ARMED SERVICES BOARD OF CONTRACT APPEALS 

Appeal of -- ) 

) 

A-T Solutions, Inc. ) 

) 

Under Contract No. W91 CRB-09-C-0043 ) 

APPEARANCES FOR THE APPELLANT: 

APPEARANCES FOR THE GOVERNMENT: 

ASBCA No. 59338 

Terry L. Albertson, Esq. 

Robert J. Sneckenberg, Esq. 

Crowell & Moring LLP 

Washington, DC 

Raymond M. Saunders, Esq. 

Army Chief Trial Attorney 

MAJ Elinor J. Kim, JA 

Trial Attorney 

OPINION BY ADMINISTRATIVE JUDGE O'SULLIVAN 

Appellant A-T Solutions, Inc. (ATS) appeals a contracting officer's final 

decision denying its claim to recover commercial catalog prices for training equipment 

used in connection with improvised explosive device (IED) training provided under an 

Army contract. Only entitlement is at issue. We have jurisdiction under the Contract 

Disputes Act, 41 U.S.C. §§ 7101-7109. We sustain the appeal. 

FINDINGS OF FACT 

Solicitation and Award 

1. In December 2008, the U.S. Army Research, Development and Engineering 

Command (RDECOM) solicited proposals for a contract to provide training for armed 

forces to proactively defeat the IED threat. The solicitation was issued on behalf of the 

Department of Defense Joint IED Defeat Organization (JIEDDO), Joint Center of 

Excellence (JCOE), Joint Asymmetric Threat Awareness and Counter (JATAC) 

training program. It contemplated a single award of a cost-plus-fixed-fee (CPFF) 

contract. (R4, tab 1 at 15, tab 3 at 1, 5, 15) The awardee was to provide professional 

training services and training materials and equipment, both inside the Continental U.S. 

(CONUS) and outside the Continental U.S. (OCONUS), for a base year and up to four 

option years (R4, tab 3 at 23 ). 

2. Previously, in 2007, the Army awarded the first JATAC training contract to 

ATS on a firm-fixed-price, sole source, "gap-filler" basis to meet urgent training needs 
(tr. 29-30; R4, tab I at 16). This first contract was followed by a competitive contra¢t 

award to ATS pursuant to the GSA Schedule in 2008 (tr. 30). Under both the first and 

second contract, A TS provided its training materials and equipment as commercial 

items and was paid for them at its catalog prices (id.). These items included various 

different types of IEDs, training kits, and IED defeat tools (R4, tab I 0). The Army 

decided to use a CPFF contract for the third procurement, which was competitive, with 

four offerors submitting proposals (app. supp. R4, tab 12 at 16). 

3. ATS submitted its proposal on 30 January 2009 (R4, tabs 4-11). It proposed a 

total estimated cost across five years of $198,920, 794, which included a fixed fee of 

$I 0,391, 146 (R4, tab 4 at 5). In the narrative portion of its cost/price proposal, it spelled 

out the assumptions on which its proposal was based. Among them were the following: 

Fixed Fee -ATS proposes a fixed fee of9% on all direct 

labor, consultants and subcontractors. ATS proposes a 

fixed fee of 0% on all other cost elements. 

Travel - All travel will be conducted IA W Joint Travel 

Regulations (JTR). Travel will be billed at actual incurred 

cost, with no additional fee or burdens applied .... 

Training Materials and Equipment - ATS is a 

manufacturer, distributor and supplier of training products 

to a wide variety of customers. Training Materials and 

Equipment listed in this proposal include IED products, 

IED training devices, training kits, training manuals and 

commercial software products. These items are priced at 

the ATS commercial catalog price, per FAR 52.2 I 5-

2 I ( a)(ii)(2)(B) and FAR 31.205-26. Quantity discounts 

have been applied where appropriate based on the total 

quantity of each item required by the SOW. Any purchase 

of quantities less than indicated in the SOW may result in a 

higher unit price charged to the Government. A complete 

set of ATS product catalogs, including photos and 

descriptions, is included with this proposal. 

2 
Consumable Items - In order to support a dynamic and 

relevant training program, each training program requires 

local procurement of consumable items. These items 

cannot be specifically identified or priced in advance. ATS 

will procure these items locally at the training location, to 

save shipping and handling costs. The total cost of 

consumable items is a relatively small component of the 

training program. In this proposal, we have identified a 

"budget" for locally procured consumable items for each 

training program. When directed by the Government, A TS 

will locally procure appropriate items and invoice them at 

actual incurred cost (no fee). 

(R4, tab 7 at 3-5) Examples given of consumable items included emerging threat IED 

components, electronics, and booby trap materials, repair parts, stage props to simulate 

field IED fabrication cells, and items used to conceal IEDs (id. at 5-6). 

4. In summary, ATS proposed to bill direct labor, consultants, and 

subcontractors at cost plus a fixed fee calculated at 9% of estimated cost. A TS 

proposed to bill travel at cost (no fee). ATS proposed to charge for its commercial 

item training materials and equipment at the catalog prices attached to the proposal 

(R4, tabs 10-11). Finally, consumable items bought locally would be billed at incurred 

cost (no fee). 

5. The government's Pre-Negotiation Objective Memorandum (POM) 

noted that ATS' s proposal was "indicative of a superior understanding of the 

requirements," demonstrated "unique expertise required to execute JATAC 

requirements" and "superior vision," and offered lower hourly rates than the other 

offerors (app. supp. R4, tab 12 at 26). With respect to ATS's proposed training 

material and equipment costs, proposed as part of Other Direct Costs (ODCs), the 

government's evaluation stated: 

ODCs - Proposed a total ODC amount of$73,072,471.00. 

The amount includes CONUS and OCONUS travel, 

equipment, weapons, weapon supplies, clothing, training, 

subcontractor non-labor costs. ATS' ODC amount is the 

third highest among offerors. However, ATS provided 

detailed back up documentation to show their calculations 

at arriving at their ODCs total and it appears they fully 

understand the requirements of the SOW so the costs are 

considered realistic. 

(Id. at 37) The government further determined as follows: 

3 
8. The price proposal from ATS is determined to be 

realistic, fair and reasonable based on the cost realism/price 

analysis performed, their technical proposal is rated 

Excellent, and they received a very low performance risk 

rating; therefore, no further negotiations are necessary by 

the Government. Since two of the four proposals submitted 

are competitive and considered fair and reasonable, it is 

recommended the Price-Negotiation Memorandum be 

waived. 

9. The total contract price [proposed by A TS] of 

$198,920, 794.00 should be accepted by the Government 

without further negotiations for the services requirement 

under this CPFF contract. 

(Id. at 46) Based on the foregoing, the POM concluded that award should be made to 

ATS without further negotiation (id. at 29-30). 

6. Contract No. W91CRB-09-C-0043 (the contract) was awarded to ATS on 

19 May 2009, with an effective date of 1May2009 (R4, tab 1). The award stated that 

ATS's January 2009 proposal was accepted and that the contract consisted of''the 

following documents: (a) the Government's solicitation and your offer, and (b) this 

award/contract. No further contractual document is necessary." (Id. at 1) 

Contract Clauses 

7. The contract contains the following clauses incorporated by reference: 

FAR 52.215-2, AUDIT AND RECORDS-NEGOTIATION (JUN 1999); FAR 52.215-8, 

ORDER OF PRECEDENCE-UNIFORM CONTRACT FORMAT (OCT 1997); and 

FAR 52.244-6, SUBCONTRACTS FOR COMMERCIAL ITEMS (MAR 2007). The contract 

also incorporates, in full text, FAR 52.216-7' ALLOW ABLE COST AND PAYMENT 

(DEC 2002). (R4, tab 1 at 59-60, 62-65) 

8. FAR 52.215-2 provides, in relevant part: 

(b) Examination of Costs. If this is a 

cost-reimbursement, incentive, time-and-materials, 

labor-hour, or price redeterminable contract, or any 

combination of these, the Contractor shall maintain and the 

Contracting Officer, or an authorized representative of the 

Contracting Officer, shall have the right to examine and 

audit all records and other evidence sufficient to reflect 

4 
properly all costs claimed to have been incurred directly or 

indirectly in performance of this contract. 

FAR 52.244-6 provides, in relevant part: 

(a) Definitions. As used in this clause-

''Commercial item" has the meaning contained in 

Federal Acquisition Regulation 2.101, Definitions. 

"Subcontract" includes a transfer of commercial 

items between divisions, subsidiaries, or affiliates of the 

Contractor or subcontractor at any tier. 

(b) To the maximum extent practicable, the 

Contractor shall incorporate, and require its subcontractors 

at all tiers to incorporate, commercial items or 

nondevelopmental items as components of items to be 

supplied under this contract. 

FAR 52.216-7 provides, in relevant part: 

(a) Invoicing. (1) The Government will make 

payments to the Contractor when requested as work 

progresses, but (except for small business concerns) not 

more often than once every 2 weeks, in amounts determined 

to be allowable by the Contracting Officer in accordance 

with Federal Acquisition Regulation (FAR) subpart 31.2 in 

effect on the date of this contract and the terms of this 

contract .... 

(b) Reimbursing costs. (1) For the purpose of 

reimbursing allowable costs ... , the term "costs" includes 

only-

(i) Those recorded costs that, at the time of the 

request for reimbursement, the Contractor has paid by cash, 

check, or other form of actual payment for items or services 

purchased directly for the contract; 

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(ii) When the Contractor is not delinquent in paying · 

costs of contract performance in the ordinary course of 

business, costs incurred, but not necessarily paid, for-

(A) Supplies and services purchased directly for the 

contract and associated financing payments to 

subcontractors, provided payments determined due will be 

made-

( 1) In accordance with the terms and conditions of a 

subcontract or invoice; and 

(2) Ordinarily within 30 days of the submission of 

the Contractor's payment request to the Government; 

(B) Materials issued from the Contractor's inventory 

and placed in the production process for use on the contract; 

(C) Direct labor; 

(D) Direct travel; 

(E) Other direct in-house costs; and 

(F) Properly allocable and allowable indirect costs, 

as shown in the records maintained by the Contractor for 

purposes of obtaining reimbursement under Government 

contracts; and 

(iii) The amount of financing payments that have 

been paid by cash, check, or other forms of payment to 

subcontractors. 

Contract Performance, Invoicing, and Audit 

9. At a kick-off meeting following award of the contract, ATS sought and 

received government approval to invoice for the training materials and equipment 

separately from the training services. Starting in October 2009, ATS began invoicing 

for the training materials and equipment at catalog prices, and the government paid the 

invoices promptly and in full. (Tr. 48-50) 

10. In February 2010, ATS received notice that the Defense Contract Audit 

Agency (DCAA) would be conducting an audit of contract cost. DCAA requested to 

6 
review A TS' s material costs after it had reviewed, and approved, A TS' s labor costs. 

(Tr. 46-48) Because DCAA did not accept ATS's position that it need not provide cost 

information for items that had been proposed and accepted at price, and the Army 

deferred to DCAA, A TS suspended its billing for the training materials and equipment 

in February of 2010 (tr. 47, 67). ATS continued to provide all services and equipment 

required under the contract. It resumed billing, but only provisionally, at direct 

material cost for the training aids and devices in September of 2010. (Tr. 67) 

Thereafter, in mid-2013, ATS began billing for delivered training materials at fully 

burdened cost (tr. 86). 

11. DCAA finalized and issued its audit report on 7 July 2011 (R4, tab 17). 

The subject of the audit, as described by DCAA, was as follows: 

As part of our comprehensive audit of A-T 

Solutions, Inc. (ATS), we examined the contractor's 

accounting system as of March 10, 2011, to determine 

whether it is adequate for accumulating costs under 

Government contracts and whether the billing procedures 

are adequate for the preparation of cost reimbursement 

claims, i.e., interim public vouchers and progress 

payments. 

ATS is responsible for establishing and maintaining 

an adequate accounting system for accumulating and billing 

costs under Government contracts. Our responsibility is to 

express an opinion on the adequacy of the accounting 

system based on our examination. 

Based on its examination, DCAA concluded that: 

In our opinion, ATS' accounting system is 

inadequate for accumulating and billing costs under 

Government contracts. Our examination disclosed a 

significant deficiency that is considered to be a material 

weakness in the design or operation of the accounting 

system. We determined the contractor is not currently 

billing material at cost as required under a cost 

reimbursable contract. In our judgment, this deficiency 

could adversely affect the organization's ability to initiate, 

authorize, record, process, and/ or report costs in a manner 

that is consistent with applicable Government contract 

laws and regulations. As a result, we recommend you 

7 
pursue suspension of a percentage of reimbursement of 

costs in accordance with DFARS 242.7502. 

(R4, tab 17 at 4-6) 

12. DCAA explained the basis for its determination as follows: 

We determined ... the contractor is billing costs 

associated with its training aids at catalog price rather than at 

actual unit cost. During discussions with Ms. Debbie Ricci, 

chief financial officer, [I] we determined the contractor is 

continuing a practice started under the original firm-fixed-price 

contract. However, the contractor's current contract, which 

began in late 2009, is cost-plus-fixed-fee. Cost reimbursable 

type contracts require materials to be tracked and billed at the 

base cost level, unless otherwise stated in the subject contract. 

A TS asserts its material billings are in accordance with 

FAR 31.205-26( e ), which allows for material costs to be billed 

at price when costs are transferred and recorded between 

company segments at price. We reviewed the contractor's 

submissions provided in support of its assertion and performed 

an additional field visit on March 10, 2011. Based on the 

information provided, we do not believe A TS meets all the 

requirements of FAR 31.205-26( e ). Although, the contractor 

has established the commerciality of its products and has 

adequately demonstrated a physical transfer of material goods 

between Mission Support and Training (Warfighter), its 

accounting system documentation does not show a transfer of 

material at price between divisions as specifically required by 

FAR 3 l.205-26(e)(l)(2), which states: 

However, allowance may be at price when-

(1) It is the established practice of the transferring 

organization to price interorganizational 

(underlined for emphasis) transfers at other than 

cost for commercial work of the contractor or any 

division, subsidiary or affiliate of the contractor 

under a common control; and 

(2) The item being transferred qualifies for 

an exception under [FAR] 15.403-1 (b) and the 

1 Ms. Ricci succeeded Mr. Wise as CFO of ATS in June of 2010 (tr. 60). 

8 
contracting officer has not determined the price to 

be unreasonable. 

The transfer occurs at cost between the A TS Mission 

Support and ATS Training Divisions. ATS' proposed 

practice of billing material costs based on a commercial 

price, if permitted, would result in significant overbillings 

to the Government in excess of the contractor's cost for the 

material. 

(R4, tab 17 at 7) 

13. A TS disagreed that its accounting records showed a transfer at cost rather 

than price and that its accounting system was therefore inadequate. In its rebuttal 

provided to DCAA prior to issuance of the final audit report, A TS stated: 

The Company disagrees with DCAA's comment that the 

accounting records do not reflect the transfer of commercial 

products from Mission Support Solutions to Warfighter 

Solutions at price. DCAA's comment is based on the fact 

that Warfighter Solutions' Project Summary Report ("PSR") 

for this contract, a Deltek CostPoint management report, 

does not reflect Mission Support Solutions' price as the cost 

to the project and Warfighter Solutions. This reporting 

practice was a result of an intentional setup selection in the 

initial implementation ofDeltek Costpoint. In response to 

the audit comment by DCAA, the Company has modified 

the capture of price related to intercompany [sic] transfers 

on the PSR report and has f1Xed the exception noted by 

DCAA. The Company does not believe this reporting 

exception invalidates the Company's interorganizational 

transfers pursuant to FAR 31-205-26(e). 

The Company is confident that ( 1) the transfers were 

properly recorded by the Mission Support business unit at 

price in accordance with FAR 31-205-26( e ), and (2) the 

financial results of Mission Support Solutions and 

W arfighter Solutions reflect the economics of this 

transfer at price. Based on these facts, the Company 

believes all requirements of FAR 31.205-26(e) have 

been met. In analyzing FAR 31.205-26( e ), the FAR 

states that the established practice relative to 

interorganizational transfers must be that the transferring 

9 
organization have an established practice to price these 

transfers at other than cost. Based on the FAR definition 

the Company met this requirement. The Company was 

able to document that since 2007, the Mission Support 

Solutions business unit has consistently done just that -

price all transfers at catalog price. 

(R4, tab 17 at 15) ATS further noted DCAA's agreement that the products sold by 

Mission Support were commercial products (id. at 14 ). 

14. DCAA responded to ATS's rebuttal: 

Based on the documentation reviewed during our 

field visits, we determined the intercompany [sic] transfers 

were being recorded at cost rather than price. We contend 

that the Project Summary Reports are an integral part of 

A TS' ability to demonstrate its material transfer practices as 

they reflect recorded job costs. Therefore, ATS' inability to 

show material transfers at price does not support its 

assertion of an established practice. Moreover accounting 

system modifications made in response and subsequent to 

DCAA's findings does [sic] not constitute a historically 

established practice as defined by FAR. 

(R4, tab 17 at 8) 

15. Following issuance of the audit report, A TS continued performing the 

contract and seeking resolution of the issue with the government. Discussions took 

place throughout 20 I 0 and 2011 that included the possibility of modifying the contract 

to add a firm-fixed-price contract line item number (CLIN) to facilitate ATS's billing 

the commercial training materials at price. Ultimately, the Army decided not to modify 

the contract. (Tr. 64; R4, tab 15 at I, 10-11, tab 20 at 5 n.l) 

16. In December of 2012, ATS representatives met with the Defense Contract 

Management Agency (DCMA) administrative contracting officer (ACO) for the 

JATAC contract and other DCMA personnel to follow up on the status of ATS's 

accounting system in the wake of DCAA' s recommendation that A TS' s accounting 

system be found inadequate. A TS representatives at this meeting included its President, 

Dennis Kelly, and its CFO, Deborah Ricci. DCMA informed ATS at the meeting that it 

would have to prove it was capable of accumulating costs on the JAT AC contract to 

prevent its accounting system from being found inadequate. (Tr. 73-74) ATS 

thereafter, in order to avoid an adverse determination of inadequacy, submitted a 

"Corrective Action Plan" to provisionally bill its products at fully burdened cost until 

10 
the dispute could be resolved (tr. 74-76; R4, tab 24). On 10 May 2013, DCAA issued 

an audit report concluding that A TS had effectively implemented corrective actions to 

address the deficiency noted in its earlier audit report (R4, tab 25). DCMA thereafter 

sent A TS a formal determination that its accounting system was adequate for 

accumulating and billing costs under government contracts (R4, tab 26). 

ATS Business Units and Accounting Practices 

1 7. At all times relevant hereto, A TS was a small business that provided 

counter-terrorism training services and solutions, including training related to how to 

identify, defuse, and evaluate IEDs. In providing the training, ATS relied on the 

experience and expertise of its personnel and on training materials and equipment, 

primarily JED replicas, manufactured by ATS. (Tr. 21-22) At the time of contract 

award, ATS had two business units involved in delivering JED training. Its Training 

Solutions business unit (later renamed Warfighter Solutions) contracted for and 

provided the training, while the Logistics and Production unit (later renamed Mission 

Support), under its Technical Solutions business unit, manufactured the training aids 

and devices used to provide the training. (Tr. 22-23; app. supp. R4, tab 11) 

18. Training materials and equipment produced by ATS' s Mission Support unit 

were sold commercially for several years prior to award of the contract. Customers 

included state and local law enforcement agencies and private companies. A TS sold 

its products on the GSA Schedule and developed its first commercial catalog in the 

2005/2006 timeframe. The products were sold either with or independently of the 

training services offered by ATS. (Tr. 24-25; R4, tabs 10-11) 

19. Prior to 2009, ATS employed accounting software known as Peachtree. In 

January 2009, it switched over to more sophisticated cost accounting software 

developed specifically for companies doing business with the federal government, 

De Itek CostPoint. Peachtree was characterized by ATS' s former chief financial 

officer, Michael Wise, as "kind of a low-end software for small businesses," similar to 

QuickBooks in that it "basically gives you a nice profit and loss statement and keeps 

track of your balance sheet. But it doesn't really go into a lot of details on how every 

transaction that happens within the company occurs." (Tr. 50-51) Successor ATS 

CFO Deborah Ricci agreed that Peachtree "has a balance sheet, income statement, and 

... transactions and journal entries. When you get to Costpoint, Costpoint is just much 

more dimensional." In particular, Costpoint "operates on different levels called 

organizations .... [Y]ou can establish the Training Division versus Mission Support 

Division. Each one of these groups has what's called an organization within 

[Cost]point. And you can generate any type of details you need at that level." (Tr. 62) 

20. ATS witnesses testified that DCAA's conclusion that the transfer of training 

materials between divisions occurred at cost was erroneous and contradicted by the 

11 
documentary evidence of record. Both before and after the transition to Costpoint, 

Mr. Wise testified that A TS' s business practice was for its Training Solutions unit to 

determine which and how many training aids and devices \Vould be needed to deliver 

training required by a contract, and then place an order for the material and equipment 

with the Mission Support unit. The material and equipment would then be transferred 

from the Mission Support unit to the Training Solutions unit and shipped to the training 

site. The cost to the Training Unit was at catalog price: 

Q And what value would the products be signed 

over to the Training Division? 

A Effectively bill price, the catalogue price. Now 

within Logistics and Production we kept track of both-you 

know, how much it cost us to build it and how much we 

were selling it for. Because we needed to know how we 

were doing. Are we doing this right? Are we losing money 

or are we making money? 

So we kept track of both within Logistics and 

Production. But from the training perspective, all they saw 

was the price, whatever it cost them to deliver that training. 

Q And did that transfer or assigned payment to 

divisions price, was that, did that accounting practice 

change whatsoever between the Peachtree and the Deltek 

systems? 

A It got more sophisticated. It didn't change. I 

mean, the intent, the process, didn't change. We just had 

better tools, better documents, better controls over the 

process, but it was still the same process. 

Q And that process was that price? 

A That price, yes. Keep in mind, you know, we 

were-in our industry the leaders of our divisions are all 

generally Type A personalities. And I've got the best 

division, I'm going to be this-so there was a little bit of 

competition there, you know. 

Logistics and Production, they wanted to be the most 

successful. Training, they wanted to be the most 

successful. And so, you know, when we sold a device we 

12 
(Tr. 54-56) 

wanted Logistics and Production to have the credit for that 

sale at the catalogue price. 

21. Ms. Ricci testified that DCAA' s conclusion that the transfers occurred at 

cost was incorrect: 

A That's not correct. The transfer's at price. 

Everything [that] Mission Support transfers is at price. 

Nothing leaves Mission Support at anything other than 

pnce. 

Q And how did-do you know how DCAA got the 

idea that the transfer was at cost? 

A Yes, the one report they had asked for was called 

the project summary report. And we had provided it at the 

highest level. So they integrated ... at our A-T Solutions, Inc. 

level and all the costs, both sides of everything, were just 

loaded into this same report. 

Q Were there subsidiary records in the Deltek 

accounting system that showed where the revenue for the 

products at issue were recorded? 

A Absolutely. As I explained, Costpoint has 

different organizations. So we had separate organizations 

for training versus a separate organization for Mission 

Support. Both of those organizations have their own P&Ls 

and basically you can just run at that level. 

Or revenue summaries, you can run revenue details 

by each organization. And within those revenue summaries 

you can see that.. .Mission Support transferred those 

products at price. 

(Tr. 70-71) Ms. Ricci explained that there were business reasons to record revenues by 

division, including determining whether goals had been met for purposes of 

management compensation (tr. 72). 

13 
22. Fiscal year 2009 revenue summaries by division are included in a package 

of information Ms. Ricci prepared and delivered to DCAA in February of 2011 to 

document how the revenues from interdivisional transfers were recorded in A TS' s 

accounting system (tr. 88; supp. R4, tab 34). These summaries show revenue for both 

the Training Solutions division (CIED, organization 1.1.01.0.5.20.0), and the Logistics 

and Production division (later renamed Mission Support, organization 1.1.01.0.5.60.0) 

(tr. 89-92; supp. R4, tab 34, exs. 3-4). The summaries show that revenues from both 

JATAC II (predecessor contract) and JATAC III (the contract involved in this appeal) 

sales are recorded for the Mission Support division of ATS at catalog price (tr. 91-93; 

R4, tab 34, ex. 4 at 2). Attached to the revenue summary for the Mission Support 

division are over twenty pages of detail listing the equipment sold by invoice at catalog 

price (R4, tab 34, ex. 4 at 4-27). However, ATS was unable to convince DCAA to 

examine these subsidiary records (tr. 70-71, 92). 

23. ATS's expert witness, Mr. James Thomas,2 testified and provided an expert 

report concerning ATS's books and records for 12 transactions that took place in 

2007-2008 when ATS was still using Peachtree accounting software (tr. 96-99; app. supp. 

R4, tab 18). Mr. Thomas characterized Peachtree as a small business software application 

based on a single organizational structure with a one dimensional chart of accounts, and 

stated that A TS used separate accounts within Peachtree to record sales related to the 

Training division (40xxx series) and the Logistics and Production division (41xxx series) 

(app. supp. R4, tab 18 at 4-5). In particular, Mr. Thomas examined ATS's accounting 

records relating to training services provided to the Pennsylvania State Police under 

invoice No. 523 dated 19 September 2008 (id. at 4 ). 

24. Mr. Thomas's report summarizes his examination and conclusions: 

The ATS accounting records for the PA State Police for 

invoice number 523 show the following: 

1. The PA State Police agreed to a fixed price of 

$49,912 for training services to be provided by 

ATS. The fixed price of $49,912 included 

$7,800 of training equipment at ATS' 

commercial prices. 

2 Mr. Thomas is a certified public accountant and a partner in the firm of 

PricewaterhouseCoopers LLP. He has over 30 years of experience advising 

companies in government contract pricing, costing, and accounting, and 

provides expert accounting services in government contract disputes. 

(App. supp. R4, tab 18, ex. A) 

14 
2. The Training division of ATS had responsibility 

for providing the training fur the PA State Police 

and, as part of the training,. furnishing training 

equipment such as student guides, training kits 

and electronic supplement kits supplied by the 

Logistics & Production division of ATS. 

3. ATS issued invoice number 523 to the PA State 

Police dated 19 September:2008 for $49,912. 

The invoiced amount included training services 

totaling $42, 112 and training equipment at 

commercial prices totaling $7,800. 

4. The training equipment was shipped by the 

Logistics & Production division to the PA State 

Police facility for use by the Training division in 

conducting the training on 22-26 September 

2008. 

5. ATS recorded the invoice and sale of $49,912 on 

19 September 2008. The $7,800 consisted of 

three training equipment items valued at 

commercial prices - 16 Electronics Training Kits 

($4,800), 16 Electronics Student Guides ($2,000) 

and an Electronics Class Supplement Kit 

($1,000). The $7,800 of training equipment was 

recorded as a Logistics & Production division 

sale in general ledger account 41000 - ATS 

Product Sales [-]to account for the physical 

transfer of training equipment to the Training 

division. The remaining $42, 112 for training 

services was recorded as a Training division sale 

in general ledger account 40500 - State/Local 

Sales .... 

Based on the accounting records for invoice number 523, it 

is my opinion that the transfer of training equipment from 

the Logistics & Production division to the Training division 

was recorded as a sale by the Logistics & Production 

division at commercial prices. If the transfer had been 

recorded at cost rather than price, the Logistics & 

Production division would have received a sales credit in 

account 41000 for a total of $3,868.64, which is the cost of 

15 
goods sold for the equipment [as shown by A TS' s 

accounting records]. 

(App. supp. R4, tab 18 at 6-7) Mr. Thomas evaluated 11 other transactions in the 2007-2008 

time frame and found the accounting for those transactions to be consistent with that for the 

PA State Police sale. He also looked at later ATS accounting records generated by the 

Deltek Costpoint software and found no indication that training equipment transferred 

between the two A TS divisions was ever recorded by the transferring division (Logistics and 

Production) at anything other than price. (Id. at 7-8; tr. 99) 

25. The ATS Peachtree accounting records that Mr. Thomas reviewed are 

listed in exhibit B to his expert report: 

Tab 1-ATS invoices pertaining to 12 sales to commercial 

customers in 2007-2008 (including invoice number 523 for 

$49,912 to the PA State Police); 

Tab 2-2007 ATS general ledger trial balance; 

Tab 3-2008 ATS general ledger trial balance; 

Ta\> 4-2007 general ledger detail for Account 41000, ATS 

Product Sales; 

Tab 5-2008 general ledger detail for Account 11000, 

Accounts Receivable (showing $49,912 as both a debit to 

invoice 58031287 and a credit to invoice 523, both 

associated with the PA State Police sale at 21 ); 

Tab 6-2008 general ledger detail for Account 14000, 

Inventory-Logistics (showing $1,094.40 as the cost 

of goods sold for the student guides sold on invoice 523 

at 253); 

Tab 7-2008 general ledger detail for Account 14200, 

Inventory-Production Finished Goods (showing $2359.52 

and $414.72, respectively, as the cost of goods sold forthe 

Electronics Training Kits and the Electronics Class 

Supplement Kit at 55); 

Tab 8-2008 general ledger detail for Account 40500, 

Training division sales (showing a sale of$42,112 for 

training services on invoice 523); 

16 
Tab 9-2008 general ledger detail for Account 41000, ATS 

Product Sales (showing a total sale of $7,800 on invoice 

523 to the credit of ATS's Logistics and Production 

division at 60); 

Tab 10-2008 general ledger detail for Account 56200, Cost 

of Goods Sold (showing the total cost of goods sold for the 

three items sold under invoice 523 to be $3,868.64 at 68). 

26. In summary, under the Peachtree accounting system employed by ATS in 

2007-2008, a sale of training services by the Training division that incorporated 

training materials produced by the Logistics and Production division was accounted for 

as follows: when the sale was made, ATS issued an invoice to the customer for both 

the training services and the training materials, the latter at catalog price. The amount 

representing training materials at catalog price was recorded as a credit to Product Sales 

in the Logistics and Production general ledger account 41000. The amount 

representing the training services was recorded separately as a credit to the Training 

division (in the case of the PA State Police sale, account 40500, state/local sales). At 

the same time, ATS would record a debit to accounts receivable in the full amount of 

the sale, and a credit to Logistics and Production inventory accounts for cost of goods 

sold. (Findings 23-25; tr. 83) 

27. Under the Costpoint accounting system employed by A TS starting on 

1January2009, a sale of training services by the Training division that incorporated 

training materials produced by the Logistics and Production division was accounted for 

as follows: when the sale was made, the Training unit would issue an invoice to the 

customer for both the training services and the training materials, the latter at catalog 

price. The sale amount representing training materials at catalog price was recorded as 

Logistics and Production division (organization 1.1.01.0.5.60.0) revenue, but posted to 

accounts receivable for the Training division (organization 1.1.01.0.5.20.0), which 

"owned" the contract and had the responsibility for collecting revenue from the sale. 

(Supp. R4, tab 34 at 1-2, exs. 1, 4) The revenue summary for the Training division 

would be credited with the sale price for the training services (id., ex. 1 at 4-5), but its 

profit and loss statement for the period would not contain either revenue or cost related 

to the training materials since the materials were passed through to the end customer at 

the same catalog price credited as revenue to the Logistics and Production division and 

the net impact to the training organization was zero (id. at 2, ex. 3 ). 

28. ATS witnesses testified, and the government does not contest, that 

A TS accounted for both external sales and internal transfers by the Logistics and 

Production division the same way, both before and after ATS adopted the Costpoint 

accounting system (findings 20-22; gov't br., proposed findings of fact (PFF) ~ 13). 

17 
The predecessor Peachtree system, however, did not allow for the degree of visibility 

into transactions at the interdivisional level that Costpoint made possible (finding 19). 

Contracting Officer's Final Decision and this Appeal 

29. On 26 March 2014 ATS submitted a certified claim to contracting officer (CO) 

Ofelia Rivera asserting entitlement to payment of catalog prices for A TS' s commercial 

item training materials and equipment (R4, tab 30 (ltr. dtd. 2013 in error)). ATS stated in 

its claim that the difference between the amount billed and paid by the government and the 

prices to which it was entitled was $8,717,958 as of 31January2014, and likely to grow to 

an estimated $9,832,565 by the end of the contract term (id. at 1). 

30. CO Rivera issued a final decision (COFD) denying ATS's certified claim 

on 22 May 2014 (R4, tab 31 ). In her decision, she acknowledged that ATS proposed 

to provide its commercial training materials at catalog price (id. at 2-3). However, she 

found this fact insufficient to overcome the terms of the solicitation and resulting 

CPFF contract, in particular the Allowable Cost and Payment clause, FAR 52.216-7 

(see finding 8), which sets forth the terms under which payments will be made to 

the contractor (id.). She observed that using catalog pricing ''to support a 

proposed estimated cost in a competitive acquisition" was "appropriate" but would not 

influence "how payments are actually disbursed on a CPFF contract." (R4, tab 31 at 3) 

She also found the commerciality of the materials not relevant, since the government's 

requirement "as a whole" was non-commercial. While commercial materials could be 

provided under the contract, she stated, A TS' s accounting for the cost of materials 

must conform to the cost principles and procedures of FAR Part 31 and the terms of 

the cost-type contract. (Id.) 

31. CO Rivera also found that A TS' s training materials did not come within the 

FAR 31.205-26( e) exception allowing materials transferred between divisions of a 

company to be billed at price if it is the established practice of the transferring division to 

price such transfers at other than cost. Her finding in this regard was based on DCAA' s 

conclusion that A TS' s inter-organizational transfers were recorded at cost, not price, and 

on the misimpression that DCAA had "determined ATS's accounting system [to be] 

inadequate" to meet the FAR requirement for billing at price. (Id. at 3)3 

32. Finally, CO Rivera rejected the possibility of modifying the contract to add a 

firm-fixed-price CLIN to allow ATS to bill, and the government to pay, for the training 

materials at catalog price. In her opinion, such a modification would not be in the best 

3 Ms. Ricci testified that this finding was erroneous since the Defense Contract 

Management Agency (DCMA), not DCAA, has the authority to determine whether 

a contractor's accounting system is inadequate, and DCMA made no such 

determination with respect to ATS's accounting system (tr. 79). 

18 
interest of the government, as it would "circumvent" FAR 52.216-7, "nullifying a 

contracting officer's ability to control costs." (R4, tab 31 at 4) 

33. ATS timely appealed the COFD to the Board on 27 May 2014, and its appeal 

was docketed on 28 May 2014. A hearing was scheduled for 3-5 February, 2015. On 

4 November 2014, the government filed a motion for partial summary judgment on 

Count 1 of ATS's complaint. Because less than three months remained until the hearing, 

the Board deferred ruling on the government's motion. 

DISCUSSION 

Contentions of the Parties 

A TS contends that the government agreed to pay commercial item catalog prices 

for its training materials by accepting its offer to provide those items at its catalog prices 

and incorporating its proposal into the contract. A TS points out that, consistent with such 

an agreement, the government accepted and paid A TS' s invoices for the materials at 

catalog price until February of 2010 when DCAA questioned the allowability of ATS' s 

billings under the contract. Alternatively, ATS asserts that its interdivisional transfers of 

the training materials were at price, thus entitling it to bill the government for those 

materials at price pursuant to the cost principle at FAR 31.205-26( e ). 

The government presented no testimony or other evidence regarding whether 

the government agreed to pay A TS' s commercial prices for its training materials, 

but contended that A TS cannot be paid for its training materials at its commercial 

catalog prices because the solicitation and resulting contract were unambiguously 

cost-plus-fixed-fee (CPFF) and ATS submitted a CPFF proposal.4 The government 

points out that there were only two line items in the contract, both of which were CPFF 

and one of which was not separately priced. Thus, it states, the government was 

obligated to pay ATS for its training materials at the allowable cost thereof, unless 

ATS satisfied the requirements of FAR 31.205-26( e) for billing at price. The 

government further contends that the record in this appeal demonstrates that A TS did 

not meet those requirements because ( 1) its interdivisional transfers of training 

materials were mere physical transfers lacking economic substance and thus did not 

qualify as interorganizational transfers under FAR 31.205-26( e ); or, (2) even if the 

transfers qualified as interorganizational transfers under FAR 31.205-26( e ), the 

transfers were recorded at cost, not price. 

When the government disallows a cost on the basis of a FAR cost principle, the 

burden is on the government to prove that the costs are unallowable. SRI International, 

4 This is also the gist of the government's motion for partial summary judgment on 

Count 1 of ATS's complaint. 

19 
ASBCA No. 56353, 11-1BCA~34,694 at 170,865-66, modified in unrelated part, 11-2 

BCA ~ 34,853. Both parties in this appeal agree that the government bears the burden of 

proving that A TS' s interdivisional transfers did not qualify to be billed at price under 

FAR 31.205-26( e) (gov't br. at 11; app. br. at 20). 

The "at price" exception to the material cost principle's requirement that 

materials be billed at cost under cost-reimbursement contracts applies to "materials, 

supplies and services that are sold or transferred between any divisions, subdivisions, 

subsidiaries, or affiliates of the contractor under a common control" when (1) it "is the 

established practice of the transferring organization to price interorganizational transfers 

at other than cost for commercial work of the contractor or any division, subsidiary or 

affiliate of the contractor under a common control"; (2) the item being transferred 

qualifies for an exception to the requirement to submit cost or pricing data under 

FAR 15.403-l(b); and (3) the contracting officer has not determined the price to be 

unreasonable. FAR 31.205-26( e ). The government concedes that elements 2 and 3 are 

met by the training materials at issue. 

The government's position is that element 1 is not met in this appeal, for two 

reasons. First, because A TS' s transfers of training materials between the Logistics and 

Production division and the Training division lacked "economic substance" and 

therefore do not qualify as transfers within the meaning of the relevant cost principle 

(gov't br. at 12-16). Second, because even ifthe transfers qualify as such under the 

cost principle, the transfers were at cost, not price (id. at 16-17). 

As to the alleged lack of economic substance, the cost principle does not impose 

a requirement that the transfers in question have "economic substance," and the 

government's support for urging us to adopt such a test is thin: a bare citation to a 

section of a cost accounting treatise that purportedly lists examples of 

interorganizational transfers (neither the text of the treatise nor the context was 

supplied to the Board) and a citation to a Cost Accounting Standards regulation that 

addresses when transfers between affiliates will be deemed "subcontracts" for 

purposes ofCAS coverage (gov't br. at 14). We decline the government's invitation to 

read an "economic substance" requirement into the cost principle at issue. The 

government has failed to establish the existence of such a requirement or to suggest 

how a court or Board could tell if it had been met in a particular case. 

While we do not accept the government's posited "economic substance" 

requirement, we also do not hold that the transfers were mere "physical transfers" 

lacking economic substance, as the government has argued. Instead, we find that the 

government has not met its burden to show that the transfers of commercial A TS 

training materials between A TS divisions were not the sort of transfers contemplated 

by FAR 31.205-26( e ). The government argues that there could not have been a 

transfer between divisions based on (1) accounting entries in the 2007-2008 

20 
(Peachtree) ATS accounting records which it argues demonstrate that "[t]he training 

materials never entered the inventory of the Training Unit" (gov't br. at 14), and that 

the training materials were sold directly to the customer out of A TS product inventory 

(id.), and (2) the lack of accounting entries recording a sale or transfer from one 

division to another (gov't br. at 7, PFF ,-; 22). 

The government offered no testimony or other evidence (other than the Peachtree 

accounting records) in support of its argument. Moreover, the government's argument 

relies on a negative-what ATS's 2007-2008 accounting records do not show. Those 

accounting records were the product of an unsophisticated small business accounting 

software application that did not provide visibi-lity into transactions at the divisional 

level (finding 19). A TS witnesses testified credibly that the Training division 

determined what materials would be needed for a particular training and ordered the 

materials from the Logistics and Production division, the training materials were then 

transferred from the Logistics and Production division to the Training division at price, 

and that training materials never left Logistics and Production at anything other than 

commercial catalog price, whether on a direct sale to a customer or as part of a sale of 

training services. (Findings 20-23) Their testimony is uncontradicted. 

ATS began to use more sophisticated accounting software (Deltek Costpoint) in 

January of 2009 that did provide visibility into transactions at the business unit level, but 

could not convince DCAA to review the subsidiary records detailing those transactions 

(finding 22). The Costpoint records show that when a sale of training services and 

materials was made, the Training unit issued an invoice to the customer that included the 

training materials at catalog price, and the sale amount for training materials at catalog 

price was recorded as Logistics and Production division revenue, but posted to accounts 

receivable for the Training division, which "owned" the contract and had the 

responsibility for collecting revenue from the sale (finding 27). The revenue summary 

for the Training division would be credited with the sale price for the training services, 

but its profit and loss statement for the period would not contain either revenue or cost 

related to the training materials since the materials were passed through to the end 

customer at price with a net impact to the Training division of zero (id.). The 

government failed to address the Costpoint records in its argument. 

The fact that training materials never left the Logistics and Production division 

at anything other than price, and that there were valid business reasons for crediting that 

division with a sale at commercial price whether the transaction was external or 

internal,.carries great weight. Additionally, we do not see how the accounts receivable 

amount for sales of training materials could be posted to the Training division account 

rather than the Logistics and Production account if there had not been a transfer of the 

materials. That the transfer may be essentially pass-through in nature does not prevent 

its recognition. See, e.g., Pacific Gas & Electric Company v. United States, 838 F.3d 

1341, 1351-52 (Fed. Cir. 2016) (under the Uniform Commercial Code (UCC), a 

21 
middleman contract for purchase and sale is valid though the middleman will never 

have title to the goods, as title is to pass directly from the supplier to the customer of 

the middleman); Rumsfeld v. United Technologies Corp., 315 F.3d 1361, 1371 (Fed. 

Cir. 2003) (applying UCC in determining whether suppliers sold parts to contractor 

prior to sale to government, court held that contractor acquired title from the suppliers 

and conveyed it instantaneously to the government when the engine sale was made). 

Thus, we find on the record before us that the training materials were transferred 

between ATS divisions within the meaning of the cost principle. The government has 

not met its burden to show otherwise. 

We also find that the transfers were recorded by the transferring division at price, 

thus satisfying FAR 31.205-26(e). The government's argument that the transfers were 

recorded at cost rests on the proposition that any transfer between divisions would have 

had to take place before ATS sold the materials and issued the invoice, but since the first 

and only time the transaction is recorded at price is when the sale is made to the 

customer, ipso facto, if a prior transfer occurred at all, it must have occurred at cost. The 

government produced no evidence or law in support of this proposition. To the contrary, 

the United States Court of Appeals for the Federal Circuit has recognized in its United 

Technologies decision that more than one valid transaction may take place 

simultaneously, 315 F.3d at 1371, and ATS has produced credible evidence that such 

transfers were recorded by the transferring division at commercial catalog price. 

The government has failed to carry its burden of proof to justify the disallowance 

under FAR 31.205-26( e ). Because we have decided that ATS is entitled to recover its 

commercial catalog prices for training materials pursuant to FAR 31.205-26( e ), we do not 

reach A TS' s Count I claim that the contract, properly interpreted, also authorized A TS to 

bill and be paid for its training materials at commercial catalog prices. Our decision also 

moots the Army's motion for partial summary judgment, which was directed at Count I of 

ATS' s complaint. 

CONCLUSION 

The appeal is sustained and returned to the parties for determination of quantum. 

Dated: 8 February 201 7 

(Signatures continued) 

22 

Administrative Judge 

Armed Services Board 

of Contract Appeals 
I concur 

~ifat~ff== Administrative Judge 

Acting Chairman 

Armed Services Board 

of Contract Appeals 

I concur 

RICHARD SHACKLEFORD 

Administrative Judge 

Vice Chairman 

Armed Services Board 

of Contract Appeals 

I certify that the foregoing is a true copy of the Opinion and Decision of the 

Armed Services Board of Contract Appeals in ASBCA No. 59338, Appeal of A-T 

Solutions, Inc., rendered in conformance with the Board's Charter. 

Dated: 

23 

JEFFREY D. GARDIN 

Recorder, Armed Services 

Board of Contract Appeals