Gen. Dynamics Corp. v. Panetta, 2012-1249
| Decision Date | 09 May 2013 |
| Docket Number | 2012-1249 |
| Parties | GENERAL DYNAMICS CORPORATION, Appellant, v. Leon E. Panetta, SECRETARY OF DEFENSE, Appellee. |
| Court | U.S. Court of Appeals — Federal Circuit |
Appeal from the Armed Services Board of Contract Appeals in No. 56744, Administrative Judge Robert T. Peacock.
MATTHEW S. HELLMAN, Jenner & Block, LLP, of Washington, DC, argued for appellant. With him on the brief were PAUL M. SMITH and JESSICA RING AMUNSON.
DAVID D’ALESSANDRIS, Trial Attorney, Commercial Litigation Branch, Civil Division, United States Department of Justice, of Washington, DC, argued for appellee. With him on the brief were STUART F. DELERY, Acting Assistant Attorney General, JEANNE E. DAVIDSON, Director, and KIRK T. MANHARDT, Assistant Director.
MARCIA G. MADSEN, Mayer Brown, LLP, of Washington, DC, for amicus curiae. With her on the brief was CAMERON S. HAMRICK
Before LOURIE, PROST, and WALLACH, Circuit Judges.
Opinion for the court filed by Circuit Judge LOURIE.
General Dynamics Corporation ("General Dynamics") appeals from the decision of the Armed Services Board of Contract Appeals ("ASBCA") denying its appeal from the contracting officer's ("CO") final determination of non-compliance with Cost Accounting Standards ("CAS") 412 based upon General Dynamics' use of a partial-year asset valuation in computing its retirement plan forward pricing rates. Appeal of Gen. Dynamics Corp., ASBCA No. 56744, 11-2 BCA ¶ 34,787, modified on recons., 11-2 BCA ¶ 34,875. Because the ASBCA did not err in denying General Dynamics' appeal, we affirm.
General Dynamics entered into contracts with the Department of Defense, including, inter alia, fixed-price contracts, fixed-price incentive contracts, cost-plus-fixed-fee contracts, cost-plus-award-fee contracts, and time-and-materials contracts. Many of these contracts contain a clause requiring compliance with CAS. Such contracts were thus covered by the CAS, which, in general, "provide[s] uniformity in how contractors measure, assign, and allocate costs to Government contracts." Gates v. Raytheon Co., 584 F.3d 1062, 1064 (Fed. Cir. 2009). CAS 412, at issue in this appeal, "provide[s] guidance for determining and measuring the components of pension cost." CAS 412-20(a). It is primarily concerned with theway in which contractors account for their incurred pension costs, and hence how much of those costs may be charged to the government.
In estimating pension costs, the CAS calculation relies on a number of actuarial assumptions. CAS 412-30(a)(3) defines an "actuarial assumption" as "an estimate of future conditions affecting pension cost." "Each actuarial assumption used to measure pension cost shall be separately identified and shall represent the contractor's best estimates of anticipated experience under the plan, taking into account past experience and reasonable expectations." CAS 412-40(b)(2). Those "[a]ctuarial assumptions shall reflect long-term trends so as to avoid distortions caused by short-term fluctuations," CAS 412-50(b)(4), and include "mortality rate, employee turnover, compensation levels, earning on pension plan assets, [and] changes in values of pension plan assets," CAS 412-30(a)(3). For the periods relevant to this appeal, General Dynamics estimated, and the government agreed, that its pension fund would grow at 8% per year from January 1 of the years in question, viz., from 2004 through 2008.
At the beginning of each year, as of January 1, General Dynamics conducts a valuation of its pension fund, which allows it to determine what pension costs it is permitted to charge to the government under its contracts based on the actual value of its pension plan. That calculation compares the expected value from the prior year's estimation (assuming 8% growth from the previous January 1) with the actual value on January 1.
General Dynamics also submits a second evaluation pursuant to the Federal Acquisition Regulations ("FAR") to estimate the future value of its pension fund to calculate what is known as the retirement plan forward pricing rate ("RPFPR") for new contracts and contract modifications. See FAR 42.1701(b) (). The RPFPR calculation involves a projection of pension plan asset values for the current base year as well as projections between three and nine years out. While it was disputed before the ASBCA, neither party disputes on appeal that the CAS 412 regulations apply to the FAR RPFPR projections.
Over the last 25 years, General Dynamics has variably used midyear asset values, instead of January 1 values, in setting its updated RPFPR proposal for a base year. General Dynamics combined the previously mentioned 8% per year pension growth rate estimate, prorated, with that midyear value to create a "blended" rate for the remainder of the base year, and then applied the long-term 8% rate for the remaining years in the three to nine year projection in the RPFPR. Viewed differently, General Dynamics combined two rates: the actual growth rate from January 1 to the midyear date and the 8% per year rate, pro-rated, from that midyear date until the end of the year.
The Defense Contract Management Agency notified General Dynamics in 2006 that its use of a blended rate using partial-year valuations did not comply with CAS 412. The CO issued a final notice of noncompliance with CAS 412 in 2007. Following the final notice, General Dynamics submitted a compliant retirement plan using the 8% rate from January 1, not the blended rate. However, in 2008, General Dynamics once again submitted a retirement plan using the blended rate for the base year. The CO issued a second final determination of noncompliance with CAS 412. General Dynamics appealed to the ASBCA.
The ASBCA denied General Dynamics' appeal, determining that General Dynamics' use of partial-year asset data reflected short-term fluctuations that could and didintroduce distortion prohibited by CAS 412-50(b)(4). The ASBCA also determined that General Dynamics' substitution of a midyear value and a blended rate in place of the 8% long-term estimate rate constituted "actuarial assumptions" because they were "estimate[s] of future conditions affecting pension cost" as defined in CAS 412-30(a)(3). Thus, according to the ASBCA, they are encompassed by the prohibitions of CAS 412-50(b)(4). This appeal followed. We have jurisdiction pursuant to 28 U.S.C. § 1295(a)(10).
In accordance with the Contract Disputes Act, 41 U.S.C. §§ 7101-7109, this court reviews the ASBCA's decisions on questions of law de novo. See 41 U.S.C. § 7107(b)(1); Ra-Nav Labs. v. Widnall, 137 F.3d 1344, 1346 (Fed. Cir. 1998). We may set aside the ASBCA's determination on a question of fact only if it is "fraudulent, arbitrary, or capricious; . . . so grossly erroneous as to necessarily imply bad faith; or . . . not supported by substantial evidence." § 7107(b)(2). A determination is adequately supported if it is based on "such relevant evidence as a reasonable mind might accept as adequate to support a conclusion." E.L. Hamm & Assocs. v. England, 379 F.3d 1334, 1338 (Fed. Cir. 2004).
General Dynamics argues that the ASBCA erred in holding that its use of a partial-year asset valuation and subsequent blended rate in its RPFPR violated CAS 412-50(b)(4). In support of its position, General Dynamics notes that it has been using that method for 25 years without government objection. General Dynamics contends that the use of a current, midyear value is a historical fact, not an "actuarial assumption" as it is not an estimate of future conditions, although they conceded in oral argument that "in this court . . . we need to comply with CAS 412 and that we do so." Oral Argument (Feb. 6, 2013) at 3:43-51, available athttp://www.cafc.uscourts.gov/oral-argument-recordings/all/general-dynamics.html. According to General Dynamics, the only assumption made is the uncontroverted 8% per annum growth, whereas the blended rate, calculated from the actual midyear value and the 8% estimate, is not an actuarial assumption because it is based on historical fact as well as the 8% growth rate. Because, in its view, the midyear value and the resulting blended rate are not actuarial assumptions under CAS 412-30(a)(3), General Dynamics argues that the use of both of them cannot violate CAS 412-50(b)(4), which only applies to actuarial assumptions. General Dynamics also points to other provisions that require accurate estimation that General Dynamics alleges raise conflicting obligations for contractors forced to use the government's less accurate accounting method. Appellant's Br. 46-50 ().
The government responds that General Dynamics' use of both the midyear market value of its pension plan and the subsequent blended rate are both "actuarial assumptions" under CAS 412-30(a)(3). The government argues that these actuarial assumptions, because they rely on midyear values, inherently reflect short-term fluctuations and cause distortions in violation of CAS 412-50(b)(4). The government contends that the relative accuracy of General Dynamics' method is irrelevant because the purpose of the CAS regulations is uniformity and consistency, not accuracy.
We agree with the government that...
To continue reading
Request your trial