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Earlier this week, the Federal Circuit issued a decision in The Boeing Company v. United States that clears the way for resolution of Boeing’s substantive challenge to a controversial FAR provision that can give the government windfall recoveries in Cost Accounting Standards (CAS) matters.  The Federal Circuit decision is notable for three reasons.  First, in rejecting the government’s argument that Boeing had waived its right to attack the relevant FAR provision, the court clarified the circumstances in which a contractor will be found to have waived its rights to object to FAR provisions.  Second, in concluding that the Court of Federal Claims had jurisdiction to consider the dispute, the court provided a useful primer on the three different kinds of jurisdiction available under the Tucker Act.Finally, the Federal Circuit’s remand means the Court of Federal Claims will now address Boeing’s substantive challenge to FAR 30.606, which directs contracting officers to ignore offsets that save the government money when calculating the impact of changes to a contractor’s cost accounting practices.  Boeing’s argument that this provision amounts to a breach of contract and an illegal exaction will now be resolved on the merits.

A.  Background: FAR 30.606 and CAS

Before the enactment of FAR 30.606 in 2005, the government’s practice was to offset any increase in the government’s costs that was caused by a group of changes with any savings that the government received as a result of those same changes.  This practice was consistent with the language of the CAS statute, which provides that, in the event of a cost accounting change, the “Federal Government may not recover costs greater than the aggregate increased cost to the government.”  See 41 U.S.C. § 1503(b).

FAR 30.606, however, provides that a contracting officer “shall not combine the cost impacts” of multiple unilateral changes “unless all of the cost impacts are increased costs to [the] Government.”  In other words, under this rule, if a group of unilateral accounting changes collectively cost the government $1 million but also save the government $20 million, the contractor is required to pay the government $1 million, despite the fact that the changes result in a net savings for the government.

B.  Boeing’s Challenge to FAR 30.606

In 2011, Boeing made multiple, simultaneous changes to its cost accounting practices.  The undesirable “unilateral” changes increased the government’s costs by $940,007, but other changes decreased the government’s costs by an additional $2,284,000.  Because the changes resulted in a net savings to the government, Boeing’s position was that it did not owe the government any money.  The contracting officer, however, followed the directive of FAR 30.606, and issued a final decision requiring Boeing to pay $940,007 plus interest.

Boeing began paying this sum, and then filed suit in the Court of Federal Claims to get the money back.  Boeing’s core argument was that FAR 30.606 was unlawful because it violated the CAS statute.  The government’s decision to follow it was therefore a breach of the contractual provision that required the parties to abide by CAS, and the government’s final decision requiring Boeing to pay $940,007 plus interest amounted to an illegal exaction.

The Court of Federal Claims, however, did not reach the merits of Boeing’s challenge to the legality of FAR 30.606.  The court instead held that Boeing had waived its arguments by failing to challenge the provision prior to award of the “test” contract that Boeing had used as the vehicle for its claim.[1]  In addition, the court held that it lacked jurisdiction over the exaction claim, because the CAS statute is not “money-mandating.”

C.  The Federal Circuit’s Decision Concerning Waiver

The Federal Circuit reversed both Court of Federal Claims holdings on appeal.  First, as to the waiver argument, the Federal Circuit pointed out that Boeing could not have received any relief from the agency prior to award, because FAR 30.606 is a mandatory provision, and its application could not have been bargained away by DoD.  Moreover, although the government argued that Boeing could have sought some form of pre-award relief through a bid protest or other judicial proceeding, the Federal Circuit provided a phalanx of reasons as to why this would have been futile:

  • Boeing could have tried to file a pre-award bid protest, but such protests cannot challenge matters of contract administration such as FAR 30.606;
  • Boeing could have attempted to file an APA challenge, but the CAS statute expressly provides that APA judicial review procedures do not apply to CAS; and
  • Any potential Boeing claim would not have been ripe for review prior to contract award in 2008, because Boeing did not make the disputed cost accounting changes until 2011. Any pre-award claim therefore would have been contingent on (A) Boeing making some form of cost accounting change in the future; and (B) the government requiring Boeing to pay up under FAR 30.606.

In short, the Federal Circuit held that Boeing had not waived its challenge to the legality of FAR 30.606.  In doing so, the court also made clear that contractors will not need to file pre-award protests in order to challenge the legality of FAR provisions that might potentially affect them in the future.

D.  The Federal Circuit’s Decision Concerning Jurisdiction

The Federal Circuit also disagreed with the conclusion of the Court of Federal Claims that it lacked jurisdiction over Boeing’s exaction claim.  The Federal Circuit explained that there are three types of Tucker Act claims over which the Court of Federal Claims has jurisdiction: (1) contractual claims; (2) illegal exaction claims; and (3) claims made pursuant to “money-mandating” statutes.

The Court of Federal Claims had concluded that it lacked jurisdiction over the exaction claim in light of language from a previous Federal Circuit decision, Norman v. United States, which appeared to indicate that illegal exaction claims may need to be made pursuant to money-mandating statutes.  See 429 F.3d 1081, 1095 (Fed. Cir. 2005) (“To invoke Tucker Act jurisdiction over an illegal exaction claim, a claimant must demonstrate that the statute or provision causing the exaction itself provides, either expressly or by necessary implication, that the remedy for its violation entails a return of money unlawfully exacted.” (internal quotation marks removed)).

In Boeing, however, the Federal Circuit clarified that the Court of Federal Claims has jurisdiction over an exaction claim so long as (A) the plaintiff paid money to the government; and (B) the plaintiff makes a non-frivolous allegation that the government, in obtaining the money, violated the Constitution, a statute, or a regulation.  These types of claims for return of exacted funds are different from claims that seek damages as a result of a government action, which require the existence of either a contract or a money-mandating statute.  The Norman case — despite using the term “exaction” — concerned such a claim for money damages, and not an attempt to recover money previously paid to the government.  Thus, the Federal Circuit made clear that Norman did not apply to Boeing’s exaction claim, and that jurisdiction over Boeing’s exaction claim did not depend on whether the CAS statute was “money-mandating.”

E.  To Come:  The Merits

The Federal Circuit was careful to disclaim any opinion as to the merits of Boeing’s challenge to FAR 30.606.  We eagerly await the decision of the Court of Federal Claims on Boeing’s illegal exaction claim on remand.

[1]           According to the court, the existence of FAR 30.606 and its apparent inconsistency with the CAS statute created a “patent” ambiguity on the face of the contract.  Under the Federal Circuit’s waiver rules, such patent ambiguities must be challenged prior to award.  Boeing’s response to this was that FAR 30.606 was not included in the contract terms, and as such there could not be any patent ambiguity.

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Photo of Peter Terenzio Peter Terenzio

Mr. Terenzio advises contractors across a broad range of different issues. His practice includes bid protests, contract claims and disputes, regulatory counseling, and internal investigations.

Before joining the firm, Mr. Terenzio clerked for Chief Judge Susan G. Braden of the Court of Federal Claims.

Photo of Peter B. Hutt II Peter B. Hutt II

Peter Hutt represents government contractors in a range of complex investigation, litigation, and compliance matters, including False Claims Act and fraud investigations and litigation, compliance with accounting, cost, and pricing requirements, and contract claims and disputes.

Peter has litigated more than 25 qui…

Peter Hutt represents government contractors in a range of complex investigation, litigation, and compliance matters, including False Claims Act and fraud investigations and litigation, compliance with accounting, cost, and pricing requirements, and contract claims and disputes.

Peter has litigated more than 25 qui tam matters brought under the False Claims Act, including matters alleging cost mischarging, CAS violations, quality assurance deficiencies, substandard products, defective pricing, Iraqi procurement fraud, health care fraud, and inadequate subcontractor oversight. He has testified before Congress concerning proposed amendments to the False Claims Act.

Peter has also conducted numerous internal investigations and frequently advises clients on whether to make disclosures of potential wrongdoing.

Peter also represents clients in a wide range of accounting, cost, and pricing matters, as well as other contract and grant matters. He is experienced in addressing issues concerning pensions and post-retirement benefits, contract formation, TINA and defective pricing, claims and terminations, contract financing, price reduction clauses, subcontracting and supply chain compliance, specialty metals compliance, and small business and DBE compliance. He has litigated significant cost, accounting, and contract breach matters in the Court of Federal Claims and the Armed Services Board of Contract Appeals.

Peter is recognized for his work both in government contracts and in False Claims Act disputes by Chambers USA, which notes that he is “whip-sharp, wicked smart and will advocate to the hilt for his clients.” Chambers also notes that “Peter brings a lot of thoughtfulness and creativity to cases. He is extremely clear in his communications and very responsive.”