Government Contracts & Investigations

How Late Is Too Late to File a Claim?

By | November 2, 2020

The Contract Disputes Act (CDA) governs claims under FAR-based Government contracts. More than forty years after its enactment in 1978, we are apparently still not all in agreement as to when the time for filing a claim has lapsed. On October 23, 2020, the complaint in Northrop Grumman Corp. (NGC) v. United States, Case 1:20-cv-01447-MHS, was filed at the U.S. Court of Federal Claims (COFC). In the complaint, NGC appeals three Government claims seeking the return of money from NGC as a result of segment-closing pension cost adjustments. Because many reading this blog know the complexity of government contract cost accounting, I will try to put what is alleged to have occurred in plain English.

In 2002 and 2003, NGC acquired business segments from Litton Industries and TRW. The complaint alleges that NGC operated these segments, and in the course of their operation the Government participated in funding the NGC pension plan by paying allowable and allocable pension plan costs under negotiated government contracts performed by the segments in question. NGC subsequently sold the segments and calculated its pension liabilities and funds. Because NGC is subject to government cost accounting standards (CAS-covered), it must comply with various accounting standards and reporting requirements. In complying with these requirements, it determined that there was a pension plan surplus arising from the sale and it was required to report to the Government. The complaint alleges that NGC submitted its recalculation of the pension surplus to the Government back in 2004. The submission was audited by the Government and the parties engaged in back and forth communications over a period of years. The Defense Contract Audit Agency (DCAA) submitted its Audit Report to the Defense Contract Management Agency (DCMA) and NGC submitted its response to the Government in July and August of 2009, respectively. However, it wasn’t until 2019, 15 years after NGC submitted its report, that the Government issued two final Contracting Officer decisions containing three Government claims against NGC. In the Government claims, the Government apparently seeks a greater share of the surplus than NGC had calculated. The Government also included a debt demand and demand for payment, and referred the matter to the Defense Finance and Accounting Service for collection.

In its COFC filing, NGC appeals these final decisions and challenges the Government claims as time-barred, as well as being erroneous on the merits. NGC alleges that the CDA statute of limitations, 41 U.S.C. § 7103, is 6 years from date of accrual of the claim. It further alleges that the time for claim accrual occurred on the date when all events that fix the alleged liability were known or should have been known pursuant to FAR 33.201: in 2004 when NGC reported its pension cost calculations, or at least no later than July 2009 when NGC submitted its response to the DCAA Audit Report. The complaint also alleges that the Government’s calculations of the pension cost surplus and amounts in its claims are not correct.

Irrespective of the merits of the CAS issue, contractors should be closely watching the case as it unfolds. The case raises important questions regarding exactly when the time for asserting a claim arises. The accrual and timeliness of any claim, including a Government claim, are matters about which contractors of all types need clear standards. The CDA provides that contractor and Government claims must be timely asserted. If the Government knew, or should have known, of the basis for bringing a claim, it needed to file a claim within 6 years of that date. The Government, under the express language of the CDA and FAR, is not supposed to sit on its hands while the clock runs out.

Contact Susan Ebner for more information.