Sikorsky Aircraft Corp. v. United States

• Decision Date: 18 July 2012
• Docket Number: No. 10-741C (consolidated),No. 09-844C,09-844C,10-741C (consolidated)
• Parties: SIKORSKY AIRCRAFT CORPORATION, Plaintiff, v. UNITED STATES, Defendant.
• Court: Court of Federal Claims

SIKORSKY AIRCRAFT CORPORATION, Plaintiff,

v.UNITED STATES, Defendant.

No. 09-844C

No. 10-741C (consolidated)

United States Court of Federal Claims

Filed: July 18, 2012

Motions by the government for partial

summary judgment upon plaintiff's

affirmative defenses of statute of

limitations and accord and satisfaction;

accrual of a claim under FAR § 33.201

for purposes of the Contract Dispute

Act's six-year statute of limitations, 41

U.S.C. § 7103(a)(4)(A); Crown Coat

Front Co. v. United States, 386 U.S. 503

(1967); meeting of the minds required for

formation of an accord and satisfaction;

conflicting evidence respecting a meeting

of the minds

Jeffrey A. Hall, Bartlit Beck Herman Palenchar & Scott LLP, Chicago, Illinois, for plaintiff. Of counsel were Shayna S. Cook, Allison W. Freedman, and Georgia N. Alexakis, Bartlit Beck Herman Palenchar & Scott LLP, Chicago, Illinois, and Karen L. Manos, Gibson, Dunn & Crutcher LLP, Washington, D.C.

James W. Poirier, Attorney, Commercial Litigation Branch, Civil Division, United States Department of Justice, Washington, D.C., for defendant. With him on the briefs were Stuart F. Delery, Acting Assistant Attorney General, Jeanne A. Davidson, Director, Steven J. Gillingham, Assistant Director, and Kimberly I. Kennedy, Attorney, Commercial Litigation Branch, Civil Division, United States Department of Justice, Washington, D.C.

OPINION AND ORDER

LETTOW, Judge.

The United States ("the government") claims that Sikorsky Aircraft Corporation ("Sikorsky") owes the government approximately $80 million, stemming from the accounting method for indirect costs in place at Sikorsky from 1999 to 2005. See Sikorsky Aircraft Corp. v. United States, 102 Fed. Cl. 38, 40 (2011). According to the government, Sikorsky's accounting method misallocated overhead costs to Sikorsky's government contracts in contravention of the Cost Accounting Standards ("CAS") set out at 48 C.F.R. ("FAR") Chapter 99. Sikorsky denies that its accounting practices were ever noncompliant and has also raised affirmative defenses to the government's claim. At issue presently are the government's motions for summary judgment on two of those affirmative defenses. First is Sikorsky's affirmative defense that the government's claim is barred by the six-year statute of limitations found in the Contract Disputes Act of 1978 ("CDA"). See 41 U.S.C. § 7103(a)(4)(A). Sikorsky's defense essentially is that thegovernment knew of the purported CAS violation by 1999, so its claim asserted in 2008 came too late. The government's motion contends that its claim did not accrue until either 2004, when the contracting officer monitoring Sikorsky received an audit showing a potential violation, or 2008, when the contracting officer completed all the administrative steps necessary before bringing the government's claim. The government's second motion relates to Sikorsky's affirmative defense that an earlier accord and satisfaction precludes the government's claim. According to this defense, in 2005 Sikorsky and the government's contracting officer struck a deal: Sikorsky agreed to change its accounting system in 2006, and the officer agreed not to pursue any possible noncompliance attributable to the system in place from 1999 to 2005. The government's motion contends that there was no such agreement, or if there was, that it did not extend to cost impacts prior to 2006. Both of the government's motions have been briefed and argued and are now ready for disposition.¹

BACKGROUND

I. The Legal Framework

The government's motions rely on the statutes and regulations governing the initiation and resolution of contract disputes between the federal government and its contractors. In particular, the briefs respecting the motions address at length the provisions regulating the duties of federal contracting officers. Many of the events occurring prior to the present litigation, especially the actions of various government employees, become somewhat understandable when viewed as following — or not following, as the case may be — the processes set out by these statutes and regulations.

The overarching statute in the present dispute is the CDA, codified at 41 U.S.C. §§ 7101-7109.² Contractors and the government both can submit claims under the CDA. See 41 U.S.C. § 7103. Initially, a claim is presented to or by a contracting officer, who is obliged to render a written decision on the claim. 41 U.S.C. § 7103(a)(1), (3). A contractor may appeal a contracting officer's decision on a claim to the proper board of contract of appeals within 90 days, or, as was done here, bring an action in this court within one year. Id. § 7104; see also 28 U.S.C. § 1491(a)(2).³ Concomitantly, if a contractor or the government fails to obtain acontracting officer's written decision, then this court is without jurisdiction to hear the underlying claim. See Raytheon Co. v. United States, __ Fed. Cl. __, __, 2012 WL 2878605, at *48, *59-60 (July 16, 2012).

Crucially, the CDA sets out a statute of limitations for the initial submission of a claim. "Each claim by a contractor against the [f]ederal [g]overnment relating to a contract and each claim by the [f]ederal [g]overnment 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). The CDA itself does not define "accrual," but it is defined in the FAR, Chapter 1, Part 33. See Raytheon Co. v. United States, __ Fed. Cl. __, __, 2012 WL 1072294, at *3 (Apr. 2, 2012); cf. H.L. Smith, Inc. v. Dalton, 49 F.3d 1563, 1564 (Fed. Cir. 1995). According to the regulation:

Accrual of a claim means the date when all events, that fix the alleged liability of either the [g]overnment 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.

FAR § 33.201.

FAR Part 33 also sets out the general procedures the government must follow when a potential claim has accrued. "[C]ontracting officers are authorized, within any specific limitations of their warrants, to decide or resolve all claims arising under or relating to a contract subject to the [CDA]." FAR § 33.210. "The [g]overnment's policy is to try to resolve all contractual issues in controversy by mutual agreement at the contracting officer's level. Reasonable efforts should be made to resolve controversies prior to the submission of a claim." FAR § 33.204. However, if a claim by or against a contractor is submitted and it "cannot be satisfied or settled by mutual agreement[,] . . . a decision [by the contracting officer] on the claim is necessary." FAR § 33.211(a). In accord with the CDA's statute of limitations, "[t]he contracting officer shall issue a written decision on any [g]overnment claim initiated against a contractor within 6 years after accrual of the claim, unless the contracting parties agreed to a shorter time period." FAR § 33.206(a).

FAR Part 30 establishes procedures to be followed in the administration of contracts subject to the CAS.⁴ First, for such contracts, the contractor must submit a "DisclosureStatement," which is "a written description of a contractor's cost accounting practices and procedures." FAR § 9903.202-1(a) (incorporated by FAR § 30.202-1); see also FAR § 52.230-2(a)(1). An updated Disclosure Statement must also be submitted when "extensive changes require it." FAR § 9903.202-3 (incorporated by FAR § 30.202-3); see also FAR § 52.230-6(b).⁵ A copy of the Disclosure Statement must be submitted to the cognizant federal auditor and to the cognizant federal agency official ("CFAO") administering the CAS respecting the contractor's CAS-covered contract or contracts. FAR § 9903.202-5(b) (incorporated by FAR § 30.202-5); see FAR § 30.001. "The cognizant auditor is responsible for conducting reviews of Disclosure Statements for adequacy and compliance," FAR § 30.202-6(c), and "[t]he CFAO is responsible for issuing determinations of adequacy and compliance of the Disclosure Statement," FAR § 30.206-6(d). A Disclosure Statement is first reviewed for adequacy and then for compliance. The auditor "[c]onduct[s] a detailed compliance review to ascertain whether or not the disclosed practices comply with [the CAS and] . . . [a]dvise[s] the CFAO of the results." FAR § 30.202-7(b)(1)(i)-(ii). Based on this advisement, the CFAO "make[s] a determination of compliance or take[s] action regarding a report of alleged noncompliance in accordance with [FAR §] 30.605(b)." FAR § 30.202-7(b)(2).

In the case of an alleged noncompliance, the CFAO's actions involve several steps. First, "[w]ithin 15 days of receiving a report of alleged noncompliance from the auditor, the CFAO shall . . . [n]otify the auditor that the CFAO disagrees . . . [or] [i]ssue a notice of potential noncompliance to the contractor." FAR § 30.605(b)(1). If a notice is issued, the contractor has 60 days to respond. FAR § 30.605(b)(2). After this time has elapsed, and in light of any response sent by the contractor, the CFAO then must "[m]ake a determination of compliance or noncompliance" and notify the contractor. FAR § 30.605(b)(3).

This compliance determination leads to one of three further procedures. If the practice is determined to be compliant, no further action is required. Similarly, if the practice is determined to be noncompliant but has no appreciable effect on the underlying contracts — that is, "the cost impact is immaterial" — then little action is required. FAR § 30.605(b)(4). The CFAO simply urges the contractor to change the noncompliant practice and warns that if the contractor does not, then "the [g]overnment reserves the right to make appropriate contract adjustments should the noncompliance become material in the future." FAR § 30.605(b)(4)(i)(B).

If the noncompliance is determined to be material, however, then more steps must be followed. Initially, within 60 days of the notice of noncompliance,...