December 22, 2014
In Sikorsky Aircraft Corp. v. United States, 2013-5096, 5099, issued December 10, 2014, a panel of the Federal Circuit: (1) states that the Contract Disputes Act (“CDA“) statute of limitations (“SOL”) is not jurisdictional; and (2) explains certain important Cost Accounting Standards (“CAS”) principles, including what is “material.” The panel’s statements regarding the CDA SOL will need to be assessed carefully in any pending or subsequent litigation involving the SOL issue. The explanation of what is “material” also is important because it is the first time the Federal Circuit has opined on the ambiguity of the term “materiality,” finding that it means “significant” and not merely more than de minimus, a holding that should help rebut a number of audit findings.
Sikorsky Aircraft involved a government allegation that Sikorsky had allocated certain costs in noncompliance with CAS 418 during the 1999 to 2005 period. The Court of Federal Claims (“COFC“) had ruled on the merits after finding that the CDA SOL had not run, concluding that the government had not met its burden that Sikorsky’s allocation practice failed to comply with CAS 418. The government appealed the COFC’s ruling on the CAS 418 issue. At the same time, Sikorsky argued, in a cross-appeal, that the CDA SOL had run and that the COFC’s ruling to the contrary had to be addressed before the merits because the CDA SOL is jurisdictional.
The Federal Circuit panel that heard Sikorsky Aircraft dismissed Sikorsky’s cross-appeal as “improper,” and instead treated Sikorsky’s CDA SOL argument as an alternative ground for affirmance in the appeal filed by the government. The panel disagreed with Sikorsky on the jurisdictional nature of the CDA SOL. In so doing, the panel relied upon the Supreme Court’s decision in Sebelius v. Auburn Regional Medical Center, 133 S. Ct. 817 (2013). The Sikorsky Aircraft panel stated that Auburn Regional had “effectively overruled” Systems Development Corp. v. McHugh, 658 F.3d 1341 (Fed. Cir. 2011), a Federal Circuit panel decision stating that the CDA SOL is jurisdictional. Contractors and their counsel will need to analyze the Sikorsky Aircraft decision thoroughly in crafting their arguments on the SOL issue in pending and future cases—whether those cases involve government or contractor claims.
This will be particularly important because the ASBCA is taking Sikorsky Aircraft into consideration in pending cases involving the CDA statute of limitations. At the same time, it will be important to monitor the outcome in United States v. Wong, No. 13-1074, and United States v. June, No. 13-1075, two cases involving the Federal Tort Claims Act statute of limitations in which the Supreme Court heard oral argument just this week. The court’s ruling in these two cases could affect the Sikorsky Aircraft panel’s statements about the CDA SOL.
After rejecting Sikorsky’s argument regarding the CDA SOL, the Sikorsky Aircraft Federal Circuit panel turned to the merits of the CAS 418 issue in the case. On this issue, the panel’s holding regarding the meaning of materiality in CAS § 418-40(c) is important. After acknowledging the CAS definition of “materiality” found in 48 C.F.R. § 9903.305, the court concluded that material or materiality means “significant.” In reaching this conclusion, the court rejected the government’s definition as something “more than de minimus.” This holding now provides a strong basis for contractors to aggressively use materiality as a defense against audit findings.
Finally, Sikorsky Aircraft is important because the Federal Circuit reaffirmed two interpretational rules applied when addressing a CAS issue. The first is that unpublished CAS board materials are not relevant, relying on Rumsfeld v. United Techs. Corp., 315 F.3d 1361 (Fed. Cir. 2003), that opinions of “self-proclaimed CAS experts" are irrelevant. And second, the court recognized that the government bore the burden of proof, upholding the trial court’s conclusion that the government had failed to meet this burden.