Government Contracts Contractor Didn’t Waive Challenge to FAR Accounting Rule
Tuesday, September 8, 2020

Contractor Didn’t Waive Challenge to FAR Accounting Rule

By Government Contracts Editorial Staff

The Court of Federal Claims erred in finding the contractor waived its challenge to the legality of FAR 30.606, the Court of Appeal for the Federal Circuit ruled, because a pre-award objection would have been futile and the government failed to identify a judicial forum in which, during contract formation, the contractor would clearly have been entitled to a ruling on the merits of its challenge. The contractor changed multiple cost accounting practices, which simultaneously raised and lowered costs to the government under numerous contracts. Invoking FAR 30.606, Resolving costs impacts, the Defense Contract Management Agency demanded the contractor pay the cost increases for the contract at issue, plus interest. The contractor sought to recover its payments, contending the government committed a breach of contract and effected an illegal exaction by following FAR 30.606. The contractor asserted FAR 30.606, which prohibits offsetting cost increases and cost reductions from simultaneous changes in cost accounting practices, was unlawful and contrary to the Cost Accounting Standards statute’s general rule that “[t]he … [g]overnment may not recover costs greater than the aggregate increased cost to the … [g]overnment” (41 USC 1503(b)). The CFC agreed but characterizing the asserted conflict between FAR 30.606 and the CAS statute as a patent contract ambiguity, ruled the contractor’s claims were foreclosed as a matter of law because the contractor did not seek clarification, before award, of the conflict between the CAS statute, the CAS clause, and FAR 30.606 (63 CCF ¶81,674).

Inability to Grant Relief. The Federal Circuit has generally ruled that a waiver may exist when contract terms contain a “patent” ambiguity or defect and the contractor or bidder challenges the terms in court without raising the problem with the government during the contract formation process. Here, however, the government conceded its adherence to FAR 30.606 was “mandatory,” and it was undisputed the government would have had to reject any objection to FAR 30.606 raised during contract negotiations. The government failed to identify any precedent finding waiver despite the government’s inability to grant the relief sought in court. Instead, when the government argued a contractor had consented to a regulation and waived its challenge by signing the contract, the Federal Circuit rejected the argument as “frivolous” on the simple ground that the regulation “was non-negotiable” (52 CCF ¶78,985). Here, there was no waiver because the government did not show the contractor bypassed an agency avenue of relief on the merits. The government also failed to explain how and where the contractor could have sought pre-award judicial review of FAR 30.606. The CAS statute (41 USC 1502(g)) specifically excludes coverage under the Administrative Procedure Act’s judicial review provisions, and the challenge appeared to involve a matter of contract administration, which only can be raised under the Contract Disputes Act, not in a pre-award bid protest. There also was reason to doubt any pre-contract formation challenge to FAR 30.606 would have been ripe for judicial review.

Illegal Exaction Claim. The Federal Circuit also reversed the CFC’s dismissal of the contractor’s illegal exaction claim. The CFC ruled it lacked Tucker Act jurisdiction because the claim was not founded on a money-mandating statute. However, case law involving the Tucker Act (28 USC 1491(a)) has long distinguished three types of claims against the federal government: contractual claims, illegal exaction claims, and money-mandating-statute claims. To establish Tucker Act jurisdiction for an illegal exaction claim, a party that has paid money to the government and seeks its return must make a non-frivolous allegation that the government, in obtaining the money, has violated the Constitution, a statute, or a regulation. Here, the contractor established jurisdiction by alleging the government’s demand for payment violated §1503(b). (Boeing Co. v. U.S., CA-FC, 64 CCF ¶81,971)

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