# United States **Court of Appeals**  **for the Federal Circuit**

______________________ STRATEGIC TECHNOLOGY INSTITUTE, INC., Appellant

v.

SECRETARY OF DEFENSE, Appellee

______________________

2022

- 1763

______________________Appeal from the Armed Services Board of Contract Appeals in No. 61911, Administrative Judge David D ’ Alessandris, Administrative Judge Owen C. Wilson, Administrative Judge Richard Shackleford.

______________________

Decided: Januar y 24, 2024

______________________

J AMES Y. B OLAND , Venable LLP, Tysons Corner, VA, argued for appellant. Also represented by M ICHAEL T. F RANCEL , L INDSAY R EED , Washington, DC.

M ILES K ARSON , C ommercial Litigation Branch, C ivilDivision, United States Department of Justice, Washington, DC, argued for appellee. Also represented by B RIAN M. B OYNTON , W ILLIAM J AMES G RIMALDI , M ARGAET J ANTZEN , P ATRICIA M. M C C ARTHY ; K ARA K LAAS , D efense Contract Management Agency , United States Department of Defense , Chantilly, VA. Case: 22-1763 Document: 39 Page: 1 Filed: 01/24/2024STRATEGIC TECHNOLOGY INSTITUTE , INC

. v. SECRETARY OF DEFENSE 2

______________________
Before H UGHES , C UNNINGHAM , and S TARK , Circuit Judges

. H UGHES , Circuit Judge.
Strategic Technology Institute , Inc. appeals an Armed Services Board of Contract Appeals ’ decision denying Strategic Technology Institute, Inc. ’s appeal and sustaining the Defense Contract Management Agency ’ s claim. Strategic Technology Institute, Inc. argues that the government’s claim is barred under the six

- year statute of limitation s under the Contract Disputes Act. Because w e conclude that the government ’s claim did not accrue until the government received an inadequate cost proposal from Strategic Technology Institute, Inc.

, w e affirm.

I

A
In April 2008, the Department of the Navy awarded a
contract to Strategic Technology Institute, Inc. ( STI) to provide various aircraft engineering and support services to the Naval Surface Warfare Center. This was a cost

- reimbursable contract with a performance period of one year and four one

- year option periods. The contract incorporated Federal Acquisition Regulation ( FAR ) 52.216

- 7, Allowable Cost and Payment (Dec. 2002) , and FAR 52.2 42 -4, Certification of Final Indirect Costs ( Jan

. 1997)

. 1

Under FAR 52.216

- 7, the government agreed to pay STI’s monthly invoices using agreed

- upon provisional billing rates (i.e., “ anticipated final rates ” ) “[u]ntil final annual indirect cost rates are established for any period.” FAR 52.216

- 7(e). Since billing rates were provisional rates

1 The FAR is codified in T itle 48 of the Code of Federal Regulations. For brevity, we refer to the FAR without corresponding C.F.R. citations. Case: 22-1763 Document: 39 Page: 2 Filed: 01/24/2024STRATEGIC TECHNOLOGY INSTITUTE , INC

. v. SECRETARY OF DEFENSE 3

based on projections, the amounts paid by the government

were subject to future adjustment at the end of each contract year based on STI’s “actual cost experience for that period. ” FAR 52.216

- 7(d)(2)(ii).
The contract required STI to “submit an adequate final indi rect cost rate proposal

. . . within the 6

- month period following the expiration of each of its fiscal years.” FAR 52.216

- 7(d)(2)(i). STI was required to submit its proposals for fiscal year 2008 by June 30, 2009, and for fiscal year 2009 by June 30, 2010. STI was also required to certify its “proposal to establish or modify final indirect cost
rates .” FAR 52.242 -4 (a)(1)

.The purpose of the proposal was to demonstrate the allowability of STI’s billed costs by providing the government detailed entries of STI’s expenses. Costs are only allowable when , among other requirements, they are reasonable and satisfy the terms of the contract. See FAR 31.201

- 2(a); see also FAR 52.216

- 7(a) (stating that cost allowability is based on FAR subpart 31.2). STI had the burden to demonstrate that its invoiced costs were allowable by “account ing for costs appropriately and . . . m aint aining rec ords, including supporting documentation .” FAR 31.201

- 2(d). When STI failed to meet that burden , the contracting officer could “disallow all or part of a claimed cost that [w as ] inadequately supported.” Id. Under FAR 52.216

- 7(g)

, “[a]t any time” before final payment for a contract year

, the government could also audit STI’s invoices and statements of
costs
, and reduce payments for any costs found unallowable or overpa id

. B In July 2014, during the Defense Contract Audit Agency’s ( DCAA) audit of STI’ s indirect cost rate proposals for 2010 (not at issue in this appeal) , DCAA noticed that STI had failed to submit cost rate proposals for fiscal year s 2008 and 2009 . The government sent requests for these cost rate proposals and corresponding certifications via Case: 22-1763 Document: 39 Page: 3 Filed: 01/24/2024STRATEGIC TECHNOLOGY INSTITUTE , INC

. v. SECRETARY OF DEFENSE 4

email . STI then provided cost rate proposals for both years in July 2014 and certifications in August 2014

. It submitted final cost rate proposals for both years on September 30, 2014. J.A. 5.
In August 2014, DCAA informed STI that DCAA hadinitiated a review of STI’s 2008 and 2009 cost rate proposals

. DCAA determined that STI’s proposals were high risk “[d]ue to the lack of experience with this contractor, as well as missing submissions

. ” J.A. 5 (al teration in the original)

. DCAA subsequently conduct ed a multi

- year audit to verify that the expenses in the cost rate proposal s were allowable

.In June 2015, DCAA issued two audit reports questioning certain direct and indirect costs incurred by STI in 2 008 and 2009. In June 2016, the Defense Contract Management Agency ( DCMA ) informed STI that the government was seeking $368,860 in reimbursement for direct costs, penalties, and interest, and was also questioning indirect
costs. On November 30, 2018, DCMA issued a final decision unilaterally establishing rates and demanding payment in the amount of $1,107,788, including $117,245 in penalties and interest.

C STI timely appealed DCMA’s final dec ision to the Board, arguing that the Contract Dispute s Act’s ( CDA )

, 41 U.S.C. § 7102 et seq. , six -year statute of limitations barred the g overnment’s claim. STI did not appeal the merits of the government’s cost determinations. STI contended that it timely submitted indirect cost rate proposals in July2009 and July 2010, respectively, more than six years before DCMA issued its final decision. In the alternative, STI contended that even if STI had not submitted its proposals until 2014, the g overnment’s cla im accrued in July 2009 and July 2010 when those proposals were due. STI argued that the government should have known its claim existed Case: 22-1763 Document: 39 Page: 4 Filed: 01/24/2024STRATEGIC TECHNOLOGY INSTITUTE , INC

. v. SECRETARY OF DEFENSE 5

when STI failed to submit the proposals by their contractual deadline.
In January 2022, the Board issued a final decision, rejecting STI’s statute of limitations argument as contrary to legal precedent. The Board determined, and STI does not

now dispute, that the government did not receive STI’s indirect cost rate proposals u ntil July 11, 2014, five and four years, respectively, after the two proposals were due. The Board also held that the g overnment did not know and had no reason to know of its claim against STI until it received STI’s final 2008 and 2009 cost rate proposals in September 2014. The Board , citing its precedent in Doubleshot, Inc.

, ASBCA No. 61691, 20 -1 BCA ¶ 37,677 at 182,905

, held that the statute of limitations on any government claim for disallowed costs do es not begin “ until the contract or submits the incurred cost proposal and makes available sufficient audit records

. ” J.A. 20. Because the government brought its claim in 2018
, within si x years from when the government received an inadequate cost proposal from STI in 2014
, the Board sustained the government ’s claim.
STI now appeals. We have jurisdiction under 28 U.S.C. § 1295(a)(10).

II

We review the Board’s legal conclusions de novo

. Triple Canopy, Inc. v. Sec’y of Air Force , 14 F.4th 1332, 1337

– 38 (Fed. Cir. 2021)

. “ Interpretation of a government contract and interpretation of applicable procurement regulations are questions of law subject to de novo review.” Id. at 1338

. The B oard’s findings of fact are final, and the c ourt’s review is limited to a determination of whether those findings are fraudulent, arbitrary, capricious, based upon less than substantial evidence, or rendered in bad faith. 41 U.S.C. § 7107(b)(2); Kellogg Brown & Root Servs., Inc. v. Sec’y of the Army , 973 F.3d 1366, 1370 (Fed. Cir. 2020). Case: 22-1763 Document: 39 Page: 5 Filed: 01/24/2024STRATEGIC TECHNOLOGY INSTITUTE , INC

. v. SECRETARY OF DEFENSE 6

III

STI contends that the statute of limitation s bars the government ’s claim because the government ’s claim accrued when the cost rate proposals for 2008 and 2009 weredue in June 2009 and June 2010, respectively, and the government did not bring its claim until 201 8. The CDA provides that “each claim by the Federal Government against a contractor relating to a contract shall be submitted within 6 years after the accrual of the claim .” 41 U.S.C. § 710 3 (a)(4)(A) (emphasis added)

. The statute does not define when “ the accrual of the claim” begins. We have explained “when a CDA claim is accrued is determined in accordance with the FAR, the c onditions of the contract, and the facts of the particular case.” Kellogg Brown & Root Servs., Inc. v. Murphy , 823 F.3d 622, 626 (Fed. Cir. 2016) . T he applicable FAR provision and the facts of th is case lead us to conclude that the government ’s claim did not accrue until STI submitted the cost rate proposals for 2008 and 2009 in September 2014.

A
We begin with the governing FAR provision defining claim accrual and the incorporated FAR provisions establishing “ the condition s of the contract .”

P ursuant to FAR 33.201, a claim accrues “when all events, that fix the alleged liability of

. . . the contractor and permit assertion of the claim, were known or should have been known. For liability to be fixed, some injury must have occurred. However, monetary damages need not have been incurred. ” 2 The government asserted its claim

2 STI argues that the FAR improperly incorporated the “knew or should have known” discovery rule when the plain text of the statute does not include such a rule. It Case: 22-1763 Document: 39 Page: 6 Filed: 01/24/2024STRATEGIC TECHNOLOGY INSTITUTE , INC

. v. SECRETARY OF DEFENSE 7

on November 30, 2018
, when DCMA issued a final decision unilaterally establishing rates and demanding payment from STI. Hence , if all events that fixed STI’s liability for the claim were known or should have been known to the government before November 30, 2012, six years before DCM A issued its final decision, the government ’s claim would be barred under the statute of limitation s

. STI argues that the event s that fixed STI’s liability

w ere STI’s billing of unallowable direct and indirect costs during 2008 and 2009 and STI’s failur e to timely submit its cost rate proposals. STI argues that when it breached the contract and failed to justify any of its incurred costs

, it became liable to the government for all of its unsupported billed costs in 2008 and 2009

. We disagree.

The event that fixed STI’s liability is the submission of inadequate cost proposals , not STI’s failure to submit proposals on time

. For a flexibly priced contract like the one at issue here

, th e government first pays the contractor based

on anticipated final rate

. A t the end of the ye ar (within six months from the end of a fiscal year) , the contractor submits a cost rate proposal based on “ actual cost experience. ”

contends that our many precedents holding that CDA claim accrual is determined, in part, “in accordance with the FAR” and its “knew or should have known ” discovery rule, see, e.g. , Kellogg Brown

, 823 F.3d at 626, “cannot survive in light of recent Supreme Court precedent,” Reply Br. at 4, specifically Ro tkiske v. Klemm , 140 S. Ct. 355, 360

– 61 (2019) (explaining that discovery rule s “cannot be supplied by the courts” when absent from applicable statute). We need not reach this issue because the outcome of the case is the same regardless of whether we apply the “knew or should have known” discovery rule. Just as we find that thegovernment did not know of the basis for the claim it asserts here until 2014, we are also unpersuaded that the government should have known of its claim any sooner. Case: 22-1763 Document: 39 Page: 7 Filed: 01/24/2024STRATEGIC TECHNOLOGY INSTITUTE , INC

. v. SECRETARY OF DEFENSE 8

FAR 52.216

- 7(d)(2)(i)

– (ii)

. The government then calculates the final rate based on the contractor’s cost rate proposal

. FAR 52.216

- 7(d)(2)(ii)

. Once the final rate is determined,
t he government must pay the contractor “ any balance of allowable costs

. . . not previously paid ” and the contractor must also pay “any refunds, rebates, credits, or other
amounts .

. . to the extent that those amounts are properlyallocable to costs for which the contractor has been reimbursed by the Government.” FAR 52.216

- 7( h). In other words, if the contractor spends more than what it has anticipated ( i.e.

, the anticipated final rate is below the actualcost experience), then the government must pay the remaining balance to the contractor. But if the contractor

spen ds less than what it has anticipated, the contractor
must reimburse the government

. For a flexibly priced contract

, the contractor ’s liability for receiving overpayment is not fixed merely because the contractor spen ds less than the anticipated final rat e

. By design, the contract contemplates that the contractor may spend less ( or more ) than what the contractor and government originally projecte d . The contract has built in mechanisms ( e.g. , cost proposals and calculation of final rate ) to settle the difference at the end of each year

. But th e contractor must remit overpayment if the contractor ’s a ctual incurred costs are less than the collectively

- agreed or unilaterally

- decided final rate

. B
Here, STI submitted the cost rate proposals for fiscal year 2008 and 2009 in September 2014, more than four

years after they were due, and only upon the government’s request. Upon receiving the cost rate proposals, the government conducted audit s to verify that the expenses in the
cost rate proposal were allowable ( i.e.

, reasonable and satisfy ing the terms of the contract ). The government’s audits found that STI’s cost rate proposal s included approximately $1 millio n in un allowable costs

. The g over nment Case: 22-1763 Document: 39 Page: 8 Filed: 01/24/2024STRATEGIC TECHNOLOGY INSTITUTE , INC

. v. SECRETARY OF DEFENSE 9

then brought the claim at issue here demanding payment of unallowable costs, penalties, and interests. On appeal, STI concedes that it had the burden to submit adequate cost proposals but failed to meet that burden by submitting them late

. C
Upon review of applicable FAR provisions and the facts of this case, we conclude that the event that started the clock for the statute of limitation s is the submission of STI’s cost rate proposals in September 2014, not STI’s failure to timely submit the proposals

. When STI failed to submit its proposal by the contractual deadline, thegovernment had several options, including unilaterally setting rat es based on whatever documentation it had at the time

, or bringing a claim against STI for breach of its contractual obligation to timely file cost rate proposals. Such a breach of contract claim would have been different from the claim the government asse rted here. Rather than a lleging a breach of contract , here, the government is disputing the costs included in STI’s final proposals

. Without those proposals, the government had no basis to assert that the specific, final billed costs were not allowable under the
contract

. STI’s liability for receiving overpayment was not fixed until STI submitted unallowable costs in the cost proposal

. Therefore, the government’s claim

— the claim it actually filed and is at issue here

— could not have accrue d
unt il STI submitted its cost rate proposals.
Our holding in Electric Boat Corporation v. Secretary of Navy does not change the analysis. 958 F.3d 1372 ( Fed. Cir. 2020). In Electric Boat , Electric Boat and the Navy entered into a contract for the construction of nuclear

- powered submarines. Id. at 1373

. The contract included a change -of- law clause, providing a right to a price adjustment for Electric Boat. Id. at 1374. Under the change of law clause, no cost adjustment could be made during the first
two

- years after the contract took effect. Id. That two

- year Case: 22-1763 Document: 39 Page: 9 Filed: 01/24/2024STRATEGIC TECHNOLOGY INSTITUTE , INC

. v. SECRETARY OF DEFENSE 10

period ended in August 2005. Id. When OSHA issued a new regulation, effective in December 2004, that could increase Electric Boat’s cost of performance, Electric Boat and theNavy entered into years of discussions regarding a potential price adjustment. Id

. Eventually, the Navy formally denied Electric Boat’s request for a price adjustment in May 2011, and Electric Boat filed a claim in December 2012, more than six years after the expiration of the two

- year period, August 15, 2005. Id. at 1375. We held that Electric Boat’s claim was barred by the statute of limitation s because Electric Boat’s injury was the enactment of the OSHA regulation, and the statute of limitation s clock b egan when the contract first provided a right to a price adjustment. Id. at 1376. STI argues that since Electric Boat’s claim was “fixed” as soon as a regulation was enacted, the government’s claim was fixed

, and the statute of limitation s period beganthe moment STI failed to submit its indirect cost rate proposals. STI asserts that because the FAR authorize s the government to audi t STI’s invoices and associated documentations at “any time” or to unilaterally establish rateswhen contractors fail to submit their proposals by the contractual deadline

, the government does not have the right to bring claims ba sed on late final cost rate proposals

. We disagree.

In Electric Boat , the price adjustment was triggered by the enactment of the OSHA regulation, but here, as we explain above, the calculation of final rate and subsequent adjustment was triggered by STI’s submission of the co st rate proposals. Without the cost rate proposals, there was

no basis for calculating and adjusting the final rate. While
t he government could have audited STI’s invoices and associated documentations at “any time ,” STI points us to no authority (and we are aware of none) that compelled the government to do so. The government did not conduct such

an audit and thus, could not have “known” about disputed Case: 22-1763 Document: 39 Page: 10 Filed: 01/24/2024STRATEGIC TECHNOLOGY INSTITUTE , INC

. v. SECRETARY OF DEFENSE 11

costs that would be part of the cost rate proposals and later deemed unallowable

. Lastly, STI argues that our holding would empower a contractor to unilaterally prevent a government claim by refusing to submit its cost rate proposal and certification. We disagree. As we have noted, the government has other options to deter such abuse by a contractor. E ven in the absence of receipt of cost rate proposals, the government can audit the documentation it does have

, and it can unilaterally adjust the rates charged by a contractor. It can also pursue a breach of contract c laim for failure to timely submit cost rate proposals and certifications.
Moreover, contractors are incentivized to submit cost rate proposals to ensure they are reimbursed appropriately, as these submissions reduce the contractor’s risk of unilateral rate reductions or disallowance of certain costs. Even STI acknowledges these realities. See, e.g. , Reply Br. at 7(“By not submitting its proposals by the contractual deadline, STI failed to justify its billed costs in the manner required by the contract and the FAR and, therefore, immediately rendered all of them subject to disallowance.”).Noncompliant government contractors may also be subjected to additional procedures (such as order s to show

cause , cure notices, performance evaluations , and even fraud investigations ) and risk being unsuccessful in future bids for new contracts.
Here, STI submitted the cost rate proposals for fiscal year 2008 and 2009

, in September 2014, and DCMA issued a final decision disallowing certain costs, unilaterally esta blishing rates

, and demanding payment in November 201 8 . Because the claim was filed within six year s after STI submitted the inadequately supported cost rate proposals

, we conclude that the claim is not barred under the six

- year statute of limitation s

. Case: 22-1763 Document: 39 Page: 11 Filed: 01/24/2024STRATEGIC TECHNOLOGY INSTITUTE , INC

. v. SECRETARY OF DEFENSE 12

IV
We have considered STI’s remaining arguments butfind them unpersuasive. For the foregoing reasons, we affirm.

AFFIRMED

COSTS

No costs. Case: 22-1763 Document: 39 Page: 12 Filed: 01/24/2024