Government Contracts, Investigations & International Trade Blog : Government Contracts Lawyer & Attorney : Sheppard Mullin Law Firm : Bids, Licenses, Awards, Conflict of Interest.

By David S. Gallacher

Those familiar with Government contracting know at least a little bit about the elusive and fickle regulatory requirements for Independent Research and Development (“IR&D” or “IRAD”) costs. IR&D is a means by which the U.S. Government supports a Contractor’s independent R&D efforts. By reimbursing a Contractor’s independent R&D costs, the Government long has hoped to advance the state of the art without stifling a contractor’s innovation under the weight of a federal bureaucracy, while simultaneously banking on the fact that the U.S. Government also will benefit from the technology advancements. But two recent developments may change the essential nature of IR&D, making it less “independent” and more “dependent” on Government rights and oversight. To quote Bob Dylan – “the times they are a changin’.” 
 

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By John W. Chierichella and Ryan E. Roberts

On January 11, 2011, Ronald Youngs, Acting Executive Director, Contracts, Defense Contract Management Agency (“DCMA”), issued Information Memorandum No. 11-108 regarding Forward Pricing Rate Recommendations (“FPRR”). This memorandum implemented a mandate included in the September 14, 2010 memorandum of Ashton B. Carter, Under Secretary of Defense for Acquisition, Technology & Logistics, entitled “Better Buying Power: Guidance for Obtaining Greater Efficiency and Productivity in Defense Spending.” In an attempt to reduce the overlap between DCMA and the Defense Contract Audit Agency (“DCAA”), Mr. Carter directed that “where DCAA has completed an audit of a particular contractor’s [Forward Pricing Rate Proposal (“FPRP”)], DCMA shall adopt the DCAA recommended rates as the Department’s position regarding those rates.”
 

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By: John W. Chierichella and W. Bruce Shirk

We previously noted DCAA’s hasty implementation of the Court of Appeals for the Federal Circuit’s (“CAFC’s”) decision in Gates v. Raytheon Co., 584 F.3d 1062 (Fed. Cir. 2009), requiring daily compounding of interest on adjustments made to rectify Cost Accounting Standards (“CAS”) noncompliances. DCAA Implements Federal Circuit Decision Requiring Interest Compounded Daily on Adjustments for CAS Noncompliances (June 14, 2010). We say “hasty” because – while noting that its holding was required by Canadian Fur Trappers v. United States, 884 F.2d 563 (Fed. Cir. 1989) – the panel expressed reservations regarding that decision’s validity, commenting that appellee’s (Raytheon’s) arguments “may support the proposition that Canadian Fur Trappers was erroneously decided.” Not surprisingly, Raytheon accepted this implicit invitation to petition for rehearing en banc, and that petition is currently pending. Nonetheless, the FAR Councils are now rushing to mimic DCAA by proposing in equally hasty fashion to extend the holding to overpayments under the Truth in Negotiations Act (“TINA”). 75 Fed. Reg. 57719-57721 (Sept. 22, 2010).
 

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By John W. Chierichella and W. Bruce Shirk

Under our system of laws, legal liability has customarily been based on certain showings, e.g., that an act or omission actually caused an injury, with liability usually measured by the aggrieved party’s actual loss.  These useful legal constructs have served us well over the years in helping to avoid misuse of the law through the imposition of liabilities without proof of injury or without regard to the damage actually caused by the alleged misconduct.  Proximate cause, injury in fact and proportionality of response were nice concepts while they lasted, but they appear to have outworn their welcome within the Department of Defense.  Under regulations proposed by DOD, it would soon have the power to withhold anywhere from 10 percent to 100 percent of the payments otherwise due and owing to its contractors.  The basis for this withholding would be a mere determination by the Defense Contract Audit Agency that one or more “deficiencies” exist in any of the following contractor systems: cost estimating, earned value management, or EVMS; material management and accounting, or MMAS; accounting; purchasing; and property management.

Click here to read this entire article by John W. Chierichella and W. Bruce Shirk, which was originally published by Thomson Reuters in its July 12, 2010 issue of the Westlaw Journal Government Contract (formerly Andrews Litigation Reporter) and is reprinted here with permission.

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By W. Bruce Shirk and John W. Chierichella

Just three months ago, newly appointed DCAA Director Patrick Fitzgerald told contractors and acquisition agencies that his agency’s new mode of operations would aim at developing “mutually beneficial relationships” with both contractors and DOD acquisition agencies. DCAA would spring “no surprises” on contractors; it would conduct “more frequent communication with” them; DCAA would assure the provision of “responsive and timely services to agency stakeholders”; and – in a marked sea change from its traditional attitude, DCAA would abide by DOD direction that, while “the contracting officer and auditor work together… it is the contracting officer’s ultimate responsibility to determine fair and reasonable contract values.” (DCAA, Director’s Message, CODSIA Operating & Policy Committees Meeting, March 10, 2010, ppt slide 12; Memorandum, Office of the Undersecretary of Defense for Acquisition, Technology and Logistics, Subject: Resolving Contract Audit Recommendations, December 4, 2009).

 

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By W. Bruce Shirk

Albert Einstein supposedly said that “the most powerful force in the world is compound interest.” Whether or not the great man actually said that, DCAA is now prepared to show contractors just how powerful compounding can be.
 

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On January 15, 2010, the Department of Defense announced plans to amend the Defense Federal Acquisition Regulation Supplement (“DFARS”) to allow contracting officers to withhold payments from companies with “deficient” business systems in an effort to prevent “unallowable and unreasonable costs on government contracts.” 75 Fed. Reg. 2457. Contracting officers would have the authority to withhold payments on cost reimbursement, incentive, time-and-materials, and labor-hour contracts. 
 

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