Ingalls Shipbuilding, Inc. v. Dalton

• Decision Date: 21 July 1997
• Docket Number: No. 96-1413,96-1413
• Citation: 119 F.3d 972
• Parties: 41 Cont.Cas.Fed. (CCH) P 77,133 INGALLS SHIPBUILDING, INC., Appellant, v. John H. DALTON, Secretary of the Navy, Appellee.
• Court: U.S. Court of Appeals — Federal Circuit

Page 972

119 F.3d 972

41 Cont.Cas.Fed. (CCH) P 77,133

INGALLS SHIPBUILDING, INC., Appellant, v. John H. DALTON, Secretary of the Navy, Appellee.

No. 96-1413.

United States Court of Appeals Federal Circuit.

July 21, 1997.

George M. Simmerman, Jr., Assistant General Counsel, Ingalls Shipbuilding, Inc., Pascagoula, MS, argued, for appellant. With him on the brief was William J. Powers, Jr., Vice President and General Counsel.

Phyllis Jo Baunach, Attorney, Commercial Litigation Branch, Civil Division, Department of Justice, Washington, DC, argued, for appellee. With her on the brief were Frank W. Hunger, Assistant Attorney General, David M. Cohen, Director, Joseph A. Kijewski, Assistant Director. Of counsel on the brief was Ray Johansmeier, Office of General Counsel, United States Navy, of Pascagoula, MS.

Before MICHEL, PLAGER, and LOURIE, Circuit Judges.

LOURIE, Circuit Judge.

Ingalls Shipbuilding, Inc. appeals from the final decision of the Armed Services Board of Contract Appeals granting summary judgment for the United States Navy on the ground that payments made by Ingalls under 33 U.S.C. § 914(e) (1994) were "in the nature of a fine or penalty" and thus were not chargeable to its contracts with the Navy pursuant to Federal Acquisition Regulation (FAR) § 31.205-15 or its predecessor provision. Ingalls Shipbuilding, Inc., ASBCA No. 48302, 96-2 BCA p 28349, 1996 WL 263350 (1996). Because Ingalls' payments under § 914(e) were not "fines and penalties" within the meaning of the relevant statues and regulations, and because those payments were also not "interest on borrowings" within the meaning of FAR § 31.205-20 or its predecessor provision, we reverse the decision of the board.

BACKGROUND

The facts in this case are not in dispute. Ingalls is a shipbuilder in the business of constructing, repairing, and overhauling naval surface combatant ships. In the course of its business, it has entered into numerous contracts with the Navy. Ingalls is subject to the provisions of the Longshore and Harbor Workers' Compensation Act (LHWCA), 33 U.S.C. §§ 901-950 (1994), ¹ which provides certain classes of maritime employees with compensation for work-related injuries. See 33 U.S.C. §§ 902-03. Section 914 of the LHWCA is entitled "Payment of Compensation" and provides that "compensation under this chapter shall be paid periodically, promptly, and directly to the person entitled thereto, without an award, except where liability to pay compensation is controverted by the employer." 33 U.S.C. § 914(a). The first semi-monthly installment of compensation becomes due no later than fourteen days after the employer is notified of a compensable injury, 33 U.S.C. § 914(b), unless the employer controverts the right to compensation by filing a timely notice stating, inter alia, "the grounds on which the right to compensation is controverted." 33 U.S.C. § 914(d).

Section 914(e) (entitled "Additional compensation for overdue installment payments payable without award") mandates that under certain circumstances, an employer pay additional compensation. It provides:

If any installment of compensation payable without an award is not paid within fourteen days after it becomes due, as provided in [§ 914(b) ], there shall be added to such unpaid installment an amount equal to 10 per centum thereof, which shall be paid at the same time as, but in addition to, such installment, unless notice is filed under [§ 914(d) ], or unless such nonpayment is excused by the deputy commissioner after a showing by the employer that owing to conditions over which he had no control such installment could not be paid within the period prescribed for the payment.

33 U.S.C. § 914(e). Thus, absent a valid excuse granted by the Deputy Commissioner Between October 1, 1986 and May 14, 1987, approximately two thousand LHWCA claims were filed against Ingalls alleging noise-induced hearing loss injuries. Ingalls states that it could not prudently and in a timely manner investigate each claim in this unprecedented mass filing. Therefore, because any improvidently issued pre-award payments would not have been not recoverable, and because Ingalls wished to save itself and the Navy unnecessary costs, Ingalls decided not to pay the initial pre-award installments when they became due, but instead responded only by filing generic answers to each claimant. Ingalls then sought and received an excuse for deferring action from the Deputy Commissioner. However, the Fifth Circuit later determined that Ingalls' generic answers were insufficient to serve as § 914(d) controversions and that the Deputy Commissioner's grant of the excuse was invalid as an abuse of his discretion. See Ingalls Shipbuilding, Inc. v. Director, Office of Workers' Comp. Programs, 976 F.2d 934, 937-38 (5th Cir.1992) (Ingalls II ); Ingalls Shipbuilding, Inc. v. Director, Office of Workers' Comp. Programs, 898 F.2d 1088, 1095-96 (5th Cir.1990) (Ingalls I ). Accordingly, Ingalls was required to make § 914(e) payments to the successful claimants.

an employer who fails either to timely controvert a claimant's right to compensation or to timely pay the initial pre-award installment will owe an ultimately successful claimant 110% of the late pre-award installment payments. Payments under § 914(e) are based on the amount of compensation owed but not yet paid, and thus serve both to compensate claimants for delays and to encourage employers either to make voluntary payment or to controvert claims. In this way, § 914(e) hastens the adjudication of disputed claims. See National Steel and Shipbuilding Co. v. United States Dep't of Labor, Office of Workers' Comp. Programs, 606 F.2d 875, 880 (9th Cir.1979) (noting that "the 10 percent assessment for failure to file the notice acts as an incentive to induce employers to bear their burden under the Act and to bring any compensation disputes to the attention of the Department"); Watkins v. Newport News Shipbuilding & Dry Dock Co., 8 B.R.B.S. 556, 560 (1978), vacated and remanded on other grounds sub nom., Newport News Shipbuilding & Dry Dock Co. v. Director, Office of Workers' Comp. Programs, 594 F.2d 986 (4th Cir.1979) ("[The § 914(e) payments] do not exist merely to give employers a financial incentive to pay compensation voluntarily and promptly. They are, in fact, additional amounts paid to the claimant to compensate for the inconvenience and expense of supporting herself during the time when her earning capacity was reduced or destroyed and compensation was not being paid.").

Ingalls attempted to recover the cost of its § 914(e) payments, which it now estimates total $190,598.54, by charging proportionate shares of the payments to sixty-six of its contracts with the Navy. Each of these contracts explicitly provides for the reimbursement/payment of either the indirect costs of "State and Federal Workmen's Compensation" or the costs "to provide and maintain workers' compensation ... insurance." Each contract is also subject to the cost principles of the Federal Acquisition Regulation (FAR) or, for those contracts entered into prior to 1984, the Defense Acquisition Regulation (DAR). ²

In February 1993, the Defense Contract Audit Agency (DCAA) issued an audit report concerning Ingalls' § 914(e) payments, computed the amount of the then-issued payments, and recommended that the payments not be chargeable to the Navy contracts. On November 21, 1994, the Contracting Officer (CO), adopting the DCAA report, issued a final decision declaring the § 914(e) payments to be unallowable under the cost principles defined in specific provisions of the FAR or DAR.

Under these regulations, a cost either directly or indirectly incurred in performing a contract may be chargeable to that contract if, inter alia, it is "allowable." See FAR § 31.204(a) (1996); see also DAR § 15-201.1 Costs of fines and penalties resulting from violations of, or failure of the contractor to comply with, Federal, State, local, or foreign laws and regulations, are unallowable except when incurred as a result of compliance with specific terms and conditions of the contract or written instructions from the contracting officer.

(1984) (defining total cost as "the sum of the allowable direct and indirect costs allocable to the contract"). Whether a cost is allowable is determined by considering, inter alia, whether a specific FAR or DAR provision limits the allowability of the cost. See FAR § 31.201-2(5) (1996); DAR § 15-201.2(iv) (1984). The specific FAR provisions on which the CO based his conclusion that the § 914(e) payments were unallowable costs read:

FAR § 31.205-15(a) (1996) ("Fines, penalties, and mischarging costs."), and

Interest on borrowings (however represented), bond discounts, costs of financing capital (net worth plus long-term liabilities), legal and professional fees paid in connection with preparing prospectuses, costs of preparing and issuing stock rights, and directly associated costs are unallowable except for interest assessed by State or local taxing authorities under the conditions specified in [FAR § ] 31.205-41 (but see [FAR § ] 31.205-28).

FAR § 31.205-20 (1996) ("Interest and other financial costs."). The corresponding DAR provisions are identical to the FAR provisions in all relevant aspects; DAR § 15-205.13 (1984) pertains to fines and penalties, while DAR § 15-205.17 pertains to interest on borrowings. ³ The exception of § 31.205-15 does not apply because, as explained above, the § 914(e) payments were not incurred as a result of Ingalls' compliance with a specific provision of the contract or the CO's instructions.

Ingalls appealed the CO's final decision to the board. Before the board, both parties moved for summary judgment, and the board granted the Navy's motion. The board concluded that the § 914(e) payments "are unallowable costs in the nature of a fine or penalty under FAR § 31.205-15," and did not address the "interest on borrowings" provision. The board...