of costs
sought by DCCS.  Respondent also alleges that the magnitude of the costs claimed by DCCS
is out of proportion to those incurred by subcontractor in responding to the audit of its
indirect costs through 2011.  However, respondent’s allegation focuses on DCCS’s response
to the audit, and does not take into account the alleged costs for migration and storage of
information after termination.  Allegations as to magnitude of costs do not defeat entitlement
to such costs, but only raise questions as to quantum.  Appellant’s motion for summary relief
is granted as to the issue of entitlement to post-termination costs. Respondent’s cross-motion
to preclude recovery by appellant is denied.
Quantum Remains to Be Resolved
Genuine issues of material fact exist as to quantum.  CMS has not established final
indirect cost rates for years 2008 through 2011 so that the subcontract can be closed out. 
Also, while the parties differ as to the reasons why the post-termination costs have not been
audited, there is no question that the audit of these costs has not been conducted.  Failure to
audit costs, even when documents are available, does not result in a finding of entitlement
to the quantum requested.  Without the costs being audited, the Board cannot make a decision
as to quantum based on the current record.  Appellant’s motion for summary relief is denied
as to the issue of quantum of post-termination costs.
The parties may engage in negotiations to resolve quantum or proceed in discovery,
if necessary, to prepare for a hearing on quantum.  If the parties wish to attempt to negotiate
quantum, they should request a stay of proceedings in order to do so.  If they wish to engage
in discovery, they should submit a proposed discovery schedule within fourteen calendar
days from the date of this decision.

CBCA 3407 10
Decision
Appellant’s motion for summary relief is GRANTED IN PART on the issue of
entitlement to post-termination costs and DENIED as to the issue of quantum.  Respondent’s
cross-motion for summary relief is DENIED.
__________________________
ALLAN H. GOODMAN
Board Judge
We concur:
__________________________ ______________________________
CANDIDA S. STEEL H. CHUCK KULLBERG
Board Judge Board Judge