Court Opinion

ID: 4525708
Source: CourtListenerOpinion
Date Created: 2020-04-15 20:00:07.428758+00
Date Added: 2024-06-11T09:25:51.305965
License: Public Domain

ARMED SERVICES BOARD OF CONTRACT APPEALS

Appeal of --                                        )
                                                    )
Alloy Surfaces Company, Inc.                        )   ASBCA No. 59625
                                                    )
Under Contract No. W15QKN-04-D-1002-0014            )

APPEARANCES FOR THE APPELLANT:                      David Z. Bodenheimer, Esq.
                                                    Jason M. Crawford, Esq.
                                                    Jason C. Lynch, Esq.
                                                     Crowell & Moring LLP
                                                     Washington, DC

APPEARANCES FOR THE GOVERNMENT:                     Scott N. Flesch, Esq.
                                                     Army Chief Trial Attorney
                                                    Harry M. Parent III, Esq.
                                                    Robert B. Neill, Esq.
                                                     Trial Attorneys

               OPINION BY ADMINISTRATIVE JUDGE WOODROW

       This appeal involves a dispute as to the pricing of a delivery order (DO) for the
manufacture of M211 infrared countermeasure decoy flares. Appellant Alloy Surfaces
Company, Inc. (Alloy or appellant) held an Indefinite Quantity/Indefinite Delivery
(IDIQ) contract with the United States Army (Army or government) for the
procurement of M211 Infrared Countermeasure Decoys, which are fired from
helicopters to avoid heat-seeking rounds. The Army awarded the contract in January
2004. In April 2006, the government requested a proposal for a substantial quantity of
additional M211s to be procured under DO 0014 (DO 14).

      During 2006, appellant was in the process of automating certain manufacturing
processes and bringing two additional plants on-line. By early September 2006, Alloy
completed DO 13, utilizing its automated manufacturing processes at its original plant.

       Appellant submitted its proposal for DO 14 in April 2006. Its proposal did not
contain any material and labor usage data related to DO 13; rather, it contained similar
data from earlier jobs which were produced without the automated processes utilized
in DO 13. In August 2006, the government and appellant began negotiations on the
proposal which ultimately led to Modification No. P00025 and DO 14.

       The government contends that it relied on defective material and usage rates
when it negotiated the price for DO 14 and that it agreed to a higher price than it
would have if it had access to the DO 13 data. On July 24, 2014, the contracting
officer (CO) issued a Contracting Officer’s Final Decision (COFD) asserting that
appellant provided defective cost or pricing data to the Army during the negotiation
leading to the award of DO 14. The Army seeks $15,920,212 plus interest. This
appeal followed. Both entitlement and quantum are before us.

       We hold that job cost sheets prepared by Alloy during the production of DO 13
were management tools that contained both factual and judgmental information, but
did not possess the requisite degree of certainty necessary for providing certified cost
data to the government. In particular, at the time of price agreement on September 25,
2006, the reports were not sufficiently certain to be certified as “cost and pricing data”
pursuant to the Truth in Negotiations Act, 10 U.S.C. § 2306a.

        Finally, we hold that the Army fully was aware of the effect of automation on
the pricing for the flares, but chose instead to rely on manufacturing data from earlier,
non-automated jobs. As the Army acknowledged during its negotiations, the pricing
of the non-automated jobs best reflected a compromise between the increased
efficiency of automation and the inefficiency of increasing production. We conclude
that having the data from DO 13 would not have shed light on the anticipated
inefficiencies of qualifying new plants, installing new equipment, and hiring new
workers, and, ultimately, would not have changed the price the government negotiated
with Alloy. We sustain the appeal.

                                   FINDINGS OF FACT

       I. Prior Contract History

       1. On July 7, 1999, the Army awarded Contract No. DAAE30-99-C-1084 (the
1999 contract) to Alloy for the production of a quantity of 6,800 M211 decoy flares
(R4, tab 60 at 3; answer at 38).

       2. The Army issued Modification No. P00041 under the 1999 contract with an
effective date of March 28, 2003 (answer at 3). Modification No. P00041 is also
known as Job No. 1516 (R4, tab 80 at 8; tr. 1/84-85).

      3. In August 2005, Alloy completed delivery of 120,553 M211 decoy flares
under Modification No. P00041 (Job 1516) (R4, tab 80 at 8).

       II. The Base Contract

       4. On January 23, 2004, the Army awarded Indefinite Quantity/Indefinite
Delivery (IDIQ) Contract No. W15QKN-04-D-1002 (the 2004 contract) to Alloy for
the procurement of 700,000 M211 Infrared Countermeasure Decoys (decoys, flares,

                                            2
M211s, or M211 decoys), with a maximum value of $25,914,000 (R4, tab 1 at 3, 10,
tab 74 at 5-6). Subsequent contract modifications progressively increased the
maximum ceiling price to $200,548,507.00 (R4, tab 74 at 3).

        5. Infrared countermeasure flares, or decoys, are devices used to protect
helicopters from heat-seeking missiles. The M211 decoy consists of a metal case
that’s nominally an inch square and eight inches long, filled with between 2,500 and
3,000 thin metal foils that have a special coating on them that reacts in the air to
perform their countermeasure work to decoy heat-seeking missiles. (Tr. 1/179).

       6. The 2004 contract incorporated Federal Acquisition Regulation (FAR)
clauses 52.215-10, PRICE REDUCTION FOR DEFECTIVE COST OR PRICING
DATA (OCT 1997), and 52.215-11, PRICE REDUCTION FOR DEFECTIVE COST
OR PRICING DATA – MODIFICATIONS (OCT 1997) (R4, tab 1 at 35). According
to FAR § 15.407-l(b)(l), “[t]he clauses give the Government the right to a price
adjustment for defects in certified cost or pricing data submitted by the contractor, a
prospective subcontractor, or an actual subcontractor.” FAR § 15.407-1(b)(1).

      A. Previous Delivery Orders for M211 Decoy Flares

       7. Prior to the award of DO 14 at issue in this appeal, the Army issued other
delivery orders to Alloy for M211 decoy flares under the 2004 contract (answer ¶ 8).
These delivery orders included:

      •    Delivery Order 1 on February 5, 2004 (R4, tab 2).
      •    Delivery Order 6 on June 17, 2005 (R4, tab 25).
      •    Delivery Order 7 on October 10, 2005 (R4, tab 30).
      •    Delivery Order 8 on November 23, 2005 (R4, tab 34).
      •    Delivery Order 11 on January 26, 2006 (R4, tab 44).
      •    Delivery Order 13 on May 16, 2006 (R4, tab 52).

      8. Alloy assigned job numbers relating to the work under both Modification
No. P00041 (1999 contract) and the above delivery orders (2004 contract at issue):

                Army Contract Reference        Alloy Job No.

                Modification No. P00041        Job No. 1516

                Delivery Order 1               Job No. 1528

                                           3
                Delivery Order 6               Job No. 1573-1
                                               Job No. 1573-2
                Delivery Order 7               Job No. 1596

                Delivery Order 8               Job No. 1601

                Delivery Order 11              Job No. 1611

                Delivery Order 13              Job No. 1626

(Compl. ¶ 8)

       9. Army CO Sandra LaBell signed and awarded DO Nos. 6, 7, 8, 11, and 13 (R4,
tabs 25, 30, 34, 44, and 52).

        10. The Army knew that DO Nos. 6, 7, 8, 11, and 13 had been produced in
Plant 1. In its cost proposal for DO 14, Alloy stated that it would add substantial
amounts of equipment, including expanding Plant 2, starting production at Plant 3,
and hiring 234 new employees. (Tr. 1/178; R4, tab 50 at 3; app. supp. R4, tab 2;
tr. 1/61-62)

           1. Delivery Order 13 Introduces More Efficient Manufacturing Processes

       11. On May 16, 2006, the government placed DO 13 against the contract (R4,
tab 52).

       12. DO 13 called for the fabrication, test, and delivery of 33,379 M211 decoys
in two lots, with a portion to be used for lot testing (R4, tab 52 at 5, tab 96 at 7).

      13. DO 13 was produced in Plant 1, but, unlike previous delivery orders, Alloy
manufactured DO 13 using all-new automated processes (tr. 2/180; R4, tab 96 at 8-9).
The Army was aware that DO 13 was produced in Plant 1 (tr. 3/45-46).

       14. In particular, the manufacturing process for DO 13 included the use of
auto-loaders, the one-step bake, and the auto epoxy processes. When combined, these
processes produce efficiencies in labor usage and material usage. (R4, tab 96 at 8-9)

      15. Pursuant to the Production Prove-Out Contract No. W15QKN-04-1002,
the Army reviewed and approved each step of the automated production process used

                                           4
to manufacture M211 decoys in Plant 1. (R4, tab 60 at 3; tr. 1/136; app. supp. R4,
tabs 13-24).

           2. Delivery Order 14 Required Substantial Production Ramp-Up

        16. To increase the volume and rate of M211 production, the Army initiated
two interrelated procurement actions. First, it negotiated Modification No. P00025 to
raise the quantity ceiling and establish prices for issuing DO 14. Second, it supported
a Production Prove-Out effort to increase Alloy’s M211 production capacity and rate
(R4, tab 60 at 3).

      17. As explained in the Army’s August 9, 2006 Business Clearance
Memorandum, these procurement actions were necessary to support the increase in
production quantity to support Operation Iraqi Freedom, and Operation Enduring
Freedom, and the Global War on Terrorism (R4, tab 60 at 3).

        18. DO 14 required the largest production ramp-up for delivering M211 decoy
flares under either the 1999 contract or the 2004 Contract (answer at 43; tr. 1/63,
2/202-03).

       19. At the time of the Army’s request for a price proposal for DO 14, in April
2006, Alloy was producing M211 units against the IDIQ contract at a rate of 25,000 –
35,000 units per month, of which the referenced DO Nos. 6, 7, 8, 11, and 13 were
included. The Army’s request in April 2006 required Alloy to dramatically increase
output, tripling Alloy’s output to 80,000 units per month. (R4, tab 78 at 1; tr. 2/210-11)

        20. Alloy explained, in its April 18, 2006 proposal, that “2006 is a major
ramp-up year for ASC” and it was “ramping-up from 37,000 units/month to 80,000
units/month” (R4, tab 50 at 3). The Army’s witnesses did not challenge this assertion
(tr. 1/58, 2/70).

       21. In order to meet the Army’s increased demand for decoy flares, Alloy
opened two additional plants for the manufacture of decoy flares, known as Plants 2
and 3 (tr. 4/10-11, 37). In total, Alloy would have three plants and approximately
240-250 employees involved in decoy flare production (tr. 4/37).

       22. For the ramp-up for DO 14, Alloy advised the Army that it would need to
“add substantial amounts of equipment and will be hiring 234 new employees, most of
who will be working on this effort” (R4, tab 50 at 3).

                                            5
       23. The ramp-up effort was necessary in order to be able to produce at the
levels needed for DO 14 within the time frames required by the Army (tr. 2/67, 103).

      24. DO 14, when awarded, would use the same type of automated equipment
used on DO 13 (R4, tab 96 at 2).

       25. On March 30, 2006, Alloy’s Chief Financial Officer (CFO), Larry D’Andrea,
sent an email to the CO stating that: “the pricing for the M211s are extremely complex
due to the manufacturing from 3 plants (two of which are new for M211s production) and
due to incorporation of ramp-up assumptions” (app. supp. R4, tab 2).

      26. According to Mike Mignogna, Alloy’s Vice President of Operations, the
ramp-up associated with DO 14 would require Alloy to obtain permitting and expand
M211 operations to two new plants; pass first article testing; qualify and install new
equipment; and hire and train new employees (tr. 4/64-66).

       27. Before Alloy could use a new piece of equipment it had to be qualified:
“[t]he Army required qualifications, which – on every piece of equipment, so we had
to actually qualify, write a report, get the approval and, you know, it was a big
process.” (Tr. 4/66)

      28. The Army knew that DO 14 would require new employees (R4, tab 50 at 3).

           3. The Army Required Prior Notice and Approval before Adding New
              Equipment or Processes for M211 Production

      29. Pursuant to the First Article Clause, Alloy was required to give prior notice
and obtain Army approval before adding new equipment or processes for M211
production (app. supp. R4, tab 16 at 1; tr. 4/66).

        30. During the DO 14 negotiations, the Army, including the CO, knew
which automation equipment had been qualified and approved for M211 production
(tr. 1/136; 2/102).

       31. The Army understood that Alloy would be ramping-up from 37,000 units
a month to 80,000 units a month, based upon their involvement in the Production
Prove - Out Proposal and contract (tr. 1/58-59, 2/69-70).

      32. As the person who signed off on the qualification reports for the M211
production equipment, CO LaBell was aware that Alloy would be adding substantial
amounts of new equipment to Plant 2 and Plant 3 for this production proposal (tr. 1/59-60).

                                           6
        B. Negotiations for Delivery Order 14

           1. Key Government Personnel and Technical Team’s Role

       33. Key individuals involved in the government’s negotiation of DO 14 (R4,
tabs 73-74), included Ms. LaBell, the procuring CO, and Mr. David M. Dreifus,
engineer.

       34. Ms. LaBell is an Associate Director at Army Contracting Command –
Picatinny Arsenal, New Jersey. Ms. LaBell’s 37-year career in acquisition at
Picatinny includes approximately eight years as a CO; she was the CO at the time of
the negotiation at issue in this appeal. (Tr. 1/21-23)

        35. Ms. LaBell first became involved with appellant’s contract in 2004, when
she became a contracting officer and issued delivery orders against the original contract
(tr. 1/25). She communicated with appellant’s employees Larry D’Andrea and
Karen Justman regarding those delivery orders (tr. 1/25).

        36. Mr. Dreifus is an engineer currently employed by the Army’s Armaments
Research, Development and Engineering Center at Picatinny Arsenal in New Jersey
(tr. 1/166-67).

        37. Mr. Dreifus was involved in a number of roles on appellant’s M211
infrared countermeasure decoy contract (tr. 1/171-72). Mr. Dreifus was involved in
first article testing, lot acceptance testing, and qualification testing of appellant’s
production equipment as appellant did production ramp-up and production capability
ramp-up (tr. 1/172).

        38. Mr. Dreifus also was involved in supporting the contract negotiations
resulting in Modification No. P00025 and DO 14 (tr. 2/20-21).

           2. Alloy’s April 2006 Price Proposal

        39. On April 18, 2006, Alloy submitted its cost proposal, which identified the
different materials needed for each unit of M211 production. Similarly, the proposal
identified what types of labor operations would be required and how many hours
(or fractions of an hour) would be needed for each M211 labor operation. (R4, tab 50
at 8-15; tr. 1/199)

      40. In its April 18, 2006 proposal, Alloy explained that “2006 is a major
ramp-up year for ASC” and it was “ramping-up from 37,000 units/month to 80,000
                                           7
units/month[.]” Alloy further explained that it “will add substantial amounts of
equipment and will be hiring 234 new employees, most of who will be working on this
effort.” (R4, tab 50 at 3)

        41. The CO understood that Alloy would be ramping-up from 37,000 units a
month to 80,000 units a month (tr. 1/58). She had this understanding based upon her
oversight of the Production Prove-Out proposal and contract and her awareness of the
status of the ramp-up operation (tr. 1/58, 2/70).

        42. Alloy produced decoy flares for DO Nos. 6, 7, 8, 11, and 13 in Plant No. 1
(tr. 2/178, 3/52).

       43. Alloy produced decoy flares for DO 14 in Plant Nos. 2 and 3, rather than
Plant No. 1 (R4, tab 78 at 2; tr. 1/122).

        44. Appellant’s April 18, 2006 proposal incorporated a 10 percent factor for a
negative learning curve, essentially asserting appellant’s increased automation would,
at least initially, yield diminished returns due to a need to hire and train personnel.
That 10 percent negative learning curve factor came from appellant’s Vice President of
Operations, Mike Mignogna, working with his team. (Tr. 4/38, 90) The 10 percent
learning curve factor took into consideration all the inefficiencies with new employees,
new equipment, and new plants that would be needed for the contract (tr. 4/38).

      45. CO LaBell “agreed that they [Alloy] would be hiring new employees to
ramp-up.” (Tr. 1/61-62) Mr. Dreifus understood that it was going to take a lot of new
employees working on the M211 production to handle the ramp-up associated with
DO 14 (tr. 2/72).

      46. Both CO LaBell and Mr. Dreifus agreed that, in their experience, new
employees are generally less efficient than existing employees (tr. 1/62, 2/73).

           3. Army’s Initial Technical Evaluation

       47. Prior to negotiations, the Army contracting office asked Army engineers
David Dreifus, Franki Fong, and Adrian Nitu-Solomon (the “technical team”) to
perform a technical evaluation of Alloy’s April 18, 2006 cost proposal including the
quantities of material, types of material, quantities of labor, and types of labor that
Alloy had proposed (R4, tab 60; tr. 1/185-86, 193-94).

                                            8
       48. On May 17, 2006, the Army technical team submitted to CO LaBell its
“Technical Evaluation to Cost Proposal Regarding Contract W15QKN-04-D-1002
for delivery quantities of 450k to 950k, Revision 1-2” (R4, tab 60 at 39; answer at 6).

        49. Mr. Dreifus did much of the drafting of the technical evaluation
memorandum, and agreed with technical evaluation findings set forth in the report
(tr. 2/75).

       50. Mr. Dreifus understood that CO LaBell and contract specialist, Ms. Robertson
would be relying upon the Army’s technical evaluation and he tried to make sure that the
evaluation was done as well as he could (tr. 2/75-76).

       51. In developing the technical evaluation, the Army technical team relied
upon the following sources of information: (i) technical requirements; (ii) testing and
inspection requirements; (iii) direct observation; (iv) production and delivery rates and
schedules; (v) historical information about previously submitted proposals for M211
production; and (vi) engineering estimates (R4, tab 60 at 39; tr. 1/197-98, 2/76-77).

        52. Within the initial technical evaluation, the Army technical team addressed
all of the direct labor and direct material usage rates proposed by Alloy and evaluated
whether the proposed rates were reasonable or unreasonable (R4, tab 60 at 41-49;
tr. 1/199).

        53. Where the technical team found a proposed rate unreasonable, the technical
team took technical exception to the proposed rate, meaning that they disagreed with
the rate Alloy had proposed (tr. 1/30-31; 1/199).

        54. For labor usage, the Army developed its independent technical labor usage
factor of 0.8062 hours per unit for a quantity range of 700,000-749,999 units (answer
at 11; R4, tab 60 at 28; tr. 3/22-23). For a quantity of 750,000 flares, the Army
developed an independent labor usage factor of 0.8064 hours/unit (R4, tab 60 at 28;
tr. 3/23; app. supp. R4, tab 35). These estimates were based on the Army’s own
independent evaluation and judgment for producing M211 flares (answer at 11).

        55. In its Initial Technical Evaluation, the Army prepared independent labor
usage factors for all labor operations, including for the recoil, dry/bake, and
slit/chop/load automated operations (R4, tab 60 at 30-31, 47-48).

                                            9
           4. Business Clearance Memorandum

        56. On August 10, 2006, CO LaBell and Ms. Robertson, signed the Business
Clearance Memorandum (BCM) for negotiating increased quantities of M211 decoy
flares under the 2004 contract (R4, tab 60 at 2).

        57. CO LaBell confirmed that the BCM used the same material and labor
usage factors as those found in the Army’s initial technical evaluation (R4, tab 60
at 6-9, 29-32, 41-42, 47-48;tr. 1/29-30).

       58. The Army based its pre-negotiation positions upon labor and material usage
factors reflected in the BCM and supported by the Army technical evaluation (R4,
tab 60 at 6-9, 29-32, 41-42, 47-48; tr. 1/26-27).

       59. For its pre-negotiation positions, the Army developed overall labor usage
values based upon specific quantity ranges:

           • 0.8062 labor hours for quantity range of 700,000 – 749,999 units.
           • 0.8064 labor hours for quantity range of 750,000 – 799,999 units

(Answer at 11; tr. 1/153, 155; R4, tab 60 at 28)

       60. For its pre-negotiation position, the Army prepared its labor usage estimate
based upon its own independent evaluation and judgment (answer at 11).

           5. Price Negotiations

       61. Negotiations for Modification P00025 and DO 14 spanned the period of
August 16 through September 25, 2006 (app. supp. R4, tab 6; answer at 7; R4, tab 71
at 3).

       62. According to CO LaBell, everything discussed within the negotiation is
captured in the Price Negotiation Memorandum (PNM) (R4, tab 71), which she drafted
along with Ms. Robertson (tr. 1/32-33).

      63. Additionally, the BCM, dated August 9, 2006, contains the government’s
pre-negotiation strategy and its initial technical evaluation (R4, tab 60).

        64. On August 16, 2006, Ms. Robertson initiated negotiations by sending a
letter to appellant and taking exception to appellant’s proposed labor usage rates (app.
supp. R4, tab 6; answer at 7).
                                            10
        65. That same day, Alloy responded by faxing a two-page breakdown of actual
material and labor usage rates from two completed delivery orders, Alloy Job #1516
under the 1999 contract, which was completed in August 2005, and Alloy Job #1528
under the 2004 contract, which was completed in February 2006 (hereinafter referred
to as Jobs 1516 and 1528) (app. supp. R4, tab 4). The August 16, 2006 fax set forth
material usage data and labor usage data for Jobs 1516 and 1528, and included a
weighted average of Jobs 1516 and 1528 for labor usage of 0.96444 hours/unit (app.
supp. R4, tab 4).

        66. Knowing that the learning curve involved some risk for appellant, Alloy
built inefficiencies into its direct costs for its proposal (tr. 4/40).

       67. On August 18, 2006, the Army took exception to Alloy’s use of Jobs 1516
and 1528 as bases for proposed costs and identified specific labor operations where
Alloy had gained greater efficiencies (app. supp. R4, tab 7; R4, tab 104). Specifically,
the government argued that the labor usage rates should be lower due to increased
process efficiency and improvements which had been introduced into the
manufacturing process after the completion of DO 0001 (R4, tab 71 at 13).

        68. The 10 percent negative learning curve became a point of discussion
during negotiations. CO LaBell testified that Alloy’s proposal originally contained
a 10 percent risk factor, in addition to a higher proposed usage rate, and that during
negotiations the parties agreed to remove the 10 percent risk factor in exchange for
utilizing a weighted average of the job cost and data for Jobs 1516 and 1528
(tr. 1/159-160).

       69. Mr. Dreifus participated in telephonic discussions with Alloy personnel
during the negotiations. Mr. Dreifus testified that the parties discussed actual direct
materials and labor usage rates for Alloy’s M211 production in negotiations.
(Tr. 2/25-26)

       70. Mr. Dreifus testified that the government technical evaluators had concerns
about the suitability of the actual usage rates that Alloy provided in negotiations
because the government evaluators believed that the actuals for jobs 1516 and 1528
were not representative of the more automated state of Alloy’s current production
process (tr. 2/27-28).

       71. On September 22, 2006, the Army technical team issued its final technical
evaluation (R4, tab 69).

                                           11
        72. The PNM incorporated the Final Technical Evaluation’s finding that
“Some inefficiency may occur due to additional production rate ramp-up” (R4, tab 71
at 6-7, 13-17, tab 69 at 5-7, 14-19).

      73. Regarding ramp-up inefficiency, the PNM stated: “The Government
acknowledged that some inefficiency could occur due to additional production rate
ramp-up” (R4, tab 71 at 13-16).

      74. CO LaBell, who signed off on the PNM, testified:

             Q. When you signed off on the price negotiation
             memorandum, is it correct that you were signing off as the
             contracting officer representing the Government?

             A. Yes, I was. Yes.

             Q. When you signed off on the statement, the Government
             acknowledges that some inefficiency could occur due to
             additional production rate ramp-up, you were signing in
             your capacity as the contracting officer, correct?

             A. Yes.

             Q. You made this acknowledgement for at least four
             categories or material usage factors, steel, tantalum, liquid
             caustic, and aluminum, correct?

             A. Correct.

             Q. You also made this acknowledgement for every
             category of labor usage, except for test support, correct?

             A. Correct.

(Tr. 1/105-06; 1/116-17)

       75. On September 25, 2006, the parties finalized their price negotiations for
additional M211 flares (answer at 12).

      76. The Army knew that its independent labor usage factors in its Initial
Technical Evaluation were lower than what the Army negotiated for these factors.
                                          12
 M211 Labor Operations         Negotiated Labor Usage       Technical Evaluation
                                                            Labor Usage
 Recoil                        0.04773                      0.04314
 Dry/Bake                      0.14705                      0.07874
 Slit/Chop/Load                0.35000                      0.22232

(R4, tab 71 at 14-15, tab 60 at 30-31; tr. 2/155-157)

       77. Compared with the negotiated labor usage value (0.9704), the Army’s
known and disclosed labor usage value (0.73008) was about 24 percent lower than the
negotiated value (tr. 3/66-69; app. supp. R4, tab 35).

           6. The DO 13 Job Cost Report

       78. In its COFD, the Army contended that Alloy had a duty to submit
Work-in-Process (WIP) sheets during negotiations. Specifically, the Army contended
that Alloy had a duty to provide the September 2006 job cost report for DO 13 to the
Army during the price negotiations. (R4, tab 96 at 3-4, 9)

        79. In the top left corner, the September 2006 job cost report for DO 13 (DO 13
WIP sheet) bore a date of September 24, 2006, which was a Sunday. This date
identified the “month-end close date” or “cutoff period.” (Tr. 4/22; app. supp. R4,
tab 30) The Army does not contest that September 24, 2006 represented the cutoff
date after which Alloy conducted a physical inventory count and reconciliation
(tr. 3/60, 4/27-28; gov’t br. at 29-30).

      80. In the bottom right corner of the DO 13 WIP sheet, the date of Friday,
September 29, 2006, appears (app. supp. R4, tab 30). This date is when the DO 13
WIP sheet became available to Alloy’s management (tr. 4/22-23). Once the WIP sheet
became available to Alloy’s management, it was then verified through the
reconciliation process (tr. 4/23). Appellant, typically closed its books on the last
Sunday of the month (tr. 4/26; app. supp. R4, tab 30). Each month, appellant
conducted a full reconciliation of its reports (tr. 4/26), to include a review of labor
timesheets (tr. 4/27-28).

        81. Mr. D’Andrea testified that the job cost reports show “standards as well as
our actuals that are captured for the month and contract to date. It also gives an
estimate to complete.” (Tr. 4/21) He further explained that Alloy took significant
steps to verify the data to the extent possible:

                                           13
              Before we even close the books, we do an analysis, a
              summary of our results for the month. Then also we do a
              pro forma forecast to the end of the year in which you have
              to look at issues to complete your contracts, backlog, fills,
              forecasts, then what your profits are, and then attach [sic].
              So, yes, we reviewed that.”

(Tr. 4/25-26) According to Mr. D’Andrea, the whole purpose of the forecasts was to
see if appellant was going to meet its budget, and sometimes to look ahead to the next
fiscal year (tr. 4/26).

      82. Alloy followed the practice of not furnishing WIP sheets because, prior to
job completion and accounting reconciliation, the WIP report included judgmental
information (tr. 4/14). At times, Mr. D’Andrea had seen substantial “variations”
between the WIP data before doing reconciliation and after issuing the final report:

              I’d like to explain the WIP process and why WIP sheets
              are judgmental and aberrant. And at times, the WIP sheets
              when they’re finalized could be very close to actuals. You
              don’t have broad variations, but mostly we have seen
              larger variations and we got burnt and [sic] on many
              occasions.

(Tr. 4/15)

       83. Mr. D’Andrea further explained why the WIP process involved judgment
and variations, including the need to develop estimates for “equivalent units” prior to
completing production and conducting the final inventory count (tr. 4/15-19; R4,
tab 79 at 2, 11-14).

       84. Mr. D’Andrea explained that considerable judgment was involved in
allocating both labor and material to particular jobs. For example, several different
types of metal are combined into a slurry which is used to manufacture M211 flares for
the Air Force, Navy, and Army. The raw metals used in the slurry must be allocated to
each job consistently. Similarly, labor hours must be allocated to separate jobs, even
though individual workers are not charging their time to each separate job. The
allocation is done by someone in the production department. The production department
develops a usage rate for both material and labor, on a per unit basis, by dividing the
allocated material and labor by the number of units produced. (Tr. 4/16-19)

                                           14
       85. WIP data for labor usage for different jobs exhibited significant volatility,
showing variances of between 33 and 500 percent in labor usage for the same month
on the same production line (R4, tab 81 at 5).

       86. As the Alloy official responsible for signing the Certificate of Current Cost
or Pricing Data, Mr. D’Andrea did not believe the WIP sheets to be sufficiently
accurate to certify until after the job had been completed and the accounting data had
been reconciled (tr. 4/18-19).

           7. Whether the Army Requested the DO 13 Job Cost Report

        87. CO LaBell testified that Alloy did not provide any material and labor usage
rate data for DO 13 during the price negotiations for DO 14 (tr. 1/38-39). She stated
that the government requested this data during negotiations (tr. 1/39), but Alloy stated
that it would not disclose the data because it was WIP data, and a DD 250 had not
been developed and submitted (tr. 1/40 (LaBell), 4/30 (D’Andrea).

      88. During the course of Modification No. P00025 and DO 14 negotiations, the
Army knew that Alloy had an established practice of not providing WIP sheets prior to
completion of the job (app. supp. R4, tab 9, tab 12 at 4-5).

        89. On direct examination, CO LaBell initially testified that the Army had
requested WIP sheets for Delivery Order 13 during the negotiations for Modification
No. P00025 and DO 14 (tr. 1/39). On cross examination, CO LaBell acknowledged
that she never told Alloy that she needed the WIP sheets to award DO 14, nor that
lack of WIP sheets would make the delivery order un-awardable (tr. 1/149). She
also admitted that there was no written record for any Army request for WIP sheets
(tr. 1/144), and, if a request had been made, it would have been in the contract files
and documented in the PNM (tr. 1/144-45).

       90. The PNM does not mention any Army request for data for DO Nos. 6, 7, 8,
11, or 13 (R4, tab 71).

                                           15
        C. Decision to Rely on Job 1516 and 1528 Data

        91. Regarding the job cost spreadsheets at R4, tab 75 (tr. 1/43-49), CO LaBell
testified the government did not have access to that data during negotiations and that
“[t]his is the documentation we would have liked to have during negotiations.” (Tr. 1/48)

       92. CO LaBell acknowledged the government was under a time constraint to
procure M211 decoys, explaining that there were two wars ongoing at the time and
“time constraints just had to do with trying to get the flares to the soldiers.” (Tr. 1/162)

        93. When asked whether she had any options other than entering into the
contract with the prices included in Mod. P00025, Ms. LaBell testified she could have
awarded an undefinitized contract action (UCA), although she did not think that would
have gained the government anything (tr. 1/49). She has issued UCAs many times, is
familiar with the process, and has in the past obtained approval for such actions
(tr. 1/150).

     94. When asked about how DO 13 would have been used in negotiations,
CO LaBell initially stated:

                It would have been a been a lower price to the
                Government, based on the information that we received
                from PO 41 and Delivery Order 1, it would have been a
                lower unit price.

(Tr. 1/44-45)

       95. CO LaBell testified that Army Contracts would have referred the DO 13
data to the Army technical team, but did not say what the Army would have done:

                We would look at this, but we also would refer to
                technical. With this spreadsheet, it talks about the usage
                rate for the decoys, and then it talks about the actuals for
                the month. Then it also talks about the WIP, work in
                process. We would look at the various columns, and then
                we would discuss this with technical.

(Tr. 1/48; gov’t br. at 32)

                                             16
        96. CO LaBell testified she signed Modification P00025 relying upon the
certificate of current cost or pricing data, and on the assumption the government would
be able to recover any defective pricing costs later:

              Q: You signed the Modification P00025 relying on upon
              the certificate current costs and pricing data, on the
              assumption that you would be able to recover any defective
              pricing cost later, correct?

              A: Correct.

(Tr. 1/151-52)

       97. CO LaBell testified that the government used a weighted average as
opposed to just the lower numbers on Job 1528 because the government “had to look
at items and the experience that we experienced. For example, labor, as well as
material, it depended on what we were experiencing at that time.” (Tr. 1/160-61)

       98. In 2006, soon after award of DO 14, CO LaBell was promoted out of her
contracting officer position (tr. 1/51), and by 2012, CO LaBell was Associate Director
at ACC Picatinny, and Ms. Heather Gandy had assumed the role of contracting officer
on appellant’s contract (tr. 1/443).

       99. Mr. Dreifus testified that, “in the end there was a decision to go and use
the actual 1516 and 1528 [data]. Because Alloy was unable or unwilling to provide
any more recent and relevant information, despite our requests for it.” (Tr. 2/31)

       100. Mr. Dreifus testified that the government technical evaluators’ concerns
with the information that Alloy had provided are recorded in the final technical
evaluation report.

       101. For example, the government still took exception to the appellant’s
proposed usage rate for steel and believed that it should be lower and without any
additional percentage. Mr. Dreifus stated in his hearing testimony that this was based
on the appellant being more effective and efficient with new automated equipment.
(Tr. 2/31-32)

        102. Mr. Dreifus explained in his testimony that, in the end, the parties agreed
not to incorporate appellant’s proposed 10 percent negative learning curve. Instead,
the parties decided to use the appellant’s actuals from jobs 1516 and 1528 as the basis
for the negotiated agreement (tr. 2/33-34, 4/38-40).

                                           17
       103. Mr. Dreifus explained that comments in the government’s final technical
evaluation that “some inefficiency may occur due to additional production rate
ramp-up” were included in the technical evaluation report to try to capture statements
by the appellant that it had concerns about production ramp-up (tr. 2/34-35).

       104. Mr. Dreifus testified that the government did not attempt to quantify or to
ask the appellant to quantify the inefficiency that may occur due to production rate
ramp-up, because the appellant already had included a 10 percent negative learning
curve as an attempt to account for the anticipated inefficiency, and because appellant
already had a separate contract to compensate for its ramp-up activities (tr. 2/35-36).

        105. For individual labor operations for Job 1528, the Army knew during
negotiations that automation in Plant 1 had resulted in labor usage factors lower than
those for Job 1528 disclosed in the August 16 fax. On August 18, 2006, the Army
stated that “efficiencies” had already been gained over the “supplied actuals.” (App.
supp. R4, tab 7; tr. 1/86-91, 2/116-23)

       106. For each labor operation for Job 1528 (except test support), the PNM and
Final Technical Evaluation stated that labor usage would be lower than the actual
usage hours under Job 1528 (R4, tab 71 at 13-17, tab 69 at 14-19).

       107. On August 16, 2006, Alloy disclosed to the Army actual labor and
material usage factors for Jobs 1528 and 1516 (app. supp. R4, tab 4). The PNM
acknowledged receipt of this data: “Alloy submitted sheets which represented
‘actuals’” for Jobs 1516 and 1528” (R4, tab 71 at 6-8, 13-16).

        108. For individual labor operations for Job 1528, the Army knew during
negotiations that automation in Plant 1 had resulted in labor usage factors lower than
those for Job 1528 disclosed in the August 16 fax. On August 18, 2006, the Army
stated that “efficiencies” had already been gained over the “supplied actuals.” (App.
supp. R4, tab 7; tr. 1/86-91, 2/116-23)

       109. For each labor operation for Job 1528 (except test support), the PNM and
Final Technical Evaluation stated that labor usage would be lower than the actual
usage hours under Job 1528 (R4, tab 71 at 13-17 [labor usage “lower than that
provided under DO 0001”], tab 69 at 14-19 [same]). The Army acknowledged that
this meant that labor usage would be lower than the factors in the August 16, 2006 fax,
due to increased process efficiency and improvement (tr. 1/109-111).

                                          18
        110. For material usage (steel, tantalum, liquid caustic, and aluminum), the
PNM and Final Technical Evaluation stated that material usage would be lower than
the actual usage hours under Job 1528 (R4, tab 71 at 6-8, tab 69 at 5-7). Mr. Dreifus
stated that this meant that material usage would be lower than the factors in the
August 16, 2006 fax (tr. 1/100, 2/126-127).

      111. Mr. Dreifus testified that, although he provided a technical
recommendation, the CO decided to use a weighted average of actual usage rates per
decoy from the appellant’s Jobs 1516 and 1528 data (tr. 2/36-37).

     112. The Army technical team disagreed with the Army decision “made by
someone else” within the Army to use the weighted average of Jobs 1516 and 1528:

              Q. So when you say a decision was made, you’re saying
              that the decision was not made by you, Franki Fong, or
              Adrian Nitu- Solomon to use the weighted average. That
              decision was made by someone else, is that right?

              A. Yes. We had concerns about using those as predictors
              for the future.

(Tr. 2/113)

      113. However, Mr. Dreifus did not explain how the Army technical team
would have used the DO 13 data (tr. 2/121, 127).

         D. Certification of Cost or Pricing Data and Award of DO 14

        114. By letter dated September 26, 2006, Mr. D’Andrea, Alloy’s CFO, certified
that the cost or pricing data submitted for DO 14 was, to the best of his knowledge and
belief, “accurate, complete, and current as of Monday September 25, 2006” (R4,
tab 72).

     115. On September 27, 2006, the Army awarded DO 14 to appellant in the
amount of $57,037,602 for the procurement of 700,000 M211 decoys (R4, tab 74).

        116. On Friday, September 29, 2006, the September job cost report for DO 13
was available to appellant’s management. Mr. D’Andrea, who was responsible for
negotiations on appellant’s behalf, also was responsible for providing the monthly
report to appellant’s management. (Tr. 4/25)
                                          19
       117. Within the DO 13 labor usage data for August and September 2006, the
only change in actual hours per unit across the two months was that “production
support” increased from 0.0006 hours per unit in August 2006 to 0.0007 hours per unit
in September 2006 (R4, tab 75 at 1-2). This corresponds to the 4.5 actual hours of
labor for production support noted on the September 2006 report (R4, tab 75 at 2).

      III. DCAA Audit

       118. On June 21, 2011, DCAA initiated fact-finding for a post-award defective
pricing audit relating to Modification No. P00025 and DO 14 (answer at 40; R4,
tabs 76-77).

      119. By letter dated July 1, 2011, Alloy responded to DCAA’s inquiry and
denied defective pricing (R4, tab 78).

       120. In September 2011, DCAA issued a draft post-award audit report
asserting defective pricing relating to DO 14 (answer at 14-15).

       121. On October 18, 2011, Alloy submitted a written response to the DCAA
draft audit and disputed the defective pricing allegations (R4, tab 79).

       122. On February 10, 2012, DCAA issued its final audit report alleging
defective pricing relating to DO 14 (R4, tab 80).

       123. On March 12, 2012, Alloy submitted a supplemental response to DCAA’s
audit and again denied defective pricing (R4, tab 81).

       124. On August 8, 2012, the Army issued its Pre-Negotiation Objective and
alleged defective pricing based upon DCAA’s audit report issued in February 2012
(R4, tab 82).

       125. On November 26, 2012, Alloy first received DCAA’s February 2012
audit report (R4, tabs 84-85).

       126. On July 22, 2013, the Army revised its defective pricing position, relying
solely upon DO 13, rather than the DCAA audit position (that used DO Nos. 6, 7, 8,
11, and 13) (R4, tab 88).

                                          20
       IV. CO’s Final Decision Asserting Government Defective Pricing Claim

       127. On July 24, 2014, after reviewing the DCAA Audit Report, Ms. Gandy
issued a COFD asserting defective pricing and demanding a repayment of
$15,920,212, plus interest (R4, tab 96).

        128. The COFD sought a price adjustment of $15,920,212, more than the
$12,572,283 price-adjustment recommended in the DCAA audit. The COFD explained
that the Army did not disagree with the DCAA’s findings, but calculated its own price
adjustment based solely on data from DO 13 (R4, tab 96 at 2). DCAA, in contrast,
used a weighted average of five delivery orders to calculate its recommended price
adjustment. DCAA subsequently concurred with the Army’s approach, reasoning that
the Army’s approach “incorporates the effect of all efficiencies gained just prior to the
award of DO 14.” (R4, tab 91 at 1)

       129. The COFD asserted that the overstated material cost per decoy was
calculated to be $1.16 for materials (steel, tantalum, liquid caustic, and aluminum);
and the overstated labor hour usage per decoy was calculated to be .36, which is .97
hours negotiated less .61 post award audit computed, utilizing the DO 13 actual data
(R4, tab 96 at 9-10).

                                      DECISION

       I. Standard of Review for Defective Pricing Claims

        The Truth in Negotiations Act (TINA), 10 U.S.C. § 2306a, requires contractors
who must submit cost or pricing data “to certify that, to the best of . . . [their]
knowledge and belief, the cost or pricing data submitted was accurate, complete and
current.” 10 U.S.C. § 2306a(a)(2). In addition, TINA requires that any contractual
arrangement under which such certification is required “shall contain a provision that
the price of the contract . . . shall be adjusted to exclude any significant amount by
which it may be determined . . . that such price was increased because the contractor . .
. submitted defective cost or pricing data.... 10 U.S.C. § 2306a(e)(1)(A)-(B). In other
words, the government will be awarded a contract price adjustment when the
government proves that a contractor furnished defective cost or pricing data and “the
[g]overnment relied on the overstated costs to its detriment.” Singer Co., Librascope
Div. v. United States, 576 F.2d 905, 914 (Ct. Cl. 1978).

        The government has the burden of proof in a defective pricing claim. As a
general matter, this entails proving three elements by a preponderance of the evidence.
First, the government must establish that the information at issue is “cost or pricing

                                           21
data” within the meaning of TINA. Second, the government must show that the cost
or pricing data was either not disclosed or not meaningfully disclosed to a proper
government representative. Third, it must demonstrate detrimental reliance on the
defective data. United States v. United Technologies Corp., 51 F. Supp. 167 (1999)
(discussing three elements and burden of proof); also Wynne v. United Technologies
Corp., 463 F.3d 1261, 1264 (Fed. Cir. 2006) (discussing detrimental reliance). In that
regard, it is aided by a presumption that the non-disclosure of data resulted in an
overstatement of the price of the contract. Sylvania Elec. Prods., Inc. v. United States,
479 F.2d 1342, 1349 (Ct. Cl. 1973). If that presumption of causation is rebutted,
however, the government only can prevail “upon proof that it relied upon the defective
data to its detriment in agreeing to the contract price.” Wynne, 463 F.3d at 1263. See
Lockheed Martin Aeronautics Co., ASBCA No. 56547, 13 BCA ¶ 35,220 at 172,815
(holding that presumption is rebuttable and not a substitute for specific proof
establishing the amount of such damages).

       II. The 2006 Job Cost Reports for DO 13 Are Not “Cost or Pricing Data”
           Pursuant to TINA

      Pursuant to TINA, the term “cost or pricing data” means “all facts that, as of the
date of agreement on the price of a contract . . . a prudent buyer or seller would
reasonably expect to affect price negotiations significantly. Such term does not
include information that is judgmental, but does include the factual information from
which a judgment was derived.” 10 U.S.C. § 2306a(h)(1).

        The government contends that the June 2006 and August 2006 monthly job cost
reports from DO 13 constitute “cost or pricing data” as that term is defined in TINA
and its implementing regulations (gov’t br. at 45-49). According to the government,
Alloy’s internal job cost reports contain verifiable factual data related to prior
produced lots and some elements of estimation, such as estimated material usage
rates which Alloy contends could not be finalized until the end of an entire production
run (gov’t br. at 45). The government relies on Texas Instruments, Inc., ASBCA
No. 23678, 87-3 BCA ¶ 20,195, for the proposition that the job cost reports, including
both narrative and statistical data, constitutes “cost or pricing data” pursuant to TINA.
Specifically, Texas Instruments held that the data contained in similar job cost reports
were “facts which could reasonably be expected to contribute to sound estimates of
future costs and were, therefore, cost or pricing data.” Texas Instruments, 87-3 BCA
¶ 20,195 at 102,277-78.

       Alloy disputes this conclusion, contending that the data from DO 13 was “work
in process” (WIP) data and the Army knew that it was Alloy’s practice to not provide
WIP data prior to completion of a job (app. br. at 66; findings 82, 88). Alloy did not

                                           22
disclose its WIP data, because, prior to job completion and accounting reconciliation,
the WIP reports included a significant amount of judgmental information relating to
the accuracy of the data (findings 82-84; app. br. at 67). According to Alloy’s CFO,
Mr. D’Andrea, there previously have been substantial variations between the WIP
reports and final reports. According to him, generating the WIP reports requires
significant judgment, including the need to develop estimates for “equivalent units”
prior to completing production and conducting the final inventory count (finding 84 ).

       Mr. D’Andrea elaborated on this point during his hearing testimony, explaining
that considerable judgment was involved in allocating both labor and material to
particular jobs. For example, several different types of metal are combined into a
slurry which is used to manufacture M211 flares for the Air Force, Navy, and Army.
The raw metals used in the slurry must be allocated to each job consistently. In the
same way, labor hours must be allocated to separate jobs, even though individual
workers are not charging their time to each separate job. The allocation is done by
someone in the production department. (Finding 84) Ultimately, as the Alloy official
responsible for signing the Certificate of Current Cost or Pricing Data, Mr. D’Andrea
did not believe the WIP sheets to be sufficiently accurate to certify until after the job
had been completed and the accounting data had been reconciled (finding 86).

        There is no dispute that the job cost reports from DO 13 contained factual data
as well as estimated labor and material usage rates (finding 81). The government
contends that the estimates of labor and material usage rates were accurate, based on a
comparison of August and September 2006 job cost reports from DO 13 Lot 2 (gov’t
br. at 30-31). In August 2006, production was nearly complete on DO 13 Lot 2. By
September, production was complete. The only difference between the reports was
4.5 hours of labor for packaging, a difference of only 0.0001 labor hours in the
estimated labor usage rate, with no changes from the estimated to actual labor hours
recorded for Alloy’s manufacturing process steps. According to the government, this
makes the job cost reports sufficiently accurate to constitute “cost or pricing data”
pursuant to TINA. (Gov’t br. at 31, 38)

        Despite the relative accuracy of the estimates in the September and October
2006 job cost reports, we cannot conclude that the reports are “cost and pricing” data
as that term is defined in TINA. While it may be true that the WIP data in the reports
were substantially close to the actual data from the DO 13 Lot 2 production, the
relative accuracy was due to the fact that the reports were generated near the end of the
production run. It makes sense that the estimates of “equivalent units” in the reports
would become more accurate toward the end of a production run, when actual
production figures are close to being final. Although the estimates in the job cost
reports may become more accurate as the end of a production run approaches, it is

                                           23
impossible to point to a time along the continuum where the estimates become
accurate enough to possess the requisite degree of certainty necessary for providing
certified cost and data to the government.

        Moreover, WIP data from other jobs that were in production at the time of
negotiations demonstrate the unreliability of the WIP data (finding 85). Alloy’s
estimates of “equivalent units” – from which labor and material usage factors are
derived – are based on subjective judgments about how many actual units will be
produced at the end of the production run. These judgments cannot be verified until
the end of the production run. (Finding 82) That the WIP data from DO 13 turned out
to be reasonably close to the actual data from the completed job does not change the
fact that the job cost reports were based on estimates of “equivalent units,” and not on
the actual number of complete units produced.

        The estimated “equivalent units” found in the job cost reports are a fundamental
part of the reports. Specifically, they are the denominator of the fraction used to
calculate both labor and material usage factors. (Findings 83-84) Unlike the reports in
Texas Instruments, which included verifiable factual data alongside estimates, Alloy’s
job cost reports set forth usage factors that are calculated using estimates. Thus,
Alloy’s job cost reports are fundamentally different from the reports in Texas
Instruments.

        We find this case to be more similar to Aerojet Ordnance Tennessee, ASBCA
No. 36089, 95-2 BCA ¶ 27,922 at 139,444-45 (no reliance on internal operating
controls certifying proposals to the government). WIP sheets, like the Internal
Operating Controls (IOC) reports in Aerojet, are management tools based on an
individual manager’s judgment, not a cost accounting process relying on precision. In
Aerojet, we concluded that, although the data in IOC reports may be accurate for
management purposes and may even be close to accounting reports, the IOC reports do
not possess the requisite degree of certainty necessary for providing certified cost and
data to the government. Id. ∗ By the same token, Alloy’s WIP sheets are management
tools and do not possess the requisite degree of certainty necessary for providing
certified cost and data to the government.

∗
    We acknowledge that the Board’s discussion of IOC in Aerojet is dicta, because the
        Board ultimately based its holding on the conclusion that the government did
        not demonstrate that the parties would have relied on the IOC reports in
        negotiating the price. However, we agree with the analysis in Aerojet.

                                            24
      III. The WIP Sheets for DO 13 Were Not Finalized Until After the Parties
           Agreed to the Price for DO 14

       We next analyze whether there was effective disclosure of the 2006 job cost
reports to the government during the price negotiations. We conclude that the raw
data from DO 13 were available by the end of price negotiations for DO 14, but that
the data were not in a form that Alloy reasonably could certify as “cost and pricing
data” pursuant to TINA.

        The disclosure obligation is satisfied if the contractor clearly advised the
government personnel who participated in the contract negotiations of the relevant cost
or pricing data. Texas Instruments., 87-3 BCA ¶ 20,195 at 102,266 (citing Sylvania
Elec. Prods., Inc., ASBCA No. 13622, 70-2 BCA ¶ 8387, aff’d, 479 F.2d 1342 (Ct. Cl.
1973)). Alternatively, the disclosure obligation can be satisfied if the government
personnel possessed actual knowledge of the relevant cost or pricing data. Texas
Instruments, 87-3 BCA ¶ 20,195 at 102,266 (citing Muncie Gear Works, Inc., ASBCA
No. 18184, 75-1 BCA ¶ 11,380 and Norris Industries, Inc., ASBCA No. 15442, 74-1
BCA ¶ 10,482).

        Here, the government contends that appellant had access to the data contained
in the September 2006 report prior to the price agreement, but did not finalize the
report until afterwards (gov’t br. at 49-50). Citing Aerojet Solid Propulsion Co.,
ASBCA Nos. 44568, 46057, 00-1 BCA ¶ 30,855 at 152,326, the government asks us
to infer that Mr. D’Andrea, as the person who was responsible both for finalizing the
September WIP report and for negotiating the price for DO 14, possessed knowledge
of relevant cost and pricing data and withheld that data from the government during
price negotiations. See also Arral Indus., Inc., ASBCA Nos. 41493, 41494, 96-1
BCA ¶ 28,030 at 139,945 (data is reasonably available, and subject to disclosure, if
contractor’s personnel at a management level are aware of its existence) (citing
Aerojet-General Corp., ASBCA No. 12264, 69-1 BCA ¶ 7,664 at 35,583, modified on
recon., 70-1 BCA ¶ 8,140)).

       In response, Alloy acknowledges that it made a business decision not to
produce its WIP reports from DO 13 (finding 82). It further contends – and the Army
admits – that the Army was aware of Alloy’s policy of not furnishing WIP sheets
(finding 88). Nonetheless, Alloy contends that it was not obligated to disclose the
September 2006 job cost report, because that report was not finalized until after the
parties reached agreement on the price of DO 14 (app. br. at 79-80).

      Alloy’s normal practice is to establish a “cutoff date” for assembling data for
each WIP sheet. After this date, Alloy takes a final physical inventory, reviews labor

                                          25
timesheets, and reconciles the work-in-process data with the actual number of units
produced and labor hours logged. Alloy then finalizes the job cost report for the
delivery order. In this situation, the cutoff date was Sunday, September 24, 2006, and
Alloy’s management completed its reconciliation and finalized the report on Friday,
September 29, 2006 (finding 116). The Army does not contest this timeline, and there
is nothing in the documentary evidence or hearing testimony suggesting that the job
cost report could have been finalized more quickly, or that Alloy’s management
delayed reconciling the report while DO 14 price negotiations were ongoing.

       We agree that Alloy possessed some of the relevant data from DO 13 in
sufficient time to disclose it to the government’s negotiators. However, as we
discussed in connection with the WIP reports from DO 13, at the time of price
agreement on September 25, 2006, the information in the WIP reports did not possess
the necessary degree of certainty to certify the reports as “cost and pricing data”
pursuant to TINA.

       IV. Reliance

        We turn next to the question of the government’s reliance. To prove that it
relied on inaccurate or noncurrent cost or pricing data, the government is aided in
meeting its burden by a rebuttable presumption that a “natural and probable
consequence” of the nondisclosure was an increase in the contract price. Sylvania,
479 F.2d at 1349. The appellant must then show that the defective data was not relied
upon or that the undisclosed data would not have been relied upon even if there had
been a complete disclosure. Id.; see Aerojet Ordnance Tennessee, 95-2 BCA ¶ 27,922
at 139,436. The government, nevertheless, retains the ultimate burden of showing a
causal connection between the undisclosed or defective data and an overstated contract
price. Universal Restoration, Inc. v. United States, 798 F.2d 1400, 1403-04 (Fed. Cir.
1986); Grumman Aerospace Corp., ASBCA No. 27476, 86-3 BCA ¶ 19,091 at 96,494.

        In this appeal, the government is entitled to a presumption that Alloy’s failure
to disclose the DO 13 data resulted in an overstatement of the price of DO 14. Alloy,
in turn, must overcome the presumption of reliance by demonstrating that the
government did not rely on the DO 13 data, or that having the data from DO 13 would
not have changed the price.

       As we set forth in more detail below, we conclude that the Army has not met its
burden of demonstrating that having the final job cost report from DO 13 would have
changed its decision to rely on the weighted average of the data from Jobs 1516 and
1528. The Army used the data from Jobs 1516 and 1528 in setting the price for DO 14
with full knowledge of other data showing greater efficiency, because the Army

                                           26
believed that the weighted average of the data from Jobs 1516 and 1528 best
represented the likely performance of Plants 2 and 3 as they ramped up to meet the
production rate necessary for DO 14. Moreover, the Army’s rejection of Alloy’s
proposed 10 percent inefficiency adjustment reflected the Army’s conclusion that
some degree of ramp-up inefficiency already was captured in Alloy’s price proposal.
(Findings 68, 104).

        DO 14, when awarded, would use the same type of automated equipment used
on DO 13 (finding 24). Prudent buyers and sellers would reasonably expect the labor
usage efficiency realized from DO 13 to significantly affect price negotiations in
future orders. However, DO 14 would require Alloy to bring online two new
manufacturing plants, including hiring and training new employees to operate the
newly automated equipment (findings 22, 24). It is reasonable to conclude that
starting up manufacturing at two new plants would create inefficiencies. It also is
reasonable to conclude that the Army was aware of both the efficiencies of
automation, and the inefficiencies of ramping-up production. Given these competing
factors, the Army chose to rely on actual data from the previous delivery order.

      A. The Parties’ Contentions

        Alloy contends that the Army had knowledge of at least three sets of labor
usage factors lower than the weighted average usage hours it agreed to in its price
negotiation (app. br. at 109). Alloy further contends that the Army knew that the
negotiated usage factors were higher than most recent usage factors from Plant 1 (app.
br. at 110).

       In addition, the Army prepared its own independent government cost estimate
and relied, in part, on it to establish Alloy’s proposed prices as being fair and
reasonable (app. br. at 97). Reliance on an independent government cost estimate
rebuts reliance on allegedly defective price data. Luzon Stevedoring Corp., ASBCA
No. 14851, 71-1 BCA ¶ 8745 at 40,607.

       According to Alloy, these facts undercut the Army’s argument that it relied on
the data from Jobs 1516 and 1528 to its detriment. Alloy contends that the Army
accepted the Jobs 1516 and 1528 data, even though it was aware of other data showing
greater efficiency, because the Army believed that the weighted average of the data
from Jobs 1516 and 1528 best represented the likely performance of Plants 2 and 3 as
they ramped up to meet the production rate necessary for DO 14. In support, Alloy
points to multiple identical statements in the Final Technical Evaluation (and
incorporated into the PNM) stating that the Army “acknowledged some inefficiency

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could occur due to additional production rate ramp-up.” (App. br. at 119-125;
findings 72-74, 102, 104)

        There are two ways to understand the sentences in the PNM. The first
interpretation, as Alloy suggests, is to conclude that the Army was aware that the
actual data was not representative, but accepted it as the best available indication of
how the production rate ramp-up would affect prices going forward. Alternatively, the
Army responds that it included the statement in the PNM in order to capture Alloy’s
stated concerns about ramp-up, not the Army’s own judgment about ramp-up
inefficiency. (Finding 103)

        We believe Alloy’s understanding of the statement is correct. The statement in
the PNM means exactly what it says: that the Army agreed to the price in part because
of the inefficiency that could occur due to additional production rate ramp-up. Indeed,
the notion that ramp-up inefficiency was a factor in the Army’s pricing deliberations is
consistent with the documentary evidence and hearing testimony.

       B. The Army Has Not Demonstrated That Having the DO 13 Data Would Have
          Changed the Negotiated Price

        In order to prove reliance, the Army must provide specific information about
how it would have used the DO 13 data in negotiations. The Army cannot rely on
speculation about how it would have used the data or how having the data would have
affected negotiations. McDonnell Douglas Helicopter Sys., ASBCA No. 50447 et al.,
00-2 BCA ¶ 31,082 at 153,465 (rejecting testimony of government witnesses that
disclosure would have reduced price as conclusory and nonspecific); Rosemount, Inc.,
ASBCA No. 37520, 95-2 BCA ¶ 27,770 at 138,456 (government offered no evidence
or testimony as to how disclosure of data would have affected negotiations).

       Here, the Army has not demonstrated that having the DO 13 data would have
changed the negotiated price. The Army was aware of the effect of automation on
labor and material usage factors, based on its oversight of the production prove-out of
the automation machinery at Plant 1. (Findings 31, 67, 101) Indeed, this knowledge
was the basis of the technical team’s questioning of the Job 1516 and 1528 prices
(findings 68, 98). Having the DO 13 data, therefore, merely would have reinforced the
technical team’s conclusions about the effect of automation. The Army’s knowledge
of the effect of automation undermines the causal connection between the allegedly
undisclosed data and an overstated contract price. See McDonnell Douglas Helicopter
Sys., 00-2 BCA ¶ 31,082 at 153,469 (holding that government possessed knowledge of
a lower price sufficiently close in time to facilitate negotiation of a lower price than
that agreed to by the Army).

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        Moreover, because the DO 13 data was from Plant 1, the data would not have
shed any light on the inefficiencies associated with starting and ramping-up production
at the two new manufacturing plants. Although the Army could quantify the projected
efficiency resulting from the increased use of automation, it was forced to speculate
about the effect of ramping-up production at two new plants. Indeed, the fundamental
problem with the government’s position is that the DO 13 data sheds no light on the
actual effect of ramp-up inefficiency on manufacturing in Plants 2 and 3.

        The government does not dispute that it was aware of lower usage data from
prior orders, but contended it did not rely on this data in its negotiations. Ultimately,
the government was aware that the data from Jobs 1516 and 1528 was not the best –
both because it did not reflect the latest automation and because it did not reflect the
effects of rapidly ramping-up production – but it decided that the weighted average of
the Jobs 1516 and 1528 data was the best it could do under the circumstances. Thus,
the Army concluded that the weighted average of the Jobs 1516 and 1528 data
represented the best compromise between automation efficiency and ramp-up
inefficiency. (Findings 99, 102, 111)

       An additional factor undercutting the Army’s reliance was its awareness during
negotiations that Alloy had failed first article testing (FAT) during the production
prove-out of Plant 2. Because the Army knew that Alloy was having difficulty
demonstrating that Plant 2 was ready for full-scale production, it was reasonable for
the Army to believe that there would be some inefficiency associated with the
assumption of full-scale manufacturing at the new plants. This knowledge was
consistent with the Army’s decision to adopt pricing that attempted to balance
automation efficiency with the inefficiency of increased production.

       Additionally, the evidence does not conclusively demonstrate that the
government specifically asked Alloy to produce the data from DO 13 during price
negotiations. We cannot conclude that the government was harmed by not having the
DO 13 data, when it cannot demonstrate that it asked for the DO 13 data during
negotiations. Although CO LaBell testified on direct examination that the Army had
requested WIP sheets for DO 13 during the negotiations, on cross examination,
CO LaBell acknowledged that she never told Alloy that she needed the DO 13 WIP
sheets to award DO 14, nor is there any written record of an Army request for the
DO 13 WIP sheets. (Finding 89)

        Although CO LaBell said that the DO 13 data would have resulted in a lower
price, her testimony during the hearing was non-specific (findings 93-97). According
to the Army, having the DO 13 data “would have impacted the [CO’s] willingness to
agree to higher usage rates based on ramp-up inefficiencies[.]” (Reply br. at 4) This

                                           29
argument is based on speculation. During the hearing testimony, none of the Army’s
witnesses provided any specific examples of how it would have used the DO 13 data,
or specifically how the information would have changed the prices it agreed to during
negotiations (findings 93-97, 111-113). The government fails adequately to answer
the question of whether negotiators would have acted differently if they had been in
possession of the undisclosed DO 13 job reports. Accordingly, we conclude that the
Army has not proven that the price would have changed if it had DO 13 data in its
possession during price negotiations.

       C. Defective Pricing Clause is Not a Vehicle for Repricing a Contract Deemed
          to be Unreasonably Priced

       As we have held in Luzon Stevedoring Corp., 71-1 BCA ¶ 8745 at 40,604, the
defective pricing clause is not a vehicle for repricing a contract which is deemed
unreasonably high-priced. The clause does not provide a procedure for re-pricing a
contract after award. Id.

        That is precisely what the CO did here, as she admitted, stating that she agreed
to a price in the absence of the DO 13 data, believing she could recoup any difference
with a defective pricing claim after the fact:

               Q: You signed the Modification PO 25 relying on upon the
               certificate current costs and pricing data, on the assumption
               that you would be able to recover any defective pricing
               cost later, correct?

               A: Correct.

(Finding 96)

      We conclude that the government has failed to meet its burden of proving that
having the data from DO 13 during negotiations would have changed the pricing for
DO 14.

       V. Damages

       Because we have concluded that the government is not entitled to a contract
price adjustment, we need not reach the issue of quantum.

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                                   CONCLUSION

      For these reasons, the appeal is sustained.

      Dated: April 9, 2020

                                                    KENNETH D. WOODROW
                                                    Administrative Judge
                                                    Armed Services Board
                                                    of Contract Appeals

 I concur                                           I concur

 RICHARD SHACKLEFORD                                OWEN C. WILSON
 Administrative Judge                               Administrative Judge
 Acting Chairman                                    Vice Chairman
 Armed Services Board                               Armed Services Board
 of Contract Appeals                                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. 59625, Appeal of Alloy
Surfaces Company, Inc., rendered in conformance with the Board’s Charter.

      Dated: April 9, 2020

                                                    PAULLA K. GATES-LEWIS
                                                    Recorder, Armed Services
                                                    Board of Contract Appeals

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