Court Opinion

ID: 2759276
Source: CourtListenerOpinion
Date Created: 2014-12-10 17:01:05.084896+00
Date Added: 2024-06-11T12:08:07.600568
License: Public Domain

United States Court of Appeals
      for the Federal Circuit
                ______________________

      SIKORSKY AIRCRAFT CORPORATION,
            Plaintiff-Cross Appellant,

                           v.

                  UNITED STATES,
                 Defendant-Appellant.
                ______________________

                   2013-5096, -5099
                ______________________

    Appeals from the United States Court of Federal
Claims in Nos. 09-CV-0844 and 10-CV-0741, Judge
Charles F. Lettow.
                 ______________________

              Decided: December 10, 2014
               ______________________

    JEFFREY A. HALL, Bartlit Beck Herman Palenchar &
Scott LLP, of Chicago, Illinois, argued for plaintiff-
appellant. With him on the brief was KATHERINE M.
SWIFT. Of counsel on the brief was KAREN L. MANOS,
Gibson, Dunn & Crutcher LLP, of Washington, DC.

    JAMES W. POIRIER, Attorney, Commercial Litigation
Branch, Civil Division, United States Department of
Justice, of Washington, DC, argued for defendant-
appellant. With him on the brief were STUART F. DELERY,
Assistant Attorney General, BRYANT G. SNEE, Acting
Director, and STEPHEN J. GILLINGHAM, Assistant Director.
2                     SIKORSKY AIRCRAFT CORPORATION   v. US

Of counsel on the brief were KATHLENE P. MALONE, De-
fense Contract Management Agency, of Boston, Massa-
chusetts, and DAVID C. HOFFMAN, Defense Contract Audit
Agency, of Fort Belvoir, Virginia.
                 ______________________

        Before DYK, TARANTO, and CHEN, Circuit Judges.
DYK, Circuit Judge.
     Sikorsky Aircraft Corporation (“Sikorsky”) has had a
number of government contracts that are subject to the
government Cost Accounting Standards (“CAS”). 1 These
standards govern the allocation of costs among the vari-
ous contracts being performed by a government contrac-
tor. Allocation of costs between government contracts and
non-government (or commercial) contracts is particularly
important.
    Between 1999 and 2005, Sikorsky allocated its mate-
riel overhead costs as between government and non-
government contracts according to a direct labor base.
The question is whether this was consistent with the
CAS. The government contracting officer issued a final
decision against Sikorsky, finding Sikorsky’s allocations
between 1999 and 2005 noncompliant with CAS 418 and
concluding that Sikorsky owed the government approxi-
mately $65 million in principal and $15 million in inter-
est. Sikorsky filed a complaint with the Court of Federal
Claims (the “Claims Court”) challenging this determina-
tion. The Claims Court held that the government failed to
establish by a preponderance of the evidence that Sikor-
sky violated CAS 418. We affirm.

    1   The Cost Accounting Standards are codified at 48
C.F.R. §§ 9904.401–9904.420.
SIKORSKY AIRCRAFT CORPORATION     v. US                      3

                        BACKGROUND
    During the period in question (1999–2005), Sikorsky
held a number of contracts with the United States gov-
ernment to furnish helicopters and other goods and ser-
vices. Sikorsky also sold aircraft and other goods and
services to commercial customers.
    Sikorsky’s government contracts were subject to the
CAS. The CAS are a set of nineteen standards promulgat-
ed by the Cost Accounting Standards Board (“CASB”). At
issue in this case is the application of CAS 418, which
pertains to the “[a]llocation of direct and indirect costs.”
48 C.F.R. § 9904.418.
    Direct costs can be allocated to a particular cost objec-
tive (a contract). 2 CAS 418 governs how indirect costs are
allocated to government cost objectives. See id.
§ 9904.418-20. Unlike direct costs, indirect costs are not
directly related to one particular cost objective (or con-
tract). 3 See id. § 9904.418-30(a)(2)–(3). Therefore, an
allocation base (or allocation method) is used to allocate
indirect costs to cost objectives. See id. § 9904.418-40(c).
The allocation base allows measurement of the quantity of

    2    A direct cost is defined as “any cost which is iden-
tified specifically with a particular final cost objective.” 48
C.F.R. § 9904.418-30(a)(2). For example, labor wages of a
worker on a production line are direct labor costs which
can be allocated directly to a contract. These labor costs
can usually be easily tracked according to how much time
a worker spends on a particular product being manufac-
tured and, in turn, the associated cost objective.
     3   An indirect cost is defined as a cost “not directly
identified with a single final cost objective” and instead is
“identified with two or more final cost objectives or with
at least one intermediate cost objective.” 48 C.F.R.
§ 9904.418-30(a)(3).
4                      SIKORSKY AIRCRAFT CORPORATION    v. US

costs in an indirect pool attributable to a given cost objec-
tive. See id. The allocation base used must allocate pooled
indirect costs to cost objectives in “reasonable proportion”
to the relationship between the indirect costs and the cost
objective. Id. For example, direct cost may be used as an
allocation base if the amount of direct costs consumed by
a cost objective is correlated to the indirect costs con-
sumed by that cost objective.
    Sikorsky collected its materiel overhead costs in an
indirect cost pool. 4 Materiel overhead costs included the
costs of purchasing and handling materiel, which Sikor-
sky’s labor force used to manufacture and assemble
aircraft and parts. The purchasing activities included
issuing requests for price quotations to suppliers, negoti-
ating pricing, drafting purchase orders, and coordinating
parts delivery schedules with suppliers. The materiel
handling (or, in other words, materiel logistics) costs
included costs attributable to master scheduling, parts
and requirements planning, receiving, internal transpor-
tation, trucking, traffic, warehousing, kitting, area control
stations, and expediting. These materiel overhead costs
were indirect costs related to multiple contracts.
    Ideally, materiel overhead costs could be allocated us-
ing a base of the direct materiel costs. Sikorsky deter-
mined that such an allocation method would result in a
distortion. This is so because Sikorsky is required by the
government to use substantial amounts of government

    4   This overall pool was allocated into some interme-
diate sub-pools, apparently according to geography. The
creation of these sub-pools has not been shown to be
relevant in the overall legal analysis. In any event, CAS
418-60(f) provides an example in which intermediate
pools are used in the context of materiel costs, establish-
ing that the use of intermediate pools is not improper. 48
C.F.R. § 9904.418-60(f).
SIKORSKY AIRCRAFT CORPORATION   v. US                    5

furnished materiel (“GFM”), which is provided by the
government to Sikorsky for use in its government con-
tracts. GFM includes engines, hovering infrared suppres-
sion systems and auxiliary power units, crash seats,
support equipment, and radios. GFM is not included in
Sikorsky’s direct materiel cost base. Sikorsky’s only costs
for this GFM are materiel overhead (handling and stor-
age) costs, which are increased even though the govern-
ment provides the GFM. For its commercial contracts,
Sikorsky incurs direct materiel costs in addition to mate-
riel overhead costs. Therefore, allocation of materiel
overhead in proportion to direct materiel costs as between
government and commercial contracts would assign too
little to the former and too much to the latter.
    Before 1999, Sikorsky allocated its materiel overhead
costs using an allocation base of direct materiel costs
minus certain costs incurred for commercial contracts,
namely commercial aircraft engines and used helicopters.
These commercial costs were subtracted in order to com-
pensate for the exclusion of GFM from the direct materiel
cost base.
    However, Sikorsky concluded in 1998 that the base it
used prior to 1999 did not adequately compensate for the
government-favoring distortions caused by the exclusion
of GFM from direct materiel costs. Sikorsky changed its
allocation method effective January 1, 1999. Between
1999 and 2005, Sikorsky allocated its materiel overhead
costs to government cost objectives using a direct labor
base. In other words, Sikorsky allocated its materiel
overhead costs in proportion to the direct labor costs
consumed by each cost objective, that is, each contract.
    Although Sikorsky believed its use of a direct labor
base was compliant with the CAS, it changed its alloca-
tion method effective January 1, 2006, after the period in
question. Under its new allocation method, Sikorsky
allocated purchasing costs according to a base of direct
6                     SIKORSKY AIRCRAFT CORPORATION    v. US

materiel costs minus the costs of commercial aircraft
engines. Sikorsky continued to allocate materiel handling
costs according to a direct labor base. The government
contracting officer approved this new accounting method
as compliant with the CAS.
    However, in March 2007, the contracting officer is-
sued a notice of potential noncompliance with CAS 418
during the period from 1999–2005. On December 11,
2008, the contracting officer issued a final determination
that Sikorsky was noncompliant with CAS 418 between
1999 and 2005, with the noncompliance becoming materi-
al in 2003. The contracting officer determined that Sikor-
sky owed approximately $65 million in principal and $15
million in interest to the government.
    Sikorsky appealed the government’s claim to the
Claims Court on December 8, 2009, pursuant to 28 U.S.C.
§ 1491(a)(2) and 41 U.S.C. § 7104(b). The Tucker Act
provides not only for jurisdiction of the Claims Court over
suits to recover money from the federal government but
also for jurisdiction over suits pertaining to “any claim by
or against, or dispute with, a contractor arising under
section 7104(b)(1) of title 41, including . . . compliance
with cost accounting standards.” 28 U.S.C. § 1491(a)(2);
see Garrett v. Gen. Elec. Co., 987 F.2d 747, 750 (Fed. Cir.
1993). Sikorsky thereafter filed a second suit asking the
Claims Court to determine the validity of certain affirma-
tive defenses that Sikorsky asserted to the government’s
claim. The two suits were consolidated. The government
counterclaimed for the approximately $65 million plus
interest that it claimed Sikorsky owed the government.
    On appeal, the parties address only two of Sikorsky’s
defenses: 1) that the government’s claim was barred by
the statute of limitations of the Contract Disputes Act
(“CDA”), codified at 41 U.S.C. § 7103(a)(4)(A); and 2) that
Sikorsky had not violated the CAS. After trial, the Claims
Court granted judgment to Sikorsky. The court character-
SIKORSKY AIRCRAFT CORPORATION    v. US                    7

ized the statute of limitations issue as an affirmative
defense, assigning the burden of proof to Sikorsky. The
court rejected Sikorsky’s statute of limitations defense,
holding that Sikorsky had failed to meet its burden of
showing that the government had actual or constructive
knowledge of a potential claim more than six years before
the government submitted its claim to Sikorsky. The
court then addressed Sikorsky’s alleged CAS 418 viola-
tion. The court held that CAS 418-50(e) was applicable to
Sikorsky’s cost pool. Applying CAS 418-50(e), the court
held that the government failed to establish by a prepon-
derance of the evidence that Sikorsky’s direct labor base
was not an appropriate allocation method.
   The government appealed. 5 We have jurisdiction pur-
suant to 28 U.S.C. § 1295(a)(3).
                       DISCUSSION
                             I
    Initially, we consider the statute of limitations issue.
Sikorsky argues that the government’s claim is barred by
the six-year statute of limitations set forth in 41 U.S.C.
§ 7103(a)(4)(A). Section 7103(a)(4)(A) states that “[e]ach
claim by a contractor against the Federal Government
relating to a contract and 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). A claim accrues as of
“the date when all events, that fix the alleged liability of

   5    Sikorsky also filed a cross-appeal on the statute of
limitations issue. This cross-appeal was improper because
it merely presented an alternative ground for affirming
the trial court. See Roberts v. United States, 745 F.3d
1158, 1160 n.1 (Fed. Cir. 2014) (citing Bailey v. Dart
Container Corp. of Mich., 292 F.3d 1360, 1362 (Fed. Cir.
2002)). We dismiss the cross-appeal.
8                     SIKORSKY AIRCRAFT CORPORATION    v. US

either the Government or 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.” 48 C.F.R. § 33.201. A claim is submitted
by the government when the contracting officer renders a
final decision to the contractor. See United States v.
T & W Edmier Corp., 465 F.3d 764, 766 (7th Cir. 2006);
Malone v. United States, 849 F.2d 1441, 1443 (Fed Cir.
1988), modified, 857 F.2d 787 (Fed. Cir. 1988); see also 48
C.F.R. § 2.101 (“Claim means a written demand or writ-
ten assertion by one of the contracting parties, seeking, as
a matter of right, the payment of money . . . .”).
     The parties and the Claims Court agree that the date
of the government’s submission of the claim here was
December 11, 2008, the date on which the contracting
officer submitted his final decision to Sikorsky. The
statute of limitations was satisfied if the claim accrued
within the six years before December 11, 2008. See
Motorola, Inc. v. West, 125 F.3d 1470, 1473 (Fed. Cir.
1997); 48 C.F.R 33.206(b) (“[t]he contracting officer shall
issue a written decision on any Government claim initiat-
ed against a contractor within 6 years after accrual of the
claim . . . .”).
    Sikorsky argues that we must decide the statute of
limitations issue before addressing the merits because the
six-year limitations period in the CDA is jurisdictional.
We disagree. To be sure, we have previously characterized
the six-year limitation in the CDA as jurisdictional, most
recently in Systems Development Corp. v. McHugh, 658
F.3d 1341, 1347 (Fed. Cir. 2011). 6 However, our decision

    6   Earlier cases such as Arctic Slope Native Assoc.,
Ltd. v. Sebelius, 583 F.3d 785, 793, 800 (Fed. Cir. 2009),
and England v. Swanson Grp., Inc., 353 F.3d 1375, 1379
SIKORSKY AIRCRAFT CORPORATION   v. US                     9

in Systems Development was effectively overruled by the
Supreme Court’s more recent decision in Sebelius v.
Auburn Regional Medical Center, 133 S. Ct. 817 (2013),
the latest in a series of Supreme Court opinions that have
articulated a more stringent test for determining when
statutory time limits are jurisdictional. 7
    In Auburn Regional, the Supreme Court held that the
180-day limit in 42 U.S.C. § 1395oo(a)(3) was not jurisdic-
tional. 133 S. Ct. at 826. That statutory provision limited
the time for appeals of reimbursement amount determi-
nations by Medicare providers to a government adminis-
trative agency, setting a 180-day time limit. Id. at 821.
    The Supreme Court noted that it has “repeatedly held
that filing deadlines ordinarily are not jurisdictional;”
instead, they are “‘quintessential claim-processing rules.’”
Id. at 825 (quoting Henderson v. Shinseki, 131 S. Ct.
1197, 1203 (2011)). The Court articulated a “readily
administrable bright line” rule, under which the inquiry is
“whether Congress has clearly stated that the rule is
jurisdictional; absent such a clear statement, [the Court
has] cautioned [that] courts should treat the restriction as
nonjurisdictional in character.” Id. at 824 (quoting Ar-
baugh v. Y & H Corp., 546 U.S. 500, 515–16 (2005))
(internal quotation marks omitted). Congress need not
“incant magic words [‘jurisdictional’] in order to speak
clearly,” and render the provision jurisdictional. Id. The
statutory language, see id. at 824–25, the placement of
the provision within the statutory scheme, Henderson,
131 S. Ct. at 1205; see Auburn Reg’l, 133 S. Ct. at 825,
and “context, including [Supreme Court] interpretations

(Fed. Cir. 2004), also included language suggesting that
the statute of limitations in the CDA is jurisdictional.
    7   See, e.g., Henderson v. Shinseki, 131 S. Ct. 1197
(2011); Reed Elsevier, Inc. v. Muchnick, 130 S. Ct. 1237
(2010); Arbaugh v. Y & H Corp., 546 U.S. 500 (2005).
10                     SIKORSKY AIRCRAFT CORPORATION     v. US

of similar provisions in many years past,” Auburn Reg’l,
133 S. Ct. at 825 (internal quotation marks and citations
omitted), are indicative of whether the provision is juris-
dictional.
    Here, § 7103 “does not speak in jurisdictional terms”
or refer in any way to the jurisdiction of the Claims Court.
Id. (quoting Zipes v. Trans World Airlines, Inc., 455 U.S.
385, 394 (1982)). The language of § 7103 also “do[es] not
suggest, much less provide clear evidence, that the provi-
sion was meant to carry jurisdictional consequences.” See
Henderson, 131 S. Ct. at 1204. “Nor does [§ 7103’s] place-
ment within the [CDA] provide . . . an indication” that the
provision is jurisdictional. Id. at 1205.
     The context of the statute also does not suggest that it
is jurisdictional. Insofar as it applies to claims by the
government, the statute pertains to the submission of a
claim by a contracting officer to a contractor, rather than
to a government body. The statute of limitations in this
case, therefore, is even less likely to be jurisdictional than
the statute at issue in Auburn Regional. This is also not a
situation in which longstanding precedent interprets the
provision as jurisdictional. By contrast, in John R. Sand
& Gravel Co. v. United States, 552 U.S. 130, 139 (2007),
the Supreme Court held that 28 U.S.C. § 2501, providing
a 6-year statute of limitations for filing claims with the
Court of Federal Claims, was jurisdictional because
“principles of stare decisis” required that the Court com-
port with a long line of previous cases describing that
particular statute of limitations as jurisdictional. Similar-
ly, in Bowles v. Russell, 551 U.S. 205, 209 n.2 (2007), the
court recognized the influence of “a century’s worth of
precedent and practice in American courts” when it held
that 28 U.S.C. § 2107, providing for a 30-day limit on
filing an appeal, was jurisdictional. Unlike those cases, 41
U.S.C. § 7103 does not have any long-standing interpreta-
tion by the Supreme Court which would counsel that we
interpret the 6-year limitation as jurisdictional.
SIKORSKY AIRCRAFT CORPORATION     v. US                  11

     In other words, § 7103 does not have any special
characteristic that would warrant making an exception to
the general rule that filing deadlines are not jurisdiction-
al. We conclude that § 7103 is not jurisdictional and need
not be addressed before deciding the merits. Because we
affirm the Claims Court on the merits, we do not address
whether § 7103 was satisfied in this case. We note that
the District of Columbia Circuit has also concluded that
the six-year limitation is non-jurisdictional. Menominee
Indian Tribe of Wis. v. United States, 614 F.3d 519, 526
(D.C. Cir. 2010) (holding that 41 U.S.C. § 605(a), a prede-
cessor to § 7103, was not jurisdictional).
                             II
    We next turn to the issue of Sikorsky’s compliance
with CAS 418. The government bears the burden of
proving Sikorsky’s noncompliance. Raytheon Co. v. United
States, 747 F.3d 1341, 1352 (Fed. Cir. 2014). We review
the decision of the Claims Court de novo for errors of law,
including legal interpretations of the CAS. Id. at 1348;
Rumsfeld v. United Techs. Corp., 315 F.3d 1361 (Fed. Cir.
2003). We review the Claims Court’s factual findings for
clear error. Whitney Benefits, Inc. v. United States, 926
F.2d 1169, 1171 (Fed. Cir. 1991).
    At its most basic level, the government’s argument is
easy enough to follow. The government contends that
Sikorsky’s materiel overhead pool should have been
allocated using a direct materiel base rather than a direct
labor base. According to the government, this approach is
mandated by CAS 418-50(d), which the government
argues should govern rather than CAS 418-50(e), which
the Claims Court held was applicable, agreeing with
Sikorsky. The central question is thus whether Sikorsky’s
materiel overhead pool is governed by CAS 418-50(d) or
CAS 418-50(e).
   The first question is the standard for determining
when subsections (d) and (e) apply. CAS 418-50(d) pro-
12                     SIKORSKY AIRCRAFT CORPORATION     v. US

vides, in relevant part, for “[a]llocation measures for an
indirect cost pool which includes a material amount of the
costs of management or supervision of activities involving
direct labor or direct material costs.” 48 C.F.R.
§ 9904.418-50(d) (emphasis added). CAS 418-50(e) pro-
vides, in relevant part, for “[a]llocation measures for
indirect cost pools that do not include material amounts of
the costs of management or supervision of activities involv-
ing direct labor or direct material costs.” Id. § 9904.418-
50(e) (emphasis added).
     On the face of these provisions, the test for determin-
ing whether subsection (d) or (e) applies is whether the
pool “includes a material amount of the costs of manage-
ment or supervision.” Id. § 9904.418-40(d). The govern-
ment argues that, contrary to the language of subsections
(d) and (e), the applicability of these provisions does not in
fact depend on whether the indirect cost pool includes a
material amount “of the costs of management or supervi-
sion of activities involving direct labor or direct material
costs.” 48 C.F.R. §§ 9904.418-50(d), (e). Rather, the gov-
ernment contends that CAS 418(d) applies to overhead
pools, and CAS 418(e) applies to service center and ex-
pense pools. The CAS do not define the terms “overhead
pool” or “service center.” However, the first proposed
version of the CAS provided definitions. A “service center”
was defined as “[a]n intermediate cost objective which
accumulates cost of services provided to other cost objec-
tives, which services can be identified specifically with
such other cost objectives.” 43 Fed. Reg. 11120. An “over-
head pool” was defined as “[a] cost pool used to accumu-
late the indirect costs of a productive function or
productive activity.” Id. at 11122. The government con-
tends that the pool here falls within subsection (d) be-
cause it is an overhead pool. In large part, the
government’s argument in these respects is difficult to
follow, to put it charitably.
SIKORSKY AIRCRAFT CORPORATION   v. US                   13

     The government suggests that internal government
documents concerning the history of the CAS provisions
and other materials which were not published provide
support for the government’s argument about the rule’s
meaning. Those unpublished materials are not relevant to
our interpretive task. The CAS standards, like any other
regulation, must be interpreted based on public authori-
ties. Interpretation of CAS standards is a legal issue
which should “be approached like other legal issues—
based on briefing and argument by the affected parties.”
Rumsfeld, 315 F.3d at 1369; see Allegheny Teledyne Inc. v.
United States, 316 F.3d 1366 (Fed. Cir. 2003) (refusing to
consider unpublished materials in interpreting CAS 413);
Perry v. Martin Marietta Corp., 47 F.3d 1134, 1137–38
(Fed. Cir. 1995) (looking to the text of the CAS, including
the included illustrations, and to the preambles to inter-
pret the CAS). In Rumsfeld, we held that CAS standards
were not properly interpreted by considering the “views
of . . . self-proclaimed CAS experts,” including a former
CASB employee. 315 F.3d at 1369. As a result, the gov-
ernment prevailed. Id. at 1367, 1369, 1372. The govern-
ment now seeks to disregard the rule from Rumsfeld
barring reliance on unpublished materials when it serves
the government’s interests. There is no basis for such an
approach. The unpublished history of the rule is not
pertinent to its interpretation. Rather we turn to the
language of the rule and, where necessary, the history of
the rule as published in the Federal Register. The plain
language of CAS 418 answers the question here—the
materiality test governs.
    The government’s one argument for departing from
the language of the rule itself based on published materi-
als rests on what the government characterizes as the
“preamble” to CAS 418-50(d) and (e) 8 contained in the

   8   The “preamble” states:
14                      SIKORSKY AIRCRAFT CORPORATION     v. US

order adopting the final rule in 1980. See 45 Fed. Reg.
31931. The “preamble” itself is not a model of clarity, but
it may be read to support the government’s argument that
subsection (e) is concerned with service center pools, or at
least that service center pools fall within subsection (e).
But we decline to rely on ambiguous language from the
“preamble” to contradict the plain language of the rule
itself. This would be particularly inappropriate since
earlier versions of the rule made specific reference to

     A number of commentators questioned when the
     fourth step of the hierarchy in the proposed CAS
     418, a base representative of the activity being
     managed or supervised, was to be used. The
     Standard has been revised to provide more clearly
     that this type of base is to be used only to allocate
     indirect cost pools containing significant amounts
     of the costs of management or supervision of activ-
     ities involving direct labor or direct material cost,
     which are direct costs as defined by the Board.
     Therefore these cost pools are those which include
     the costs of managing and supervising final cost
     objectives or other cost objectives which are ac-
     counted for in a similar manner (those listed in
     § 418.50(d)(3)). A base representative of the activi-
     ty being managed or supervised is not suitable for
     the allocation of the costs of management or su-
     pervision of activities involving only indirect costs.
     For emphasis, the fourth step of the hierarchy has
     been set forth in a paragraph, § 418.50(d), sepa-
     rate and apart from the first three steps of the hi-
     erarchy (§ 418.5(e)) which should be used for
     allocating other indirect cost pools such as service
     centers.
45 Fed. Reg. 31931.
SIKORSKY AIRCRAFT CORPORATION   v. US                   15

“overhead costs” and “service center costs,” 43 Fed. Reg.
11120–24, terminology that was rejected in adopting the
final rule. 9 See In re Beineke, 690 F.3d 1344, 1351–52
(Fed. Cir. 2012).
    The second question here is whether “material
amount” refers to comparing the amount of the costs of
supervision or management in the pool to 1) the total
amount of the pool or 2) the total amount of supervision or
management costs. The government argues for the sec-
ond, contending that Sikorsky’s pool contains a material
amount of those costs because it contains all of Sikorsky’s
costs of management and supervision of activities in the
pool. Sikorsky argues for the first construction, arguing
that the relevant inquiry is whether the costs of manage-
ment or supervision are a material part of the pool as a
whole, not whether a given pool contains all of the related
management or supervision costs.
    We agree with Sikorsky that the proper inquiry is
whether the costs of supervision and management com-
prised a material amount of the material overhead pool at
issue. The language of CAS 418-40(c) makes this clear.
CAS 418-40(c)(1) applies where management and super-

   9     The government also relies on a transcript of a
meeting of the CASB approximately two weeks before the
promulgation of the CAS, but the transcript is not an
official document.
     This is not a case in which the term is ambiguous, and
the government relies on unpublished interpretations of
the regulation. We need not decide whether such an
unpublished agency interpretation would be entitled to
Auer deference. See Coeur Alaska, Inc. v. Se. Alaska
Conservation Council, 557 U.S. 261, 283–84 (2009). In
arguing for its construction of CAS 418, the government
does not rely on any agency interpretations construing the
rule.
16                      SIKORSKY AIRCRAFT CORPORATION    v. US

vision costs are “a material amount of the costs included
in a cost pool.” 48 C.F.R. § 9904.418-40(c)(1). CAS 418-
40(c)(1) specifically states that the key issue is the mate-
riality of the costs of management or supervision activi-
ties with respect to the cost pool as a whole.
    The next question is whether the costs of manage-
ment and supervision here were a material amount of
Sikorsky’s materiel overhead pool. 10 The government

     10 The CAS provide six criteria for determining
“whether amounts of cost are material or immaterial,”
with “no one criterion . . . necessarily determinative.” 48
C.F.R. § 9903.305. The factors are:
     (a) The absolute dollar amount involved. The larg-
         er the dollar amount, the more likely that it
         will be material.
     (b) The amount of contract cost compared with the
         amount under consideration. The larger the
         proportion of the amount under consideration
         to contract cost, the more likely it is to be ma-
         terial.
     (c) The relationship between a cost item and a
         cost objective. Direct cost items, especially if
         the amounts re themselves part of a base for
         allocation of indirect costs, will normally have
         more impact than the same amount of indirect
         costs.
     (d) The impact on government funding. Changes
         in accounting treatment will have more impact
         if they influence the distribution of costs be-
         tween Government and non-Government cost
         objectives than if all cost objectives have Gov-
         ernment financial support.
SIKORSKY AIRCRAFT CORPORATION      v. US                       17

argues that “material” means more than a de minimis
amount. We agree with the Claims Court that “material”
refers to a significant amount. Sikorsky argues that,
applying the correct standard for materiality, managers
and supervisors comprised seven percent of the materiel
logistics workforce and fourteen percent of the purchasing
group staff, and that the costs of management and super-
vision were not a material amount. The government does
not argue that these costs of management and supervision
were a significant portion of Sikorsky’s total pool, or that
other factors should be used in considering materiality.
Therefore, we affirm the finding of the Claims Court that
the costs of management and supervision were not a
material amount of the total pool costs.
    The fourth question is whether Sikorsky’s pool is out-
side of subsection (e) because it fails to satisfy the homo-
geneity requirement. CAS 418-40(b) provides that, as a
“fundamental requirement[],” “[i]ndirect costs shall be
accumulated in indirect cost pools which are homogene-
ous.” 48 C.F.R. § 9904.418-40(b). CAS 418-50(b) states
that “[a]n indirect cost pool is homogeneous if each signif-

      (e) The cumulative impact of individually immate-
          rial items. It is appropriate to consider wheth-
          er such impacts:
         (1) Tend to offset one another, or
         (2) Tend to be in the same direction and hence
             to accumulate into a material amount.
      (f) The cost of administrative processing of the
          price adjustment modification shall be consid-
          ered. If the cost to process exceeds the amount
          to be recovered, it is less likely the amount will
          be material.
Id.
18                     SIKORSKY AIRCRAFT CORPORATION     v. US

icant activity whose costs are included therein has the
same or a similar beneficial or causal relationship to cost
objectives as the other activities whose costs are included
in the cost pool.” Id. § 9904.418-50(b). CAS 418-50(e)
states that “[h]omogeneous indirect cost pools of th[e]
type” not having material amounts of the costs of man-
agement or supervision “have a direct and definite rela-
tionship between the activities in the pool and benefiting
cost objectives.” Id. § 9904.418-50(e).
    The government argues that Sikorsky’s indirect cost
pool is not homogeneous because it contains both manu-
facturing overhead costs and materiel overhead costs. But
a pool is still homogeneous if “the allocation of the costs of
the activities included in the cost pool result in an alloca-
tion to cost objectives which is not materially different
from the allocation that would result if the costs of the
activities were allocated separately.” Id. § 9904.418-50(b).
We agree with Sikorsky and the Claims Court that the
government failed to establish that any material differ-
ence in allocation results from Sikorsky’s combination of
manufacturing and materiel overhead costs. Where both
types of costs in the pool, materiel overhead and manufac-
turing overhead, are allocated according to the same base,
it does not matter whether the costs are combined into
one pool or separated into separate pools. The end alloca-
tion is identical. Because there would be no material
difference in the allocation, the homogeneity requirement
is satisfied.
    The final question is whether, if subsection (e) ap-
plies, the government has shown that Sikorsky failed to
comply with CAS 418(e) by using a direct labor base. The
parties agree that CAS 418(e)(3) applies if subsection (e)
is applicable, as we hold that it is. CAS 418(e)(3) provides
that “a surrogate that varies in proportion to the services
received shall be used to measure the resources con-
sumed. Generally, such surrogates measure the activity of
the cost objectives receiving the service.” 48 C.F.R.
SIKORSKY AIRCRAFT CORPORATION     v. US                     19

9904.418-50(e)(3). It is worth noting that CAS 418-50(e)
requires that an “appropriate measure of resource con-
sumption” be applied, rather than the best measure of
resource consumption. Id. § 9904.418-50(e). 11
    Sikorsky argues that a direct labor base was appro-
priate because, historically, there was a correlation be-
tween direct labor and materiel overhead. Year to year,
the materiel overhead and direct overhead varied in
rough proportion, although this relationship was not
exact, and in one year the direct labor costs increased
while materiel overhead costs decreased. We have some
doubt that an allocation based on direct labor satisfies the
proportionality requirement simply because of a year-by-
year correlation between labor hours and materiel over-
head. But despite our invitation to do so at oral argument,
the government has been unwilling or unable to argue
that Sikorsky’s approach is not appropriate. Under the
circumstances, we decline to address that argument.
    Finally, we note that the government argues that dire
adverse consequences will flow from our rejection of the
government’s interpretation of the CAS. But if that is the
case, revision of the CAS standards by the CASB is the
appropriate remedy. As we said in Rumsfeld, “[o]ur
task . . . is to interpret CAS, not to rewrite it to provide an
equitable result.” Rumsfeld, 315 F.3d at 1377.
    In summary, we hold that subsection (e) governs and
that the government has not shown that Sikorsky has

    11  The “preamble” to the CAS specifically noted that
the CASB substituted the phrase “an appropriate meas-
ure of resource consumption” for the phrase “best availa-
ble representation of resource consumption” used in a
previous proposed version of CAS 418-50(e). 45 Fed. Reg.
31931.
20                        SIKORSKY AIRCRAFT CORPORATION   v. US

adopted an inappropriate measure of resource consump-
tion.
          APPEAL NO. 2013-5096 AFFIRMED
          APPEAL NO. 2013-5099 DISMISSED
                             COSTS
     Costs to appellee.