June 12, 2014
Continuing a pro-contractor trend, the Armed Services Board of Contract Appeals ("ASBCA" or "Board") has once again issued a decision protecting contractors against claims arising from Defense Contract Audit Agency ("DCAA") tardiness. In this most recent case, Laguna Constr. Co., Inc. ("Laguna"), ASBCA No. 58569 (May 29, 2014), the ASBCA held that the government's $3.8 million claim was time-barred under the Contract Disputes Act's ("CDA") six-year statute of limitations.1 This decision is the latest in a series of favorable cases in which courts or boards have dismissed government claims because they exceeded the six-year CDA statute of limitations. See e.g., Raytheon Missile Systems, ASBCA No. 58011 (Jan. 28, 2013); Raytheon Co. v. United States, 104 Fed. Cl. 327 (Apr. 2, 2012). Laguna is noteworthy because of the date the Board relied upon to trigger the running of the CDA statute of limitations.
The case arose from task orders awarded to Laguna in 2004 and 2005 by the Air Force Center for Excellence under a contract for Worldwide Environmental Remediation and Construction. The government sought to disallow $3.8 million in costs associated with subcontracts awarded by Laguna under these two task orders for construction work in Iraq. In particular, the government asserted that these subcontracts were not awarded based upon adequate competition and that Laguna had failed to document the reasonableness of the subcontract award prices.
In 2005, Laguna requested progress payments from the government on behalf of the subcontractors for work performed under both task orders. On December 6, 2005, the DCAA Iraq Branch Office issued an audit report to the DCAA Salt Lake Valley Branch Office concluding that "the [Laguna] subcontract management system and related internal control policies and procedures are inadequate and cannot be relied upon in accordance with" the FAR. As part of this audit, the DCAA Iraq Branch Office examined 32 Laguna subcontracts totaling over $147 million. On February 9, 2006, the DCAA Salt Lake Valley Branch Office forwarded these findings to the administrative contracting officer ("ACO") in a separate audit report. This February 2006 audit report similarly concluded that Laguna's subcontract management system was inadequate, explaining that "a significant risk is present relative to the allocability, allowability, and reasonableness of subcontract costs billed to the U.S. Government." Despite the detailed findings in these two audit reports, the government inexplicably failed to issue a final decision on its $3.8 million claim against Laguna until December 2012.
Laguna appealed the final decision, contending that the government's claim was filed more than six years from the date the claim accrued and was therefore barred by the CDA. The Board agreed. The Board first explained that it was necessary to examine the legal basis of the claim in order to determine when the alleged liability was fixed for purposes of claim accrual. Noting that the legal predicate of the government's claim was Laguna's alleged failure to document the reasonableness of the subcontract award prices and whether there was adequate competition, the Board found that the government was "fully aware of" and even "documented its findings" regarding these issues in the December 2005 and February 2006 audit reports. The Board next found that "[t]he government was also aware of its 'injury' here, i.e., the subcontract prices awarded by appellant and paid by the government, as early as 2005." The Board further confirmed—citing the recent decision in Raytheon Missile Systems, ASBCA No. 58011, 13 BCA ¶ 35,241—that, for purposes of claim accrual, the "should have been known" test is a reasonableness approach based on the position that the events should have been known when they occurred unless the events were concealed or inherently unknowable at that time. The Board then determined that there was no evidence to suggest that Laguna's files for the two task orders were "concealed or inherently unknowable" during the DCAA's 2005 audit review of Laguna's subcontracting practices. For these reasons, the Board held that the government's claim accrued no later than February 9, 2006, when the audit report was issued to the ACO.
Although this decision joins the growing roster of statute of limitations cases decided in favor of the contractor, there is one aspect of the ruling which raises concerns. Specifically, the Board failed to explain why the government's claim did not accrue even earlier when the DCAA Iraq Branch Office issued its December 6, 2005 audit report. Indeed, this is curious given that the Board found that the government was: (1) "fully aware of" and even "documented its findings" regarding the events fixing liability in the December 2005 audit report; and (2) was aware of its injury "as early as 2005." The "should have known" test would seem to be implicated earlier than the February 2006 audit report date that the Board elected to use. Thus, because the Board instead held that the government's claim accrued when the February 2006 audit report was issued to the ACO, the government may continue to argue in future cases that the statute is triggered by actual knowledge on the part of the Government. As always, the individual circumstances of each such case will control.
1 Under the CDA, the government has six years from the date of accrual to assert a claim against a contractor. The Federal Acquisition Regulation ("FAR") provides that a government claim accrues when the government knew or should have known of all events that fix the contractor's alleged liability. The Courts and Boards are jurisdictionally barred from hearing disputes arising from claims that are asserted more than six years after the date of accrual.