Technology Systems, Inc.
ASBCA No. 59577
| A.S.B.C.A. | Jan 12, 2017Background
- Technology Systems, Inc. (TSI), a small R&D defense contractor, submitted its FY2007 incurred cost proposal (ICP) and billed direct and indirect costs under several Navy CPFF contracts.
- DCAA began an FY2007 incurred cost audit in 2008; the audit stalled, a draft questioned many costs, and DCAA later (2014) issued a decrement memo identifying questioned costs; DCAA then provided non‑audit assistance to DCMA. ACO Cuellar issued a contracting officer final decision (COFD) on 23 June 2014 asserting a $159,303 claim.
- Major disputed cost categories included: marketing consultant fees to SMI, expensing vs. depreciation of computer equipment, executive bonuses, legal fees for a prior NCIS investigation, certain subcontract costs lacking prior ACO approval, and travel per diem overages.
- TSI argued the government’s prior acceptance of similar costs (2002–2006 audits) created a course of dealing or retroactive‑disallowance bar and that some claims were time‑barred under the six‑year statute of limitations.
- The Board majority rejected retroactive disallowance/course‑of‑dealing as a bar absent affirmative government misconduct or an unequivocal prior acceptance, found some individual costs allowable (SMI, Charles Wilson, most legal fees subject to the 80% cap), and sustained most of the government’s disallowances.
- Judge Clarke dissented: he would have applied course‑of‑dealing/retroactive‑disallowance principles to sustain broader relief for TSI, finding DCAA/DCMA conduct and prior audit practice gave TSI a reasonable expectation and detrimental reliance.
Issues
| Issue | Plaintiff's Argument (TSI) | Defendant's Argument (DCMA/DCAA) | Held |
|---|---|---|---|
| Retroactive disallowance / course of dealing | Prior audits accepted similar costs; TSI reasonably relied on that practice and would be unfairly prejudiced by later challenges | Government may question costs in later audits; prior non‑challenge does not establish an unequivocal acceptance or bar future review; retroactive disallowance requires affirmative misconduct | Majority: rejected retroactive disallowance/course‑of‑dealing absent affirmative misconduct or unequivocal prior acceptance; Dissent: would sustain relief on course‑of‑dealing grounds for many items |
| Statute of limitations (6‑year CDA bar) | Some challenged items were known to government >6 years before COFD | COFD issued within 6 years of TSI’s ICP submission; accrual could not occur before costs were submitted | Held: COFD (23 June 2014) was timely relative to FY2007 ICP (submitted June 2008); statute of limitations defense fails |
| Marketing consultant fees (SMI) — allowability and documentation | SMI invoices, agreement, and witness testimony show marketing (not lobbying) work; lack of conventional “work product” is not dispositive | FAR 31.205‑33 lists work product among supporting evidence; lack of trip reports/minutes justifies disallowance | Held: SMI marketing fees allowable — invoices + testimony suffice; FAR does not rigidly require work product when other evidence is adequate |
| Computer equipment: full expensing vs. depreciation | Some lab/field computers were heavily modified/consumed in R&D and properly expensed under company practice and tax treatment | FAR requires depreciation consistent with financial accounting and prior segment practice; TSI’s 2007 full expensing departed from its prior practice and lacked allocation proving which items were non‑capital consumables | Held: ACO properly required depreciation consistent with prior practice for items not shown to be consumed in R&D; full expensing mostly disallowed |
| Executive bonus plan — allowability | Bonuses were agreed by executives in late‑2006, awarded for 2007 performance and thus allocable to FY2007 | Plan lacked measurable criteria, gave award discretion to beneficiaries, and produced insufficient documentation to support basis for awards | Held: majority disallowed bonuses — plan lacked objective metrics and gave unfettered discretion (not compensable); dissent would have allowed bonuses under course‑of‑dealing rationale |
| Legal fees for representation during NCIS probe | Fees incurred defending TSI (2002–2005) are allocable and recoverable after investigation closed; TSI reasonably waited to claim them until it had confirmation | FAR limits recovery during pendency of investigation; once investigation closed TSI should have claimed earlier year (2006) — government contends costs were recorded in wrong year | Held: majority allowed 80% of investigation‑related fees claimed in FY2007 (discount per FAR), finding TSI reasonably treated them as FY2007 costs in the circumstances |
| Subcontract costs lacking prior ACO approval | Subcontracts were allocable and in support of statements of work; retrospective confirmation from program officials shows work supported contracts | FAR 52.244‑2 requires prior written consent for certain subcontracts when no purchasing system exists; contractor must demonstrate price reasonableness — post hoc support here insufficient | Held: disallowed (sustained) for those subcontracts where DCMA/DCAA could not determine price reasonableness or obtain required pre‑approval |
| Travel/per diem overages | TSI’s travel policy saved money and overages were minor; COFD misidentified JTR vs FTR | There were per diem overages under governing travel regulation (FTR for CONUS); FAR 31.205‑46 permits disallowing excess per diem | Held: disallowed the excess amounts — COFD’s reference to JTR was form error but substance (per diem exceeded applicable regulation) supports disallowance |
Key Cases Cited
- Litton Sys., Inc. v. United States, 449 F.2d 392 (Ct. Cl. 1971) (early formulation of retroactive‑disallowance principles)
- Heckler v. Cmty. Health Servs., 467 U.S. 51 (U.S. 1984) (government estoppel limited; government not estopped on same terms as private litigant)
- Zacharin v. United States, 213 F.3d 1366 (Fed. Cir. 2000) (equitable estoppel against the government requires affirmative misconduct)
- Rumsfeld v. United Techs. Corp., 315 F.3d 1361 (Fed. Cir. 2003) (retroactive‑disallowance/estoppel claims against the government analyzed under affirmative‑misconduct standard)
- Sikorsky Aircraft Corp. v. United States, 773 F.3d 1315 (Fed. Cir. 2014) (CDA six‑year limitations accrual principles)