Court Opinion

ID: 9926299
Source: CourtListenerOpinion
Date Created: 2024-01-24 16:02:26.6854+00
Date Added: 2024-06-11T09:22:24.511196
License: Public Domain

Case: 22-1763     Document: 39   Page: 1     Filed: 01/24/2024

   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 Ap-
 peals in No. 61911, Administrative Judge David D’Alessan-
 dris,    Administrative   Judge     Owen    C.    Wilson,
 Administrative Judge Richard Shackleford.
                  ______________________

                 Decided: January 24, 2024
                  ______________________

    JAMES Y. BOLAND, Venable LLP, Tysons Corner, VA,
 argued for appellant. Also represented by MICHAEL T.
 FRANCEL, LINDSAY REED, Washington, DC.

     MILES KARSON, Commercial Litigation Branch, Civil
 Division, United States Department of Justice, Washing-
 ton, DC, argued for appellee. Also represented by BRIAN
 M. BOYNTON, WILLIAM JAMES GRIMALDI, MARGAET
 JANTZEN, PATRICIA M. MCCARTHY; KARA KLAAS, Defense
 Contract Management Agency, United States Department
 of Defense, Chantilly, VA.
Case: 22-1763      Document: 39      Page: 2     Filed: 01/24/2024

 2                    STRATEGIC TECHNOLOGY INSTITUTE, INC. v.
                                      SECRETARY OF DEFENSE

                    ______________________

 Before HUGHES, CUNNINGHAM, and STARK, Circuit Judges.
 HUGHES, Circuit Judge.
     Strategic Technology Institute, Inc. appeals an Armed
 Services Board of Contract Appeals’ decision denying Stra-
 tegic 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 limitations un-
 der the Contract Disputes Act. Because we conclude that
 the government’s claim did not accrue until the govern-
 ment received an inadequate cost proposal from Strategic
 Technology Institute, Inc., we affirm.
                                I
                                A
     In April 2008, the Department of the Navy awarded a
 contract to Strategic Technology Institute, Inc. (STI) to pro-
 vide various aircraft engineering and support services to
 the Naval Surface Warfare Center. This was a cost-reim-
 bursable contract with a performance period of one year
 and four one-year option periods. The contract incorpo-
 rated Federal Acquisition Regulation (FAR) 52.216-7, Al-
 lowable Cost and Payment (Dec. 2002), and FAR 52.242-4,
 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 bill-
 ing 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 Title 48 of the Code of Fed-
 eral Regulations. For brevity, we refer to the FAR without
 corresponding C.F.R. citations.
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 STRATEGIC TECHNOLOGY INSTITUTE, INC. v.                     3
 SECRETARY OF DEFENSE

 based on projections, the amounts paid by the government
 were subject to future adjustment at the end of each con-
 tract 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
 indirect 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 pro-
 posals 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 al-
 lowability 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 demon-
 strate that its invoiced costs were allowable by “accounting
 for costs appropriately and . . . maintaining records, in-
 cluding supporting documentation.” FAR 31.201-2(d).
 When STI failed to meet that burden, the contracting of-
 ficer could “disallow all or part of a claimed cost that [was]
 inadequately supported.” Id. Under FAR 52.216-7(g), “[a]t
 any time” before final payment for a contract year, the gov-
 ernment could also audit STI’s invoices and statements of
 costs, and reduce payments for any costs found unallowa-
 ble or overpaid.
                               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 years
 2008 and 2009. The government sent requests for these
 cost rate proposals and corresponding certifications via
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 4                   STRATEGIC TECHNOLOGY INSTITUTE, INC. v.
                                     SECRETARY OF DEFENSE

 email. STI then provided cost rate proposals for both years
 in July 2014 and certifications in August 2014. It submit-
 ted final cost rate proposals for both years on September
 30, 2014. J.A. 5.
      In August 2014, DCAA informed STI that DCAA had
 initiated a review of STI’s 2008 and 2009 cost rate pro-
 posals. 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 (alteration in the orig-
 inal). DCAA subsequently conducted a multi-year audit to
 verify that the expenses in the cost rate proposals were al-
 lowable.
     In June 2015, DCAA issued two audit reports question-
 ing certain direct and indirect costs incurred by STI in 2008
 and 2009. In June 2016, the Defense Contract Manage-
 ment 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 decision to the
 Board, arguing that the Contract Disputes Act’s (CDA), 41
 U.S.C. § 7102 et seq., six-year statute of limitations barred
 the government’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 July
 2009 and July 2010, respectively, more than six years be-
 fore DCMA issued its final decision. In the alternative, STI
 contended that even if STI had not submitted its proposals
 until 2014, the government’s claim accrued in July 2009
 and July 2010 when those proposals were due. STI argued
 that the government should have known its claim existed
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 STRATEGIC TECHNOLOGY INSTITUTE, INC. v.                     5
 SECRETARY OF DEFENSE

 when STI failed to submit the proposals by their contrac-
 tual deadline.
      In January 2022, the Board issued a final decision, re-
 jecting 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 in-
 direct cost rate proposals until July 11, 2014, five and four
 years, respectively, after the two proposals were due. The
 Board also held that the government 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 dis-
 allowed costs does not begin “until the contractor submits
 the incurred cost proposal and makes available sufficient
 audit records.” J.A. 20. Because the government brought
 its claim in 2018, within six years from when the govern-
 ment 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 Board’s findings of fact are final, and the court’s review
 is limited to a determination of whether those findings are
 fraudulent, arbitrary, capricious, based upon less than sub-
 stantial 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).
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 6                   STRATEGIC TECHNOLOGY INSTITUTE, INC. v.
                                     SECRETARY OF DEFENSE

                               III
     STI contends that the statute of limitations bars the
 government’s claim because the government’s claim ac-
 crued when the cost rate proposals for 2008 and 2009 were
 due in June 2009 and June 2010, respectively, and the gov-
 ernment did not bring its claim until 2018. The CDA pro-
 vides 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.
 § 7103(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 con-
 ditions 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). The applicable FAR provision and the
 facts of this case lead us to conclude that the government’s
 claim did not accrue until STI submitted the cost rate pro-
 posals for 2008 and 2009 in September 2014.
                               A
     We begin with the governing FAR provision defining
 claim accrual and the incorporated FAR provisions estab-
 lishing “the conditions of the contract.”
    Pursuant 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
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 STRATEGIC TECHNOLOGY INSTITUTE, INC. v.                       7
 SECRETARY OF DEFENSE

 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
 DCMA issued its final decision, the government’s claim
 would be barred under the statute of limitations.
      STI argues that the events that fixed STI’s liability
 were STI’s billing of unallowable direct and indirect costs
 during 2008 and 2009 and STI’s failure 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 be-
 came 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 pro-
 posals on time. For a flexibly priced contract like the one at
 issue here, the government first pays the contractor based
 on anticipated final rate. At the end of the year (within six
 months from the end of a fiscal year), the contractor sub-
 mits 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 sur-
 vive in light of recent Supreme Court precedent,” Reply Br.
 at 4, specifically Rotkiske v. Klemm, 140 S. Ct. 355, 360–61
 (2019) (explaining that discovery rules “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 the
 government did not know of the basis for the claim it as-
 serts here until 2014, we are also unpersuaded that the
 government should have known of its claim any sooner.
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 8                   STRATEGIC TECHNOLOGY INSTITUTE, INC. v.
                                     SECRETARY OF DEFENSE

 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,
 the 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 properly
 allocable to costs for which the contractor has been reim-
 bursed by the Government.” FAR 52.216-7(h). In other
 words, if the contractor spends more than what it has an-
 ticipated (i.e., the anticipated final rate is below the actual
 cost experience), then the government must pay the re-
 maining balance to the contractor. But if the contractor
 spends 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 spends less than the anticipated final rate. By
 design, the contract contemplates that the contractor may
 spend less (or more) than what the contractor and govern-
 ment originally projected. The contract has built in mecha-
 nisms (e.g., cost proposals and calculation of final rate) to
 settle the difference at the end of each year. But the con-
 tractor must remit overpayment if the contractor’s actual
 incurred costs are less than the collectively-agreed or uni-
 laterally-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 govern-
 ment conducted audits to verify that the expenses in the
 cost rate proposal were allowable (i.e., reasonable and sat-
 isfying the terms of the contract). The government’s audits
 found that STI’s cost rate proposals included approxi-
 mately $1 million in unallowable costs. The government
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 STRATEGIC TECHNOLOGY INSTITUTE, INC. v.                     9
 SECRETARY OF DEFENSE

 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 limitations is the submission of
 STI’s cost rate proposals in September 2014, not STI’s fail-
 ure to timely submit the proposals. When STI failed to sub-
 mit its proposal by the contractual deadline, the
 government had several options, including unilaterally set-
 ting rates based on whatever documentation it had at the
 time, or bringing a claim against STI for breach of its con-
 tractual obligation to timely file cost rate proposals. Such a
 breach of contract claim would have been different from the
 claim the government asserted here. Rather than alleging
 a breach of contract, here, the government is disputing the
 costs included in STI’s final proposals. Without those pro-
 posals, the government had no basis to assert that the spe-
 cific, 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 pro-
 posal. Therefore, the government’s claim—the claim it ac-
 tually filed and is at issue here—could not have accrued
 until 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 en-
 tered into a contract for the construction of nuclear-pow-
 ered submarines. Id. at 1373. The contract included a
 change-of-law clause, providing a right to a price adjust-
 ment 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
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 10                 STRATEGIC TECHNOLOGY INSTITUTE, INC. v.
                                    SECRETARY OF DEFENSE

 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 the
 Navy entered into years of discussions regarding a poten-
 tial price adjustment. Id. Eventually, the Navy formally de-
 nied 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 pe-
 riod, August 15, 2005. Id. at 1375. We held that Electric
 Boat’s claim was barred by the statute of limitations be-
 cause Electric Boat’s injury was the enactment of the
 OSHA regulation, and the statute of limitations clock be-
 gan when the contract first provided a right to a price ad-
 justment. 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 limitations period began
 the moment STI failed to submit its indirect cost rate pro-
 posals. STI asserts that because the FAR authorizes the
 government to audit STI’s invoices and associated docu-
 mentations at “any time” or to unilaterally establish rates
 when contractors fail to submit their proposals by the con-
 tractual deadline, the government does not have the right
 to bring claims based 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 ex-
 plain above, the calculation of final rate and subsequent
 adjustment was triggered by STI’s submission of the cost
 rate proposals. Without the cost rate proposals, there was
 no basis for calculating and adjusting the final rate. While
 the government could have audited STI’s invoices and as-
 sociated 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
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 STRATEGIC TECHNOLOGY INSTITUTE, INC. v.                    11
 SECRETARY OF DEFENSE

 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. Even in the
 absence of receipt of cost rate proposals, the government
 can audit the documentation it does have, and it can uni-
 laterally adjust the rates charged by a contractor. It can
 also pursue a breach of contract claim 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 unilat-
 eral 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 dead-
 line, STI failed to justify its billed costs in the manner re-
 quired by the contract and the FAR and, therefore,
 immediately rendered all of them subject to disallowance.”).
 Noncompliant government contractors may also be sub-
 jected to additional procedures (such as orders 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 es-
 tablishing rates, and demanding payment in November
 2018. Because the claim was filed within six years after STI
 submitted the inadequately supported cost rate proposals,
 we conclude that the claim is not barred under the six-year
 statute of limitations.
Case: 22-1763   Document: 39     Page: 12   Filed: 01/24/2024

 12                STRATEGIC TECHNOLOGY INSTITUTE, INC. v.
                                   SECRETARY OF DEFENSE

                            IV
     We have considered STI’s remaining arguments but
 find them unpersuasive. For the foregoing reasons, we af-
 firm.
                       AFFIRMED
                         COSTS
 No costs.