that not disputed in this case in other words there is a course in i think six different activities in the disclosure statement and of course it is never suggested that those activities were not activit ask us to reverse the lower court how with that right now ok i agree in part it's immaterial amount of the management or supervision of activities involving direct material costs it's a course we would have to stop at management or supervision that's not the whole thread it's management or service or supervision of activities involving direct material costs and that's very important because activities describe define the pool if you look through the homogeneity requirement that has already been fifty b it says you have to organize your pools by activities the three pieces that you have to have all of the activities together so in purchasing material handling and so forth it is illegal under the homogeneous requirement to suppress sikorsky to separate out the management and supervision of those activities from the rest of the activity that's supervision a management cost that's written right into the two subsection re limited and so we have to answer for the that particular language somehow exactly what it did to me let me give you a good example  razors and then overnight the janitorial people go by and make sure that they're all working the temperature the weather supposed to be and so forth that could be considered those activities are activities involving direct material material costs in this case it's understood you did that one hundred percent of those costs were included in the book ok what the and the one textual argument that if i'm remembering right you made kind of backed into is an argument about what the relevant numerators and denominators are for deciding overhead versus service sector at one point in your brief you say no no no no the denominator is all of the supervisory and management activities and then the question is how much of them or in the particular pools you say all of them are that can be immaterial and that intrigued me a little bit until i looked at four eighteen forty see right forty right which makes a distinction  and secondly this doesn't say that different thing if you understand what the word was getting at with materiality in other words to christie says materiality means mostly a materiality regulation and it has an elaborate regulatory history published and they say that the materiality is not to deal with an insignificant amount of costs they say that a couple different times in that that page forty three for not six of of are and there's a brief what they're looking for is more than hang him out more than a tiny amount because it one of the consistent concerns of the questions about the d h should let's assume you're wrong about it and that we have to look at the ok ok what is your argument with respect to key as i understand it you're saying direct labor rights your question posed to the night when your honor which is if of course you were right if they were to eliminate now that's the answer to my question why original there is no there is no possible way to allocate and overhead you have no backup position as to how this should work if we conclude that it comes under the well there is no other way for it to work now do you have a position as to what they should have done no why do you win that there is no previous economic pie it cannot be applied first of all there was not it were not accepting my hypothetical i want you to accept that he does apply and we disagree with you o what is wrong with what they did you say they shouldn't have used even under the where you go to the surrogate category arrived right what is a should not have used direct labor costs because they haven't satisfied the proportionality test right what should they have done instead what should their allocation method there is no established a practice that is not sanctioned anywhere you know if you're not you simply are answering the question if you do not have a back up argument as to what happens and why you win if he says the applicable  the i guess i understood two things one that he did actually have an argument below and tried it and judge lefkow entered a series of findings but you don't repeat that argument that is there is a whole series of findings accompanied by graphs about the kind of a division of the pool along the way to creating this pool and that it was never a judge lefkow did whether it use that kind of hypothetical which is not that directly because it was wrong but something else i'm not sure what the claiming that in other words the allocation from the material overhead pool i would contend even if you used sectioning concerted the service center you would have to apply add when the allocation leaves the pool and the allocation when it left the pool was not to a conglomerate of final cost objectives using a labor overhead for wenzi allocation left the material overhead pool there was a two step process one by cost called various places and then the remainder i am not understanding which are same i simply am not understanding that you would agree that if he applies we go to  direct and definitive relationship what are you talking about you are you saying that directly is not appropriate base to to allocate i'm saying that it doesn't measure anything in other words direct labor doesn't tell you how much material handling was going on it doesn't tell you how much purchasing expense for example with the parts that are being purchased from chapel survived as jack republic the there's no labor this is not useful let let's go on to the statue of limitations question ok let's assume there that we reject your argument that the statue of limitations didn't begin to run notice of the method they were using and that hadn't had vers effect on the government why are they wrong about that the trial court found to the contrary the trial court found that the government could not determine even the auditor could not determine whether there was a material difference in the result of the allegations until he had received direct material costs information  requested in august of two thousand and two which would be before the six year period but to course he waited for more than a year until to pember two thousand and three they never provided the cost information for nine hundred ninety nine and two thousand and four or two thousand and one but they they did provide information regarding two thousand and two so the trial court found that this information was necessary to have notice you i take it he did not make an argument along the following lines that even if you were out of time for any harm that might have occurred if in two thousand and two the continuing cl a series of year by year payment by payment injuries not separately actionable one but it's not the it's not the where the cast regulations require you to calculate the damages in other words they letters opinion about possible netting of benefits to the government against possible losses to the government and can be six and i'm confused about  understanding how as to fixed price contracts where you're paying the same amount regardless of their accounting how there's anything connected it could be a benefit but not something not actually sort of a positive number that could  be netted against a loss on another contract which is are there some non fixed price contracts in which the this the challenge the accounting method actually produced lower payments from the government that could be netted out terms of any kind of notice to us is that it combined an analysis of two different changes a change to the existing a calculation and a change to their overhead calculation there's no way to tell from those numbers the impact of the change and you did get into some of that netting as stuff i didn't follow on tyrolese but that but the bigger the bigger issue is that it doesn't separate out the impact of this particular change can't give us notice of what happened because of this change where are the contracts here all cost plus contracts or some of the fixed price contracts i don't i think i think most of them are fixed price but anyway it is it that using the wrong overhead impacts the fixed price contract is that because you go back and read the price them because they allegedly used the wrong costa count methodology no it's because it's contracts coming in on a rolling basis your honor in other words is new contract as they come in their advance price proposals are going to reflect the current practice that's why i think the question how's that how is that if we're talking about future contracts how does that adversely impact the government you may have a dispute as to how these future contracts should be priced but why is that the basis for government recovery i don't understand well the course of the said to the government in one thousand nine hundred ninety is for the first couple of years it's not going to be in any impact to the government with this new accounting change because you already have all these fixed price contracts that have already been practiced ok and so the ninety nine to this the government seeking to recover amounts back on fixed price contracts as a result of the use of what you regard as an improper counting approach yes and is it seeking to and everybody agrees that if he applies that brings you to subsection three yes correct yes so it's best to be using a surrogate the varies in proportion to the services received and you say well  labor is an appropriate base because we look historically to the administration costs related material and that seems to have a relationship over the years to directly generally yes some time but i don't i fail to understand how that proves compliance with subsection sake because the relationship between direct labor surrogate basis which is what we're addressing here under and it says it is a base that is representative of resources consumed so the question is was directed labor during this period representative of material overhead resources the trial court her qualitative and quantitative evidence concerning the relationship between direct labor material overhead material overhead sure essentially as a service organization for direct labor this is the evidence the trial court heard and it's related to material there's no doubt it involves by moving material but that qualitative evidence show that it was very much related to labor and the other evidence that showed that there was just this relationship and not just a coincidence concerned the outsourcing the outsourcing that's of course if you engaged in the commercial side they bought more direct materials yet material overhead remained relatively flat so did direct labor there was a reason for that when direct well direct materials goes up for the government aircraft where direct labor was still substantially involved and not affected by outsourcing material overhead remained flat and so did direct labor and it more than a coincidence the qualitative evidence the court relied on show that there was very much an interim relationship between material over what the court heard evidence about how to centrally the material overhead workers were preparing and presenting the material the direct labor force and so they were really a service organization for directly so this was more than a mere coincidence your honor and by the way the same record evidence shows both qualit quantitatively that direct labor was an appropriate base under fifty d and i know that's not for the court seems to be having but fifty db requires a representative bass so it's interesting that he asked for a team with respect to the  representative based under d speech in terms of representative and there was abundant evidence about how direct labor during this period at sikorsky was representative of material over what do you understand the government's position to have been as to what you should have done under uncleared i think there were there have been suggestions that were introduced some for the first time at one for the first time a trial was that should corsi should have developed through tools here one for g f l related material overhead and allocated that under under the least that's what they're auditor had said and a second pool is not g f i material overhead and and the government i don't think said that could be allocated under but that suggestion was for the first kind of trial and was refuted by the evidence that shows these costs couldn't be feasibly distributed that way and divided that way so i didn't they argue that he should have continued to use the message to use i guess it was before nine hundred ninety nine or in the method that you are currently using well i think the government under fifty never claimed we violated fifty there was never any claim of the contracting officer says i don't think there was a presentation  require now before direct material base which would include government furnished property that's right and would cause a distortion of the undisputed evidence much of it from the government witnesses that it would produce unreasonable distorted allocations fundamentally at odds with cats for eighteen and before nine hundred ninety nine we did not use a direct material base at least that the government argued we should not it was i used the records of these but excluding engines yes and excluding certain other used aircraft but it was it was to address and attempt to address the g f m problem but i guess my only point is i didn't hear the government taking a position in this case it said here we were required to use direct material period and i'll advise the court this is a judge let us opinion that after two thousand five with the government's approval we have used a different method but it too is not direct material costs all expenses in fact it involves a portion allocated over direct labor so the government's position in the litigation is different than it was before and after this period that frankly they say they've never contended they didn't claim we violated fifty eat and i have not heard an argument about how fifty applies either before today or to that since two thousand and five when using some kind of hybrid between direct labor and direct material with agreement from the government we entered into a new approach where we divided the pool between materials handling and what on one hand and then all the other which is mostly purchasing related but some other material overhead on the other hand the material handling continues to be allocated on a direct labor base approved by the government the remaining remainder of the of the costs are allocated on a hybrid base it's another effort to deal with this m an outsourcing distortion problem at sikorsky and frankly the government in this case for this period has offered no solution for that and when you use a method that distorts allocations that's fundamentally at odds with ca and it makes crystal clear that the question is does the pool include a material amount of these costs is immaterial portion of the pool these management and supervision cost and that is fits with the rationale the rationale is if a pool includes a material amount of these these costs it is going to tend to be more distantly related from a cost of beneficial standpoint whereas the interpretation that the  these management supervision costs that are in the pool in the denominator is all of these management supervision trust related these activities would have no rational that if that were really the rule if you had a hundred dollars of those costs and all hundred dollars were in refused with respect to the question that i ask you to turn to the limitations issue and let's assume here as we did with the government that there are you know that essential imitations should run from the impasse and you know she ations is rejected  expressed their concern that they didn't think that was office and the question really comes down to when was there any impact of significant impacts such that they had notice of the question now they have to have notice of the impact  not it's not sufficient that there is an impact and actually have to know that there's right they have to know or should have known it is an objective test but yes your honor and the government's position is that it's auditor didn't have enough information to make the kind of calculation he thought he needed to make to develop a cost impact estimate but that's not the standard the standard is in effect some certainly not be calculated say that it's a big difference between those two things right some good substitute for the zero whatever the number is that constitutes too insignificant to care about well that's right but he there are auditor knew that beginning in two thousand and one he made numerous estimates that they were going to be  multimillion dollar impacts are going in two thousand and one he repeated that estimate even in two thousand and two he put i thought that there was some i guess and this is just confusing to me and i thought that that the action here on this had something to do with the question about how you how they could count the impacts so that any impact on one contract or even one portion of a time track might be in some way neutralized by other things and the only thing that would give them a knowledge of an injury and actionable injury with the something more global than you know  this case they knew that the great bulk and it's in the range of something like ninety percent of the contracts and issues in this period are firm fixed price contracts and the other ten percent are our cost plus kinds of contractors and the the fixed price contract that if there's an error in cost allocation that that's going to affect the amount that the government has to pay what will two things get would be impacted contracts that were signed after ninety nine because they would be priced over what was the trial court found in two thousand and two they had made asked and by the way these estimates work that there were increasing cost shifting to the government were not surprised sikorsky had told them and i didn't mind you nine this is an effort to address this m distortion which are hybrid method is only partially mitigated so it was not a surprise to the government doesn't the fact of the government knew that doesn't suggest that the use of the different method was going to cost the government money in th circumstance i think it does your honor because we told them you we are under allocating to government contracts as a result of this g m distortion the zero value but where do we find that we're where was the government told that there was an und officer said there's noncompliance but not now things are fine now but in the future we could potentially see noncompliance and so we ought to continue monitoring the situation and can you sikorsky give us some kind of cost impact proposal which you did in two thousand and in that cost impact proposal you stated to the government that there would be a net benefit to the government using this new accounting process through two thousand and three and the reason it was a net benefit was increasing costs were being shifted so the government but under these firm fixed price contracts that had been interviewed for nine hundred ninety nine the government wouldn't have paid us and so that showed a net benefit but what the trump court overlooked was in late two thousand and two the multi year six contract when costs are entered into after two thousand and two then the government would know what this impact but it overlooked that the biggest contract here which is a representative contract in the case was signed in the summer of two thousand and two and the government had already been making payments and therefore already presumably suffered alleged injury hundreds will have but the question is how did the government know the was suffering injury as a result of this change in accounting method is that you said there was some letter that was sent to the contracting  had in his testimony shows he knew there would be an impact and he estimated it was going to be in the beginning in two thousand and one to eleven million dollars we cite those testimonies and notes  in our in our brief so mr boyer was making asked if he had information sufficient to make estimates and those were not those were estimates of this change not a combined change and so i thought  be clear with the government that this is a change in the accounting approach was going to result in cost of the car that that's the risk and so are the special limitations only ones when you either told the government or the government should know that this was going to cost them the tional money and i think what we're struggling with is to find either an explicit statement or some other reason that the government should have known that this would result in increased costs but there was a jew nine hundred ninety eight or nine hundred ninety nine the government and we said we're doing this it's going to cost more because we're addressing the g f m problem and it's not going to cost as much as another alternative that we have considered and i'm sorry that i don't have the records cite for the court at this moment but i think mr different true though that in response to all of this time tracking officer after receiving the auditors reports didn't concluded that there was no noncompliance at the present time it's changing over to the new accounting product practice is possible noncompliance going into the future and it's something that the government ought to and needs to continue to monitor and yeah that was basically her position  the time yes it was after taking in all of your information after taking in all the information from the audit yes in our response to that was that's because in one nine hundred ninety nine in two thousand as these contracts were so slowly changing over it we were signing new contracts that would be priced under this method they were still dominated by the abstract but but they told the government that it's time for brass and according to mr boyer the auditor starting two thousand and one these were going to be big numbers and that's essentially  ask and that is concerning the continuing claims dr because i want to be clear about our position and i don't know that that's the right label but i do want to make sure the court understands with respect to the statute of limitations as stated in our complaint our position here is that it is a bar as to claims based on contract signed before december two thousand and two in this case that is the great bulk of the alleged damages but it is not all of on whether this six year presentation requirement is jurisdictional or not a devotee nothing of the nature of can you raise it late in the proceedings because you didn't raise it in a timely fashion jurisdictional like you know she did to be able to raise any time that that's not an issue here so so what aspect of the analysis is affected by whether  s holding in this context i recognize this court has not yet ruled on the jurisdictional question in the context of a government claim under the statue of limitations but it would shift the burden or we contend that the question that's our position on that i want to go back to forty one and three first of all why is the stock market confidential what's confidential about this don is that document includes certain cost data she corsi right well you know you shouldn't be marking entire document as confidential just because it has some cost it in the least the cost to show me where in that document the non confidential part of it that doesn't disclose the actual cost in a where where is it that you tell a government this is going to cost more money soriano can't locate that if it's a letter remote you don't have to pick if it has we advised and i believe that letter we have five that under this method apply factor nine hundred ninety eight we estimated one point seven million dollars impact have been applied we were telling the government that this was a means by which increased costs were going to be allocated to government contracts i believe the record is abundantly clear of the government understood that that was a driving force for them to there's a sense that says  increase using material operations intermediate cool is and gives a number which is more than a modified one hundred ninety eight material overhead rate but less than a full nine hundred ninety eight material overhead rate is that that yes yes and we would be if we were  that how does that tell the government that the net cost is going to be greater it tells the government the increased costs are being allocated not as much as another alternative that we had discussed with the government the government knew very well that we were concerned about the under allocation of these costs due to the g o p distortion mr hoyer recognized that that was part of a driving reason why he was opposed to this because he thought it number one didn't comply and number two would have a sikorsky and if you look to the next to the last sentence said as a case in point the reason we've asked where desirable change determination is because in the aggregate the u s government contracts associated after nine ninety nine would have resulted in a higher cost with the material overhead so again no basis for the noncompliance no basis for the noncompliance because there's no material impact to course he said the agreed that he had not been able to prove a material impact he had suggestions but he had been unable to complete the cost impact because there had been changes into quest means business the bottom line is that the reason why  the auditor had so much trouble trying to calculate a car impact is in order to show what the allocation would be with direct material costs you had to know what the direct imperial costs were but after nine hundred ninety nine so the course  longer routinely recorded that in the old days they used to put it right into the neville report but after nine hundred ninety nine they no longer reported it and when the auditor asked for that information never provided it for two thousand and two thousand and one and they took more than a year to provide it even though it only took them on week to gather those are the facts that the trial court relied upon he didn't say sikorsky tighten the bar but it was quite plain from his resignation of what happened so of course he was not coming forward and that's the reason why i think for me to perform the brief that the a cruel method required by statute makes more sense interpretation is something that undesirable the board can change the regulations according to the president according to the president of this court your honor and interpretation if the if the united states were to get rid of the fourth amendment by judicial decision the united states can reenact it for the men that it's not always is easily done it's the cast of the canada system of regulations put together in the seventy's by a body with dozens of staff working intensely over the years with industry and they made a network of regulations if you pull that apart it's that easy to put it back together the current task board has one staffer and they deal with certain things the dues revision they're not in the process of totally revamping the cast for them when there's no need to in our system we should build on the laws that exist