Court Opinion

ID: 7802118
Source: CourtListenerOpinion
Date Created: 2022-08-19 17:01:26.967261+00
Date Added: 2024-06-11T16:29:24.451263
License: Public Domain

In the United States Court of Federal Claims
                                           No. 21-2327

                                (Filed under seal: August 12, 2022)
                                   (Reissued: August 19, 2022)

                                              )
 SIKORSKY AIRCRAFT                            )       Alleged breach of contract; cost
 CORPORATION,                                 )       accounting standard 420; research and
                                              )       development costs; effect of a Forward
                        Plaintiff,            )       Pricing Rate Agreement.
                                              )
           v.                                 )
                                              )
 UNITED STATES,                               )
                                              )
                        Defendant.            )

      Thomas A. Lemmer, Dentons US LLP, Denver, CO for plaintiff Sikorsky Aircraft
Corporation. With him on the briefs were Joseph G. Martinez and Phillip R. Seckman, Dentons
US LLP, Denver, CO.

        Antonia R. Soares, Senior Trial Counsel, Commercial Litigation Branch, Civil Division,
United States Department of Justice, Washington, D.C. for the United States. With her on the
briefs were Brian M. Boynton, Principal Deputy Assistant Attorney General, Patricia M.
McCarthy, Director, Eric P. Bruskin, Assistant Director, and Kelly Geddes, Trial Attorney,
Commercial Litigation Branch, Civil Division, United States Department of Justice, Washington,
D.C. Of counsel were Amelia Lister-Sobotkin, Trial Attorney, Contract Disputes Resolution
Center, Defense Contract Management Agency, and Patrick L. Vergona, Assistant General
Counsel, Defense Contract Audit Agency, Washington, D.C.

                                     OPINION AND ORDER1

LETTOW, Senior Judge.

        Plaintiff Sikorsky Aircraft Corporation (“Sikorsky”) has sued defendant United States
(“the government”) for breach of contract, alleging that the Defense Contract Management

       1
          Because of the proprietary nature of the information submitted in the appendices
attached to the motion at issue, this opinion was initially filed under seal. The parties were
requested to review the decision and provide proposed redactions of any confidential or
proprietary information; plaintiff proposed two redactions, while defendant proposed none. The
court grants plaintiff’s request in part. The resulting redactions are shown by brackets enclosing
ellipses, e.g., “[***].”
Agency (“DCMA”) failed to reimburse Sikorsky over $[***] million in costs associated with
independent research and development (“IR&D”) and bid and proposal (“B&P”) costs incurred
in contracts with the government. See Compl. at 1, ECF No. 1. The government counters that
Sikorsky failed to comply with Cost Accounting Standard (“CAS”) 420, entitling the
government to be reimbursed for these costs. Accordingly, the government seeks to dismiss
Count II of the complaint pursuant to Rule 12(b)(1) of the Rules of the Court of Federal Claims
(“RCFC”) for lack of subject matter jurisdiction as well as Counts III, V, and VI of the complaint
pursuant to Rule 12(b)(6) for failure to state a claim. See Def.’s Mot. to Dismiss (“Def.’s Mot.”),
ECF No. 15. Specifically, the government alleges that this court lacks jurisdiction over
Sikorsky’s B&P cost claims because there was no officer’s final decision on those costs and that
the other contested counts in Sikorsky’s complaint fail to state a claim. Id. at 15-16. Sikorsky
responds that the court has jurisdiction over all its claims and that it has pleaded plausible,
legally valid claims. Pl.’s Opp’n to Def.’s Mot. to Dismiss (“Pl.’s Opp’n”) at 1, ECF No. 18.
After initial briefing, see Def.’s Reply, ECF No. 27, the court held a hearing on July 7, 2022. It
subsequently ordered supplemental briefing on the effect of a Forward Pricing Rate Agreement
entered by the parties in the midst of their contractual dealings and that briefing has been
completed. See Def.’s Suppl. Br., ECF No. 33; Pl.’s Suppl. Br., ECF No. 34. The motion is
ready for disposition.

                                        BACKGROUND2

                                       A. Legal Framework

        The contracts at issue in this action are subject to the CAS, which are nineteen cost-
accounting criteria promulgated by the Cost Accounting Standards Board (“CASB”). Def.’s
Mot. at 3-4.3 The CAS are “designed to achieve uniformity and constancy in the cost-accounting
principles followed by defense contractors and subcontractors under [f]ederal contracts.”
Sikorsky Aircraft Corp. v. United States, 105 Fed. Cl. 657, 661 n.4 (2012) (quoting Allegheny
Teledyne Inc. v. United States, 316 F.3d 1366, 1370 (Fed. Cir. 2003)). At their core, the
standards regulate which contractor costs may be allocated to a government contract as well as
how those costs may be allocated. Id. “The aim of the standards is to allow a contractor to
charge to government contracts only those costs of doing business that should be fairly attributed
to the performance of those contracts.” Id. (citing Darrell J. Oyer, Accounting for Government
Contracts—Cost Accounting Standards, §§ 1.01 to 1.05 (2010)).

        Federal Acquisition Regulation (“FAR”) Part 30 “establish[ed] procedures to be followed
in the administration of contracts subject to the CAS.” Sikorsky Aircraft Corp., 105 Fed. Cl. at
661 (footnote omitted). As an initial step, the contractor is required to submit a “Disclosure
Statement,” which is “a written description of a contractor’s cost accounting practices and

       2
         The recitations that follow do not constitute findings of fact but rather are recitals
attendant to the pending motion and reflect matters drawn from the complaint, the parties’ briefs,
and records, and documents appended to the complaint and briefs.
       3
           The nineteen standards are codified at 48 C.F.R. §§ 9904.401 to 9904.420.

                                                 2
procedures.” FAR § 9903.202-1(a) (incorporated by FAR § 30.202-1); see also FAR § 52.230-
2(a)(1). That Disclosure Statement must then be submitted to the cognizant federal auditor and
to the cognizant federal agency official (“CFAO”) responsible for the contractor’s CAS-covered
contracts. See FAR § 9903.202-5(b) (incorporated by FAR § 30.202-5); see also FAR § 30.001.
Disclosure Statements are reviewed by the auditor for “adequacy and compliance,” but the
CFAO makes the ultimate determination on those topics. FAR §§ 30.202-6(c); 30.202-6(d).4
The auditor advises the CFAO on the results of their review after which the CFAO makes a
determination of compliance or noncompliance. FAR § 30.202-7(b). FAR § 30.202-6(b)
explicitly states that a contracting officer “shall not award a CAS-covered contract until
. . . [there is] a written determination that a required Disclosure Statement is adequate.” FAR §
30.202-6(b). No such restriction is imposed for the compliance determination.

        In the event of alleged noncompliance, the CFAO must within fifteen days of the
auditor’s report either notify the auditor of their disagreement or notify the contractor of potential
noncompliance. FAR § 30.605(b)(1). A contractor has sixty days to respond if noncompliance
is potentially at issue. FAR § 30.605(b)(2)(ii). After the passage of sixty days, the CFAO then
must “[m]ake a determination of compliance or noncompliance” and notify the contractor. FAR
§ 30.605(b)(3)(ii). In the event the CFAO makes a determination of noncompliance, the
contractor has sixty days to submit a “description of any cost accounting practice change needed
to correct [the] noncompliance.” FAR § 30.605(c)(1); see also FAR § 52.230-6(b)(4)(ii).
Assuming the change in practice is deemed adequate and compliant, the CFAO must ask the
contractor for “a general dollar magnitude” or “[d]etailed cost-impact” proposal in order to
recoup any money potentially owed to the government as a result of the noncompliant
accounting practice. FAR § 30.605(c)(2)(i)(B), (d), (f); see also FAR § 52.230-6(c).

        If the contractor fails to submit such a proposal, “the CFAO may estimate the cost impact
himself [or herself] and either withhold payments under the disputed contracts or ‘[i]ssue a final
decision . . . and unilaterally adjust the contract(s).’” Sikorsky Aircraft Corp., 105 Fed. Cl. at
662 (second alteration in original) (quoting FAR § 30.604(i)(2)(ii); citing FAR § 52.230-6(j)). If
the contractor does submit a cost-impact proposal, the CFAO must determine if the impact is
immaterial—in which case no money is owed subject to the government reservation to make
future adjustments—or that it is material and the CFAO must either reach an agreement with the
contractor or, in the event of disagreement, the CFAO must “issue a final decision . . . and
unilaterally adjust the contract(s).” FAR 30.606(c)(6)(ii); see also FAR §§ 30.605(e)
(referencing FAR § 30.605(b)(4)), 30.606(a)(1), (b)(1).5

       4
         “A Disclosure Statement is first reviewed for adequacy and then for compliance.”
Sikorsky Aircraft Corp., 105 Fed. Cl. at 661.
       5
          “FAR § 52.230 [also] plays a role in CAS administration. FAR § 52.230 consists of
contract clauses incorporated into CAS-covered contracts. See FAR § 30.201-4. These clauses
essentially mirror some of the procedures found at FAR Part 30 by obligating the contractor to
comply with the government’s requirements and requests made pursuant to its authority under
FAR Part 30.” Sikorsky Aircraft Corp., 105 Fed. Cl. at 662.

                                                  3
       For IR&D and B&P costs, contractors must comply with CAS 420. CAS 420 defines
IR&D costs as “the cost of effort which is neither sponsored by a grant, nor required in the
performance of a contract, and which falls within any of the following three areas: (i) [b]asic and
applied research, (ii) [d]evelopment, and (iii) [s]ystems and other concept formulation studies.”
FAR § 9904.420-30(a)(6). Also, B&P costs are defined as “the cost incurred in preparing,
submitting, or supporting any bid or proposal which effort is neither sponsored by a grant, nor
required in the performance of a contract.” Id. at § 9904.420-30(a)(2).

        Consistent with CAS 420, IR&D costs must be allocated to the correct segment of a
contractor’s business.6 IR&D costs are to be allocated to segments based on the “beneficial or
causal relationship” between the cost and the segment. FAR § 9904.420-40(d)-(e). When costs
are accumulated at a home office, CAS sets out a hierarchy for allocating those costs to
segments. FAR § 9904.420-50(e).7 For all other costs, the contractor will allocate the costs
among all segments using the contractor’s residual expense base. FAR § 9904.420-50(e)(2).

                         B. Sikorsky’s Corporate Structure and Segments

       Sikorsky’s primary business is the design, manufacture, sale, maintenance, and overhaul
and repair of helicopters. Compl. ¶¶ 9, 17. Like most modern companies of its size, Sikorsky is
made up of smaller entities, some of which are relevant here. Sikorsky Aircraft Operations
(“SAO”) was a “financial reporting entity” which served as a segment for cost allocation
purposes. Def.’s Mot. App’x at 7, ECF No. 16. It was comprised of Sikorsky Aircraft
Corporation, Sikorsky Export Corporation, and Sikorsky Products, Inc. Id.; see also Compl.
¶ 19. In addition to serving as a segment, SAO also acted as an intermediate home office. Def.’s
Mot. App’x at 5, 7. SAO itself did not have any contracts with the government but Sikorsky did,
causing SAO to submit disclosure statements. See Def.’s Mot. App’x at 7; Compl. ¶ 21.

       6
           Segment is defined as:

       [O]ne of two or more divisions, product departments, plants, or other subdivisions
       of an organization reporting directly to a home office, usually identified with
       responsibility for profit and/or producing a product or service. The term includes
       [g]overnment-owned contractor-operated (GOCO) facilities, and joint ventures
       and subsidiaries (domestic and foreign) in which the organization has a majority
       ownership. The term also includes those joint ventures and subsidiaries (domestic
       and foreign) in which the organization has less than a majority of ownership, but
       over which it exercises control.

FAR § 9904.403-30(a)(4).
       7
        A home office is defined as “[a]n office responsible for directing or managing two or
more, but not necessarily all, segments of an organization.” FAR § 9904.403-30(a)(2).

                                                 4
                             C. Sikorsky’s Cost Allocation Practices

        Over the course of ten years starting in 2007, Sikorsky entered numerous CAS-governed
contracts with the government. Pl.’s Opp’n at 1. During that time, SAO acted as a
“consolidation point” for the costs of its comprising entities. Def.’s Mot. App’x at 7. Despite
not holding government contracts, Sikorsky alleges that SAO performed IR&D and B&P
projects, accumulating costs for those projects for annual allocation to segments. Compl. ¶ 28.
From January 2007 until approximately December 2011, IR&D and B&P costs were
accumulated at SAO, and those costs were allocated solely to SAO. Compl. ¶ 110; Def.’s Mot.
App’x at 46. From 2012 through 2017, costs were allocated to either SAO or the Sikorsky
Global Helicopter (SGH) segment or shared on the basis of sales. See Compl. ¶¶ 114, 116.

         In April 2012, the parties entered into a Forward Pricing Rate Agreement (“FPRA”).8
Compl. ¶ 120; Def.’s Mot. App’x at 8-20. The FPRA provided that it was “consistent with the
disclosed cost accounting practices identified by Sikorsky Aircraft Corporation in its current
Cost Accounting Standards Board Disclosure Statement . . . dated February 22nd, 2012.” Def.’s
Mot. App’x at 10. The FPRA also stated that “[t]he parties retain the right to unilaterally and
immediately cancel this agreement upon written notification to the other party” with five days
written notice. Def.’s Mot. App’x at 9. It further provided the agreement would “in no way
prejudice the rights of either party with respect to compliance or noncompliance with the FAR,
. . . Cost Accounting Standards, . . . and other applicable federal statutes.” Def.’s Mot. App’x at
10. From April 2012 to November 2014, the rates established in the FPRA were used as the
basis for pricing contract actions between the parties. Compl. ¶ 123.

        Also in 2012, the Defense Contract Audit Agency issued a Statement of Conditions and
Recommendations, which stated that it found areas of noncompliance with CAS 420 in
Sikorsky’s cost accounting practices. Compl. ¶ 124. It was alleged that Sikorsky had failed to
allocate costs to segments on “the basis of the beneficial or causal relationship between the
IR&D and B&P costs and the segments reporting to the home office.” Def.’s Mot. App’x at 22;
see also Compl. ¶ 125. Sikorsky was given sixty days to respond, see Def.’s Mot. App’x at 21,
and although Sikorsky made requests for additional information, it did not submit a formal
response, Def.’s Mot. at 11.

        On August 29, 2014, the Defense Contract Audit Agency issued Audit Report No. 2641-
2012B19200002 (“the audit”). Compl. ¶ 134; Def.’s Mot. App’x at 41-69. The audit concluded
that the IR&D and B&P costs of the SAO home office “were not allocated to segments . . . on
the basis of the beneficial or causal relationship between the IR&D and B&P costs and the
segments reporting to the home office as required by CAS 420.40(d) and CAS 420.50(e).”
Def.’s Mot. App’x at 46. The audit concluded that costs were only allocated to SAO or SGH.

       8
        A FPRA is a “written agreement negotiated between a contractor and the [g]overnment
to make certain rates available during a specified period for use in pricing contracts or
modifications.” FAR § 2.101.

                                                 5
Def.’s Mot. App’x at 46-47. On September 12, 2014, a notice of potential noncompliance was
issued. Compl. ¶ 139.9

         On December 29, 2020, the Defense Contract Management Agency Divisional
Administrative Contracting Officer issued a Final Decision and Demand for Payment of Debt,
seeking over $[***] million dollars. Compl. ¶ 2; Pl.’s Opp’n at 2.10 The decision outlined the
government’s view that Sikorsky was noncompliant with CAS 420 from January 2007 to
December 2011 “because it indiscriminately allocated all SAO [home office] IR&D costs to the
SAO Segment despite there being a clear causal or beneficial relationship between those projects
and other segments.” Def.’s Mot. App’x at 82. Sikorsky was also found to be noncompliant for
allegedly failing to “allocate any remaining IR&D/B&P project costs that benefitted the
company as a whole using its CAS 403 residual base.” Def.’s Mot. App’x at 82. Sikorsky was
found noncompliant from 2012 to 2017 because “it allocated all IR&D of a general nature to just
the SAO Segment.” Def.’s Mot. App’x at 83. On August 27, 2021, Sikorsky submitted what it
purports—and the government challenges—to be a certified claim “to recover amounts that have
been paid to the government as a result of a factually and legally incorrect contracting officer’s
final decision.” Def.’s Mot. App’x at 98; see also Compl. ¶ 3. The government responded via
letter, stating that the December 2020 decision “remain[ed] final and conclusive” and that the
raised matters were addressed by that decision. Def.’s Mot. App’x at 126. It further stated that a
response would not be provided to the letter. Def.’s Mot. App’x at 126.

        Sikorsky filed its complaint initiating this action on December 23, 2021, seeking, among
other things, a declaratory judgment that its cost accounting practices were consistent with the
CAS and accepted by the government, and alleging breach of contract. See Compl. The
government responded by filing this partial motion to dismiss, claiming the court does not have
subject matter jurisdiction to determine whether Sikorsky’s B&P costs complied with CAS 420
because there is not a cognizant officer’s final decision on that issue. Def.’s Mot. at 16. It
further alleges that Sikorsky has failed to state a claim by seeking declaratory judgment
determining that the contractual agreements between the parties preclude the government’s
revocation of accepted cost accounting practices. Id. It also opposes Sikorsky’s contention that
the government has waived its right to assert a claim for alleged noncompliance from 2012 to
2017 as well as from 2007 to 2009. Id. at 16-17.

                                STANDARDS FOR DECISION

                    A. Rule 12(b)(1) — Lack of Subject-Matter Jurisdiction

        The Tucker Act provides this court with jurisdiction over “any claim against the United
States founded either upon the Constitution, or any Act of Congress or any regulation of an

       9
         The parties entered into a tolling agreement in August 2020 to extend the statute of
limitations. Compl. ¶ 263.
       10
         The government is currently in the process of recouping the alleged amounts from
Sikorsky, which is making monthly payments. Hr’g Tr. 5:4-12 (July 7, 2022).

       Future citations to the hearing held on July 7, 2022 will omit the date.

                                                6
executive department, or upon any express or implied contract with the United States, or for
liquidated or unliquidated damages in cases not sounding in tort.” 28 U.S.C. § 1491(a)(1). The
Tucker Act does not, however, provide substantive rights. See United States v. Testan, 424 U.S.
392, 398 (1976). To establish this court’s jurisdiction under the Tucker Act, Sikorsky must
“identify a substantive right for money damages against the United States separate from the
Tucker Act.” Todd v. United States, 386 F.3d 1091, 1094 (Fed. Cir. 2004). An express or
implied contract creates such a right, 28 U.S.C. § 1491(a)(1), and the CDA confers jurisdiction
on this court to hear disputes involving government contracts, 41 U.S.C § 7104(b). “Courts
created by statute can have no jurisdiction but such as the statute confers.” Christianson v. Colt
Indus. Operating Corp., 486 U.S. 800, 818 (1988) (quoting Sheldon v. Sill, 49 U.S. (8 How.)
441, 449 (1850)). A claim in this court is “barred unless the petition thereon is filed within six
years after such claim first accrues.” 28 U.S.C. § 2501.

         Claims that fall under the CDA, however, must proceed through a mandatory
administrative process. See 41 U.S.C. § 7103(a); see also Ace Constructors, Inc. v. United
States, 70 Fed. Cl. 253, 265 (2006), aff’d, 499 F.3d 1357 (Fed. Cir. 2007). A contractor must
first submit a written claim within six years of accrual to the contracting officer, who has 60 days
in which to respond or, if no response is received, the claim is deemed denied by operation of
law. 41 U.S.C. § 7103(f)(5). Upon a decision or a denial by operation of law, the contractor has
one year in which to bring an action in this court. 41 U.S.C. § 7104(b)(3).

         Sikorsky, as plaintiff, must establish jurisdiction by a preponderance of the evidence. See
Trusted Integration, Inc. v. United States, 659 F.3d 1159, 1163 (Fed. Cir. 2011) (citing Reynolds
v. Army & Air Force Exch. Serv., 846 F.2d 746, 748 (Fed. Cir. 1988)). When ruling on the
government’s motion to dismiss for lack of jurisdiction, the court must “accept as true all
undisputed facts asserted in the plaintiff’s complaint and draw all reasonable inferences in favor
of the plaintiff.” Id. (citing Henke v. United States, 60 F.3d 795, 797 (Fed. Cir. 1995)). Yet,
“[i]f a court lacks jurisdiction to decide the merits of a case, dismissal is required as a matter of
law.” Gray v. United States, 69 Fed. Cl. 95, 98 (2005) (citing Ex parte McCardle, 74 U.S. (7
Wall.) 506, 514 (1868) and Thoen v. United States, 765 F.2d 1110, 1116 (Fed. Cir. 1985));
RCFC 12(h)(3) (“If the court determines at any time that it lacks subject-matter jurisdiction, the
court must dismiss the action.”).

                            B. Rule 12(b)(6) – Failure to State a Claim

        A complaint will survive a motion to dismiss under RCFC 12(b)(6) if it “contain[s]
sufficient factual matter, accepted as true, to ‘state a claim to relief that is plausible on its face.’”
Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544,
570 (2007)). “A claim has facial plausibility when the plaintiff pleads factual content that allows
the court to draw the reasonable inference that the defendant is liable for the misconduct
alleged.” Id. The factual matters alleged “must be enough to raise a right to relief above the
speculative level on the assumption that all the allegations in the complaint are true (even if
doubtful in fact).” Twombly, 550 U.S. at 555-56 (citations omitted).

        When reviewing the complaint, “the court must accept as true the complaint’s undisputed
factual allegations and should construe them in a light most favorable to the plaintiff.”

                                                    7
Cambridge v. United States, 558 F.3d 1331, 1335 (Fed. Cir. 2009) (citing Papasan v. Allain, 478
U.S. 265, 283 (1986)) (additional citation omitted). Conclusory statements of law and fact,
however, “are not entitled to the assumption of truth” and “must be supported by factual
allegations.” Iqbal, 556 U.S. at 679. “‘[N]aked assertion[s]’ devoid of ‘further factual
enhancement”’ are insufficient to state a claim. Id. at 678 (quoting Twombly, 550 U.S. at 557);
accord Bradley v. Chiron Corp., 136 F.3d 1317, 1322 (Fed. Cir. 1998) (“Conclusory allegations
of law and unwarranted inferences of fact do not suffice to support a claim.”).

                                           ANALYSIS

                                    A. Count II – Jurisdiction

        The government argues that the court should dismiss Count II of plaintiff’s complaint,
which seeks to recover associated B&P costs allegedly recouped by the government for
Sikorsky’s purported failure to comply with CAS 420. See Def.’s Mot. at 21. The government
argues that this court does not have jurisdiction over the claims asserted in Count II because it
claims there is not an officer’s final decision relating to B&P costs. Id. at 21-22; see also Hr’g
Tr. 4:10-14. Sikorsky responds that the contracting officer’s final decisions does rule on B&P
costs and that it does so explicitly. Pl.’s Opp’n at 7. The contracting officer’s final decision
refers to B&P costs 23 times and explicitly states: “[i]t is my final decision that Sikorsky failed
to allocate the costs of claimed IR&D/B&P projects to its segments on the basis of the beneficial
or causal relationship between the projects and each segment.” Def.’s Mot. App’x at 81
(emphasis added). The government argues that the references to B&P costs are merely general
descriptions that mirror the regulatory language. Def.’s Reply at 2. It contends that the decision
relates only to IR&D costs and that the controverted $200 million is entirely made up of IR&D
costs. Id. at 2-3; Hr’g Tr. 4:22 to 5:6. Lastly, the government argues that the discussion of B&P
costs “can be read as a typographical error.” Def.’s Reply. at 4.

          “It is a bedrock principle of government contract law that [CDA] contract claims,
whether asserted by the contractor or the [g]overnment, must be the subject of a contracting
officer’s final decision.” Raytheon Co. v. United States, 747 F.3d 1341, 1354 (Fed. Cir. 2014)
(citing 41 U.S.C. § 7103(a)(3)). Generally, the facts alleged in the complaint are presumed to be
true and construed favorably to the plaintiff for the purposes of a motion to dismiss. Henke v.
United States, 60 F.3d 795, 797 (Fed. Cir. 1995). When a motion to dismiss alleges that the
court lacks jurisdiction, the court may look “beyond the pleadings and ‘inquire into jurisdictional
facts’ in order to determine whether jurisdiction exists.” Lechliter v. United States, 70 Fed. Cl.
536, 543 (2006) (quoting Rocovich v. United States, 933 F.2d 991, 993 (Fed. Cir. 1991)). Here,
when the court looks beyond the pleadings, the four corners of the contracting officer’s final
decision purport to cover B&P costs. See Def.’s Mot. App’x at 80-81. The decision refers to
such costs, and the only evidence to the contrary currently before the court are the
representations of government counsel. Hr’g Tr. 4:22 to 5:6. While Sikorsky stated in the
purported “certified claim” letter that “the COFD does not identify any particular B&P costs,”
Def.’s Mot. App’x at 102, this statement does not negate the effect of the language in the
decision. The court will not deprive Sikorsky of its day in court on issues that the government
raised by inclusion of B&P cost references in its final decision. The contracting officer’s final
decision claims B&P costs are owed, and the court therefore has jurisdiction over Sikorsky’s

                                                 8
B&P cost claims. To the extent the government is not seeking to recoup B&P costs from
Sikorsky, the parties may stipulate as much and withdraw Count II of the complaint. But based
on the face of the final decision, the court has jurisdiction over Count II, and Sikorsky will be
allowed to pursue the claim. As to Count II of the complaint, defendant’s motion to dismiss is
DENIED.

                         B. Counts III, V, and VI – Failure to State a Claim

         The government next contends that Counts III, V, and VI of Sikorsky’s complaint fail to
state a claim upon which relief can be granted “because they turn on the unfounded legal
conclusion that the parties were somehow contractually bound to follow Sikorsky’s disclosed
cost accounting practices.” Hr’g Tr. 11:15-21. “In general, a contractor must adjust the contract
price to correct a CAS violation if (A) the [c]ontractor fail[ed] to comply with an applicable Cost
Accounting Standard, and (B) such failure result[ed] in any increased costs paid by the United
States.” Gates v. Raytheon Co., 584 F.3d 1062, 1067 (Fed. Cir. 2009) (citing 48 C.F.R. §
52.230-2(a)(5)). While this general rule is evident, its application to these claims is not.

        Sikorsky argues that it has alleged a plausible claim by stating that the contracting officer
found the disclosed practices to be compliant and that those practices were therefore
incorporated into the resulting contracts, binding Sikorsky and the government to follow those
practices. Pl.’s Opp’n 13-16. Yet, included in the very same contracts per the regulatory scheme
was that Sikorsky would be required to “[a]gree to an adjustment of the contract price or cost
allowance” if it failed to comply with the CAS. FAR § 52.230-2(a)(5). Sikorsky relies on the
fact that the government continued to enter into contracts based on Sikorsky’s alleged
noncompliant practices without notifying Sikorsky of any concerns, which it argues should in
turn represent a determination of compliance. Pl.’s Opp’n at 16. The government counters that
the clause incorporated by FAR § 52.230-2(a)(5) clinches its ability to adjust the contract along
with the fact that the 2012 FPRA stated that it would not “prejudice the rights of either party with
respect to compliance or noncompliance” with the various statutory and regulatory schemes at
play. Def.’s Mot. App’x at 10. Yet, the record currently before the court—in light of the court’s
obligation to view the facts in the light most favorable to the non-movant—does not provide a
basis to dismiss the controverted claims.

        The court accepts that the government is granted power to require contractors to comply
with the CAS and the accounting practices they have disclosed; Raytheon makes that much
certain, but what Raytheon does not address is the government’s ability to issue compliance
determinations years after entering into contracts or even after a notice of potential
noncompliance. “The duty of good faith and fair dealing is inherent in every contract.”
Precision Pine & Timber, Inc. v. United States, 596 F.3d 817, 828 (Fed. Cir. 2010) (citing
Restatement (Second) of Contracts § 205). The connection between the government’s duty to act
in good faith by not allowing Sikorsky to incur costs it would later be expected to bear alone and
Sikorsky’s regulatory and contractual obligation to accept changes is not evident at this stage.
This case does not present just a question of regulatory application but also the interaction of

                                                 9
regulations with existing contractual obligations.11 Those obligations at this point in the
litigation remain governed by the court’s own obligation to view the facts in the light most
favorable to Sikorsky.

         The court agrees with the government—as does Sikorsky—that disclosure of a
contractor’s accounting practices does not require the government to accept them, see FAR
§ 9903.303(a); Def.’s Mot. at 22-23; Pl.’s Opp’n at 11, but the government skims over the fact
that it accepted Sikorsky’s accounting practices for five years before it issued a draft statement of
conditions and recommendations, Def.’s Mot. at 11, and another two years after that before
issuing an audit report, id. at 11-12. The court acknowledges that the regulations do not set a
time limit for the government to make a compliance finding. The regulations do, however,
provide that a “contracting officer shall not award a CAS-covered contract until the [CFAO] has
made a written determination that a required Disclosure Statement is adequate.” FAR § 30.202-
6(b). Additionally, “[a]fter the notification of adequacy, the auditor shall conduct a detailed
compliance review to ascertain whether or not the disclosed practices comply with CAS.” FAR
§ 30.202-7(b)(1)(i) (internal formatting omitted). The connection between the adequacy finding
and the compliance finding is inherent, and the government’s position that it is allowed to wait
years after entering a contract before making a compliance determination, allowing a contractor
to accrue years of associated costs without any notice from the government that it views such
practices as noncompliant, is uncertain.

        This uncertainty is amplified by the fact that the Defense Contract Audit Agency
Contract Audit Manual (“DCAAM”) considers “the audit responsibility [to be] a continuous
requirement,” DCAAM § 8-302.1(b), yet in the span of years at issue in this case only one audit
was conducted, Compl. ¶ 134. While the DCAAM also acknowledges that “instances of
noncompliance may be detected and reported at various stages of the procurement,”
DCAAM § 8-302.1(b), in conjunction with the prior clause, the potential of that occurrence is
only because of the government’s continuing obligation to make audits. Further, the DCAAM
contemplates that “[d]isclosed practices not compliant with CAS” will “[t]ypically [be]
[d]etected [d]uring [a]udits of Disclosure [S]tatement[s], forward pricing, [or] incurred costs.”
DCAAM § 8-302.2(b) (internal formatting omitted). This again suggests that the regulations
intend for compliance determinations to be made early during the course of the procurement.
These instructions in the DCAAM are further bolstered by the FPRA entered into by the parties,

       11
          The court notes a caveat in relation to its concern with the government’s delay by
observing that the duty of good faith does not extend to the formation of a contract or to
negotiations of a contract. See 7800 Ricchi, LLC v. United States, 152 Fed. Cl. 331, 339 (2021)
(quoting Scott Timber Co. v. United States, 692 F.3d 1365, 1372 (Fed. Cir. 2012), and Dobyns v.
United States, 915 F.3d 733, 740-41 (Fed. Cir. 2019), cert. denied, __ U.S. __, 140 S. Ct. 1106
(2020)). Yet, once the government entered into a contract it became obligated “not to act so as to
destroy the reasonable expectations of the other party regarding the fruits of the contract.”
Centex Corp. v. United States, 395 F.3d 1283, 1304 (Fed. Cir. 2005) (citations omitted).
Whether the government’s action in this case by entering into a FPRA and entering into contracts
based on the same practices it now claims are noncompliant constitutes a waiver or otherwise
obligated the government in some fashion remains to be seen.

                                                 10
which the DCAAM states should be “assess[ed] . . . for compliance with CAS” because the CAS
“play a significant role in the development of rates and factors.” DCAAM § 9-1206(e)(2).
Again, this instruction is enough to allow Sikorsky to state a plausible claim that by entering into
contractual obligations, the government’s regulatory rights were affected.12

        The government further relies on the contractual clause that Sikorsky would agree to
contract cost adjustments for CAS noncompliance but included in that clause is the caveat that
Sikorsky is required to accept such changes “as appropriate.” FAR § 52.230-2(a)(5). Inherent in
such a limitation is the possibility that not all adjustments must be accepted. The record and the
regulatory scheme leave open the question of what rights the government has—and whether it
has waived any such rights—by entering into contracts based on disclosed practices that it
assertedly did not evaluate for compliance until years later (or, as Sikorsky contends, the
potential that the government found the practices compliant by entering into the contracts or the
FPRA in the first place). The regulations leave open the question as to the power of the
government to reconsider a prior compliance finding. The court does not reach that question,
and many others, at this point. Without the actual contracts in the record and given the facts
currently alleged by plaintiff considered in their best light, the court will not dismiss Sikorsky’s
claims at this point but reserves judgment on the issues until further facts are presented to it. The
court refrains from holding that the government’s position is barred at this time, but it also will
not find that Sikorsky has failed to state a plausible claim when on their face the regulations are
ambiguous in the specific set of circumstances before the court.

                                         CONCLUSION

       For the reasons stated, the government’s partial motion to dismiss pursuant to RCFC
12(b)(1) and 12(b)(6) is DENIED.

       It is so ORDERED.

                                              s/ Charles F. Lettow
                                              Charles F. Lettow
                                              Senior Judge

       12
           The government points to the clause in the FPRA that states it will not prejudice the
rights of either party under the various applicable regulatory and statutory schemes. Def.’s Mot.
at 11. The court does not make a decision on the import and effect of the FPRA at this time but
does note that such clauses have been interpreted to indicate that the government “was not
waiving whatever adjustment rights it may have had.” Donely v. Lockeed Martin Corp., 608 F.3d
1348, 1355 (Fed. Cir. 2010). Yet, such a clause does nothing if the government does not have an
adjustment right for whatever reason. Id.

                                                 11