passed on to the government but that's exactly what the board's quantum ruling does northrop says that the i don't weld will cost were eliminated by savings from an amendment to its plan that would reduce the benefits paid to retirees and therefore reduce future expenses but those savings are supposed to flow to the government can i ask you a question about that and i don't have it right in front of me but on the quantum decision it seems to me the board maybe wasn't making a distinction between when they reduced the benefits for the plan they talked about it was john before the transition versus after is that really any bells to you is that your reading of the board that somehow it mattered to them when the the change was made to the benefit plan my recollection your honor is that the board latched onto the idea that the negative savings was subtracted before the transition obligation was calculated to the point that it was going to be going up but the argument does not make sense here the three hundred and seven million dollars is the savings the workers will receive less benefits under the plan and that will generate savings but the two hundred and fifty three million dollars less benefits that they get that that's what comes out to two hundred and fifty the two hundred and fifty three million it's calculated in a dca audit so an appendix one hundred and sixty eight dollars you've got the calculation of that two hundred and fifty three million dollars that two hundred and fifty three million  difference there certainly here is in contrast to the relevant ones here that's the difference between the amounts that are more busy recognized in northrop's financial reporting under the all that fast one of six rule and the amounts that were not measured were funded and that's the key funded in its government contracts accounting because it was using the lesser definitely so that two hundred and fifty three million has nothing to do with the benefits that the employees will ultimately get and this is critical to remember we're talking about a's disallowance because d c m a said you have to remove that from your statements to us the government has not paid and is not paying right now that amortize over twenty years two and fifty three million the board's quantum ruling overturns that disallowance so now they don't have to remove those costs from their statements our position is those costs are in the calculation that they started presenting post accounting transition under fast one o six because there's no way to avoid it if when you transition when you say i'm now going to calculate my humiliated obligation under fast one of the six you can't leave out a component that fast one hundred and six dollars requires this escalation that's the unfunded amount that's the disputed cost that's what wasn't avoidably necessarily including that amount northrop's position the crux of this case is we negated that through this plan amendment when you can't link the plan amendment and the easiest place to see this is here place for this number down here so the government is taking that right but that that's what's at issue in the case if the board's quantum ruling stands the government is being deprived of most of those savings because they're going to offset costs that the cost is never going to come out the service cost is never going to change the prior service cost is in the books it's historical it can change in this these financial reporting numbers fast want to six dollars the gap there was no transition relevant here fast one of the six the gap in canning was used all along so you have the savings in here but then when you look at the other set of books and now you look at that this other of the same employees are doing the same work on the same contract we've got this separate government contracts book and you look in those separate books and you're still going to have the same amount of savings but now all a sudden instead of having recognize prior service costs to this extent over those previous years you've recognized much less that's shown on page thirteen dollars of our opening brief the blue brief we have a graphic that shows two sets of bars and so you're missing two hundred and fifty three million that have been reported all along in that gap books for financial reporting but not in the government contracts books when you make that transition and now you're under gap for both that two i take it simplifying as best i can this is this transaction your position is that up until two thousand and six because of the difference between the death on live in the fast one of six line that was under claiming of two hundred and fifty three million dollars which because it was under claimed was an allowable as it was never fully ok and that therefore your two hundred and fifty three million dollars ahead the government right at that point not exactly on it's close but we wouldn't agree that there was any under claiming because the only amount certain titles are you are not claiming as much as you could have cla that's what i meant by undercut and then starting in two thousand and six after the plan and then suddenly three hundred and seventy million dollars comes out of the employee benefits package right it doesn't need to go to the trustee well but whether you it's going to the employees or it's going the transition obligation or it's in the in the benefit plan  coming out it's a reduction in the total cost of the benefit package of three hundred and seventy million dollars right that's right except you just go ahead or except it doesn't come out of any rate just doesn't need to be contributed i understand but it's less than otherwise would have been paid had they stayed at that past one of yes yes yes ok now your position as i understand it is that although there's a dispute about whether this was raised with before the border or the you argue that there ar which is an a footnote back and forth with with you look quizzical you understand that at page forty three of the red briefs there's a point that the government has forfeited this argument and you have a footnote in which you respond oh no we didn't we made this argument before the board except we understand the argument they're saying we forfeit is one we're not arguing no but let and i have an issue with that because it seems to me that the issue they say you're forfeiting was exactly the argument you're making earlier on in your belief brief but let's pass that for i do want to question about that but getting back to the numbers number one you say we get to keep the two hundred and fifty three million dollars because that's an allowable then now and forever and you also say if i understand your position correctly that you get either all of our the bulk of the reduction in the expense that comes with the plan and then because it's reimbursement contract and the government gets the benefit of any reduction in the in the cost right when when your honor says that we get to keep the two hundred and fifty three three head at that point then the three o seven as i understand it you're saying we were entitle to share in that presumably to get all of it right and we don't agree that we're ahead two hundred and fifty we don't think in these terms i know you don't think in these terms but i do know that the net result it seems to me is that you are going to come out five hundred and sixty million dollars ahead of where you would have been if they beginning they would have gotten it right and they wouldn't have changed their plan and they wouldn't have the plan and they were if they didn't state it as one of six and so you wouldn't have gotten the three hundred and seventy i'm sorry that's the part that i don't agree we wouldn't get the three or seven we only don't get the three o seven if they don't amend the plan i send i said they understand amending the plan under the passed one of six all the way along ok are you with me the only thing the only thing i want to make sure we're on the same page on is we don't agree that there's a connection between why it's not the case that you are asking to be five hundred and sixty million dollars better off than you would have been if they did then the fast one of six line all along is that not true it is not true ok why if they were at the fast one of six lines all along we want and they had funded and we to and claimed and we paid out the two hundred and fifty three we would have paid two hundred and fifty three million dollars more that's true right the part that i am not connecting with your honor is on the three o seven ok so at the point we get to two thousand and six if they have that of the fast why you would be at that point you would be two hundred and fifty three million dollars worse off then you claim that you're entitled to be on the facts as they are in this case aren't and then if they reduced at that point if they adopted a plan amendment and reduced their payments by three hundred and seventy million dollars you would say you get the benefit of that three hundred and seven million sixty million dollars better off right and again i don't think we see it that way or and i think part of the major disconnect here is that this isn't just a question of what's most fair what's the best rule these cost allowed military rules apply to all the contractors everybody's got to follow the same rules northrop's arguments are not grounded in the text of the regulation the rule that is there if you read the fast one of six rules it couldn't be clear this idea that the benefit that the costs arise as the obligation arise as the employees work that's totally contrary to the board's conclusion that the cost were never incurred it's just wrong to say that they were never incurred well that the term incurred you equate i think with the term accrued that's right except for when in the term is used to say with a contractor get a yes the costs are accruing they are being current whether or not they're written down in the separate government contracts but i mean we know they're there because we see them in the financial reporting it looks and where do you where do you find that at least in this context the term in croupy incurred is being used the same to mean the same thing as accrued i mean there's no doubt that that the difference that the cost of being a cleaning in the two thousand and six period but i don't see quite where they're being incurred because if it encourages use as it's usually used in my experience at least that would be what they're actually having to pay out and they're paying out at the and i'm in the nd paragraph in the last sentance right right right it's throughout the it's just throughout the rule it page thirty five dollars paragraph one hundred and forty six dollars the obligated the employer's obligation for that compensation is incurred when the services exchange for that benefit are rendered not when an employee terminates or when to retire receives the benefits under the cash basis accounting for the cost don't hit the books until the benefits are paid with under accrual accounting when the benefits get paid what happens later does not matter what matters for your approvals in your accounting books which aren't going to change based on later events is what employee employer exchange you have as those contracts are being performed as the employees are earning these benefits and the best place to look and see if they're separate events is in your thoughts on letters when they make when they tell us they're making a change they don't try to link them together clear this has nothing to do with the accounting they're not linking them together there is no question that if only the amendment was made and no change in accounting the government would have saved three hundred and seven million  only the change in accounting but no change in the benefits the employees the government would not pay under the rules that everybody's going to follow the only question for the court is what's the correct interpretation the rule the government would have saved this is a no this is an argument we have never made but when i turn to page four i think it is the government's brief i find  raise before the board and you say we have never made that argument here is the difference here and i just and what you're asking that looks to me like it's almost exactly the same words that they characterize you as not having argue we're not arguing and never have that we are entitled to have them write us a check or take the money out in some way give us the money back the what the argument i understand it's nuance but here's the difference the money goes into this plan it goes up it goes down money goes in the only way in which we're entitled to receive a refund of what we've previously put in is if that money for leaves the trustee and goes back to north so not just sitting there just to be so the you'd never make that argument i referring to the pay part that that's exactly right we're not saying that we have to be paid ok money did you make the argument to the board that you were entitled to the benefit of the three hundred and seven million because the citations that you i've read all the citations that appear in footnote six of your yellow brief and i didn't see any such argument made in any of those citations so where did you make that argument we certainly think we made the argument by saying that they're not connected in other words the savings here's i think where it's getting confusing show me somewhere where you came as close as you think you needed to come to making that so the argument is the analogy is made that there will be there won't be further costs incurred in the future and so as a result previous charges aren't there anymore not due don't need to be paid and that's just not correct nothing disappears because you can't just grab some negative out of the books and say that the the positive charge is gone it's still there they're both in the books we can see that in the in the financial corridors and and so the point is certainly savings mean savings no one is saying that that has to come back to the government that's not the origin of the argument is that the say what's meant it didn't charge the two hundred and fifty three million dollars at issue before two thousand and six we agree about that and it didn't charge the two hundred and fifty three million dollars at issue in the transition obligation either now my friends on the other side disagree with that but that was the exact question put before the board at the quantum hearing that was the exact issue adjudicated whether the two hundred and fifty three million that was the difference between the defra and the fast during the ninety five dollars to two thousand zero damages and the government seems to be arguing that under the applicable accounting procedures we rode two hundred and fifty million dollars and so the question the way i see it is that who do we who who we follow here and there was a regulation in place that required certain accounting procedures to take place and noted that at two thousand and six then there was a an amount of i understand your honour's i point but i think there's a way to clarify yes so that there's not any consistency between the two and it's this and i think this is a key point there is a difference between saying a cost is an allowable and the disallowance of that cost a cost maybe an allowable but it only becomes disallowed if the contractor actually puts it in it's incurred cost submission and seeks to charge the government out amount at that point and on allowable cost can be disallowed so even incurred cost submission for the transition plan and then they could disallow it and that is exactly what the quantum board adjudicated it didn't just adjudicate the question of whether there was damage or harm what they found in this you can see at pages forty one and forty two of the appendix if you bear with me what i quoted the government has failed to sustain its burden of proving that any of the disallowed amount was or will be amortized as part of the transition up occasion and claim during the transition year so it never claimed one allowable costs that were eliminated by the plan amendment in two thousand and six were the costs that constituted the unfunded amount due to the use of defra rather than that's one dollar of six and that was in turn that we backed out that delta when we calculated the transition obligation this is no two thousand and six what was the transition on occasion from then on so i think would be helpful to if i could just kind of walk through how you calculate a transition obligation because i think it will further much will northrop zero in the future to pay the benefits that is already committed to two dollars promotions two hundred and fifty three million dollars no it's it's well more than that it was a it was way out well well more than that that that was the amount the tribute to the increase in health costs but they had other obligations as well so it's if i may go on it's more complicated than the fact that what you do it's not a bottom up calculation that that's called a p p o the cumulative posed by for the obligation you do an actuarial projection how much is going to cost for us to to pay out and then you look at how much you have in the way of plan assets and that's the amount that you put in so far and the difference is the transition obligation and what happened here was northrop through the negative plan amendment eliminated logic is it reduces the amount of the accumulated post benefit obligation much going to pay in the future by that amount so of course it goes right into the transition of the expert testimony and the late testimony was that the two hundred and fifty three  now what's the restaurants asked that question here is the rest are still at transition obligation remaining and the government doesn't contest that there's still going to be some cause they're paying out part of it they're just contesting this to fit in through what's the rest is this for one thing we were allowed to use defra for contracts entered into before nine hundred and ninety five it was that you apply the far from before nine thousand and ninety five we're allowed to use that for there so there's going to be a gap from that that's part of what you mean the other part of what's remaining is this that if you had been using fastener six instead of different you would have been projecting future increases in health care costs all along so you would have been funding at a higher level but health care costs actually accelerated pace far far faster than even the fast one hundred and six predictions how did excel orating so by the time to got to two thousand and six when you actually did your top down not your bottom up actuarial projection of how much these benefits will cost it was a huge number it was before the negative plan amendment backed up the thirty seven dollars it was i think over a one billion dollars if you think about that that makes sense or if there were thirty three thousand employees in this plan as of one thousand nine hundred and five and certainly more after and the caps of seven thousand pre medicare four thousand post medicare were annual caps not lifetime caps so if you just do the math you can see you can get to a one billion dollars pretty quickly in terms of what the projection of would be and so the projection is a nine going to get back to your honor was having a colloquy with my friend of the other side about how much how does the government how does this work out for the government here i do think it be worth kind of going through that so i would make one amendment through to the discussion i think the way to think about it is this if if we had paid in we had been using fast one of six we would have been charging the government that two hundred and fifty three million dollars they would have paid and so they would have been out two hundred and fifty three million dollars it would have paid it would be funded would be in pla and then if we execute a negative plan amendment and we reduce the amount going forward by however many one million you would do said they wouldn't have to pay that he ther that two hundred and fifty three millions already in there because they paid it under fast one of six then they'll be less of a charge in the future because the transition obligation because right now they're still they don't still come up two hundred and fifty three million dollars ahead and that's why they're wrong about this as if you if you adopt our approach to it and the board's approach to it and why the board i think found what it didn't want them was that they didn't pay the two hundred and fifty three dollars m and now they want th duction of two hundred and fifty three million dollars as though they paid the two hundred and fifty three million dollars and so they end up two hundred and fifty three million better off and if they do what with if we had done what they said we should have done all along and not just can't be right and well  quote let me preface this by acknowledging that i mean i understand this but just on simple logic the reason you have to pay i think the government would say when you messed up was because of the regulations you get sort of a penalty because you're flipping and you could up under the old peculation you could have claim on an annual basis or whatever it is and you did so yes it's a penalty maybe it looks like you can make it sound like unjust enrichment for the government but you're going to be penalized for that two hundred and fifty three million dollars that was and wasn't that the determination your my bill for that two hundred and fifty three million right no your honor i disagree with but with a few places there if i could  st the government is running as fast as they can from the argument that this is a penalty they've and the reason for that i think is because there isn't any lawful authority to impose anything approximating a penalty the ocular amount under mom you're obligated thirty one to a one to see and what that provision says with this we cited quarter page six of our brief but that provision says this one contractor accounting practices are inconsistent with the  can't ask for it that's what it means we can't ask for the next provision subsection two d says contractors responsible for accounting costs appropriately and cetera et cetera adequate to demonstrate  claimed in other words the cost that we ask the government for have been incurred are eligible to the contract and comply with the political cost principles i e fast one dollar of six the contracting officer may disallow all or part of a claimed cost i e a cost we asked the government to fight in this case with respect to the quantum you're in is not about whether this is an allowable cost or not allowable cost whether we should have incurred it and charged it in the years dollars or six or not the question is whether the government has the authority to disallow it and the only thing the government has the authority that this allows a cost we actually claim that we actually put in our incurred cost savings and say to the government pay this cost not only that but for the additional two hundred and fifty three dollars men or so i think the if we did the government would argue that we'd we couldn't do that because we were trying to aliquid allocate to subsequent years something that we should have allocated to earlier years and it would throw the whole thing in disarray or on his right about that we haven't done it we've been very clear that make to and you know as i said this is what the quantum hearing was about this was the issue we litigated the government had a full and fair opportunity to prove that that two hundred and fifty three million was in the transit position on occasion and also noted of course that the government didn't put on any expert actuarial testimony or any factual actuarial testimony is again that the paragraph on page thirty five dollars of the appendix to rebut our position on this and so that's why they're going back to judge  that's why the government will end up getting a windfall here because we never charge them this is one thing to say you can disallow it cost them but that wasn't calculated in conformity with the with the accounting rules that apply if you go to the government say pay this cost in this was only possible because northrop won't be the benefits provided to workers right at the start of the princes and if it did they did so so the government's not government had allow us to allow us to stay with defra then the problem wouldn't have a reason and that's not a crazy suggestion you know in two thousand and nine a few years after this all transpired the government changed the far again to make defra a lawful way to well that's right but i do think that's where the that's where the nd of the three points i wanted to make was that you know this was an era in which i think in two thousand and six the cost medical and drug costs went up thirty six percent in one year i mean this was at a time when costs were going crazy and what the cast bored of the side in two thousand and three was that unless contractors are given the flexibility to make retroactive admittedly retroactive adjustments here they're just not going to provide these push retirement benefits at all because they won't be able to control the costs and this is not something that old we only did virtually every contractor did this we cited a study of page seventeen of our grief that when contractors made the transition from deford a fast one of six they all did this because of the massive cost problem that arose and then the rd point i'd like to make it worse the government's position doesn't solve that problem either this money doesn't go to the workers if that if that if the government prevails here it goes to the government so i'm not sure it's an argument that the government can really make with any force and then again i will say this was a situation in which year over year it's not like it was a surprise to the government that we are using we were using deafer during this time period and we get audited every year we submit our papers the government they look at it and every year they told us no problem several years they said we approve this a compliant so that the idea that we were you know there is something less than above board here which the government insinuates from time to time is just not right and if i just a i'm over my time but i'd like to make one point responding to the point my from the other side made about the the financial reporting versus government contract reporting and that's the screenshot of our papers you know they make a big deal a  there's a service cross the line and there's this other line that shows four hundred and seven million and they're separating the shows it's all separate but you know in our brief which preceded the reply brief which has in it we and fifty three dollars and that all of that is spelled out in detail in northrop's work papers accompanying the company in the financial statements and so they come back in their reply brief and they go through all this stuff about the service cost line but they didn't address the evidence in the record that refutes it so it's just it has no any way know each change as its own effect these are separate of vents and you have to ask why is the outcome different to the two hundred fifty three million dollars if you combine them together what is the real legitimate connection between changing the benefits of your plan and changing the score but changing which set of books you use as a set of accounting books and what's the connection there that enables you to combine these events and have a two hundred and fifty three million dollars difference and there is not it's not correct to look at this differently the reason we're here is because the board did not interpret and apply the regulation and the accounting rule correctly that's it if this case turns into what's most fair are we out so much are they getting something they're not supposed to get that's not what the case is about the rules have to be followed by everybody because they're the rules they're a basic part of the bargain no less than a term in the contract and the board completely lost sight of the fundamental cornerstone of this accounting rule fast one of the six that says those costs were incurred they did it through regardless of whether you wrote them down in your government contract cost ledger there's no getting rid of them later the counting is complicated but the principle is not nothing changed in the fast one of six books where did the government tell northrop that we or that honor we don't see it that way at all north or so make clear they did look at this back that the government had no reason to look at it because nothing in excess was claimed at that time it's all about what happened in those posts transiting aware of the type of pulled together all benefits to the workers if that's what they chose to do so it's they haven't done anything improper or illegal here we're not saying anything like that the only question your honor is what is the effect on