Opinion ID: 208042
Heading Depth: 3
Heading Rank: 2

Heading: Increased Costs to the Government

Text: The Board was incorrect in holding that Raytheon's CAS violation did not cause the Government to pay increased costs. [7] Its mistake stems from its consideration of the wrong payments when it evaluated whether the Government had made overpayments resulting from a CAS violation, which the Board did in both its decisions. In its Original Decision, the Board stated that the existence of a pension surplus established that the Government had paid increased costs. Original Decision at 18. That is, the Board determined that when the Government paid its share of the pension costs for the now-closed segment, it had overpaid in the past. While it is true that the overpayments that occurred prior to the segment closing were not the result of a CAS violation, there are other payments from the Government to Raytheon that the Board should have considered. In particular, the Government appears to have had open contracts with Raytheon during the period in which the segments closed, and it made payments on those contracts that would have been lower if Raytheon had complied with CAS 413 by crediting those contracts. The Government's payments to Raytheon during the periods in which the segments were closed are the relevant payments for determining the applicability of CAS noncompliance interest. This court has held that, while CAS 413 looks to past contracts in measuring the amount of the required segment closing adjustment, the adjustment itself is implemented through contracts open during the period in which the segment is closed. See Allegheny Teledyne, 316 F.3d at 1373 (affirming the Court of Federal Claims' holdings concerning a prior version of CAS 413 that the amount of the adjustment that is recoverable depends on the . . . contracts under which the costs were paid and that the adjustment is effectuated in the current period, meaning it may be recovered under any flexibly-priced contract that remains open during the year of the segment closing). This is so because CAS 413-50(c)(12)(vi) provides that the segment-closing adjustment may be recognized by modifying a single contract, several but not all contracts, or all contracts, or by use of any other suitable technique. Because CAS 413-50(c)(12) contemplates adjustment to any or all contracts that are open during the period of the segment closing, it is on these open contracts that the Government has paid increased costs. That is, during 1998 (for Montek) and 2000 (for REC), CAS 413-50(c)(12) required that Raytheon adjust the prices of its open contracts. Raytheon did not do so. Thus, the Government overpaid on those contracts open during 1998 and 2000, and that overpayment was a result of Raytheon's failure to properly credit the segment closing adjustment in those periods as required by CAS 413-50(c)(12). [8] Raytheon argues that we should consider only relevant contracts impacted by the noncompliance, which Raytheon appears to interpret as the contracts under which the pension costs were collected. Raytheon argues that these are the only contracts that should be considered because the CAS statute prohibits the Government from recovering more than the increased cost (as defined by the Board) to the Government, in the aggregate, on the relevant contracts subject to the price adjustment. 41 U.S.C. § 422(h)(3); see also 48 C.F.R. § 52.230-2(a)(5). Raytheon similarly argues that each contract to which pension costs were allocated must be separately analyzed. With respect to most CAS provisions, Raytheon would be correct that each affected contract would be considered individually. See 48 C.F.R. § 52.230-6(b)(3) (Feb.1995) (Cost impact proposals submitted for failure to comply with an applicable CAS . . . shall identify the cost impact on each separate CAS covered contract.). However, as the Board correctly stated in its initial decision (and reaffirmed on reconsideration), CAS 413 is unusual: The current period adjustment provided for under CAS 413, by its terms, represents an adjustment of previously-determined pension costs for the segment as a whole, and does not require an impact analysis of individual contracts within the segment. This adjustment is not contract specific, nor does it involve a cost adjustment of any individual contract. Original Decision at 19; see also Final Decision at 2. Thus, while Raytheon is correct that interest is available only after identifying increased costs paid on a CAS contract, the relevant contract payments are those made in the period of the segment closingand those were clearly increased by the failure to credit the segment closing adjustment in the period required by CAS 413.