June 3, 2015
The Armed Services Board of Contract Appeals (Board) recently issued a decision that could make it more difficult for contractors to defend against government cost claims under the Contract Disputes Act’s (CDA) six-year statute of limitations. Despite substantial precedent holding that a claim accrues when the government “knew or should have known” the basis of its claim, and that accrual is only delayed if the claim is “inherently unknowable” or concealed by the contractor, the Board’s recent decision in Kellogg Brown & Root Services, Inc., ASBCA No. 58175 (May 13, 2015) (KBR) suggests that contractors may be required to show the government was actually aware of the facts underlying its claim to trigger the CDA statute of limitations. This case is the latest in a line of Board decisions that make it substantially more difficult for contractors to rely on the statute of limitations when defeating government cost claims.
The case involved KBR’s performance of its Logistics Civil Augmentation Program (LOGCAP) contract with the Army, under which KBR agreed to perform, among other things, dining facility (DFAC) services in support of Operation Iraqi Freedom. At issue in the appeal was a March 22, 2012 final decision demanding that KBR pay the government approximately $11.5 million on the ground that KBR had billed the government for costs incurred under a subcontract with the Gulf Catering Company (GCC) for DFAC services without reducing headcount in accordance with a February 2004 letter of technical direction (LOTD).
KBR appealed the March 22, 2012, final decision and filed a motion to dismiss on statute of limitations grounds. KBR argued that DCAA had audited KBR’s subcontract pricing, as well as the subcontract invoices containing the costs at issue, as early as 2004 and 2005 and, therefore, knew or should have known of the basis of its claim more than six years prior to the March 22, 2012 final decision.
The Board denied KBR’s motion to dismiss, finding the government’s claims timely. Specifically, the Board held that the government’s claim did not accrue until, at the earliest, August 10, 2010, when the government approved a KBR invoice containing the GCC costs at issue. While KBR originally incurred, invoiced and was reimbursed the costs at issue in 2004 and 2005, KBR had credited these costs back to the government in 2008 in response to an internal review of subcontract costs. After KBR further investigated and concluded the costs were appropriate, KBR re-invoiced the government in 2010 and the government paid this invoice in August 2010. Thus, the Board concluded that the government’s claim, asserted on March 22, 2012, was timely.
Notably, the Board held that facts occurring in 2004 and 2005, including KBR’s submission of the costs at issue for reimbursement and DCAA’s audit of those costs, did not accrue the government’s claim because the government “did not know that KBR had failed to comply with the LOTD until at least March 2007” when DCAA received a consultant report specifically raising the issue of KBR’s compliance with the LOTD. Thus, the Board held that “the government should not be charged with knowledge prior to March 2007.”
The Board rejected KBR’s argument that the government’s March 22, 2012 claim accrued no later than September 29, 2005, the date DCAA issued a memorandum that found that KBR’s subcontract costs, specifically including the GCC costs at issue in the appeal, were based on improper headcounts. The Board concluded that this claim was “satisfied” by KBR when it credited the government in 2008, and that a “new government claim would not have begun to accrue until KBR revoked the credit when it submitted its own claim to the CO” in February 2010.
The KBR decision provides lessons regarding how contractors may assert the CDA statute of limitations as a defense to a claim in a dispositive motion and how the Board may decide motions involving the defense:
- This case confirms a trend at the Board to construe the accrual of a government claim narrowly, requiring evidence of clear and comprehensive disclosures of the facts underlying a claim prior to finding constructive knowledge of a claim.
- How the parties characterize a claim may affect the Board’s determination of claim accrual. In KBR, although the government issued one final decision, the Board analyzed three possible accrual dates for this claim, ranging from March 2007 up to August 2010.
- Prior to offering a credit to the government, contractors should carefully analyze whether it could potentially revitalize a government claim that otherwise would be barred by the statute of limitations.
- Consistent with the Federal Circuit’s decision in Sikorsky Aircraft Corp. v. United States, 773 F.3d 1315 (Fed. Cir. 2014), the Board no longer will treat CDA statute of limitations issues as jurisdictional, but instead will treat them as an affirmative defense. This may impact when and how contractors should assert the statute of limitations in litigation.
Stay tuned for future updates on the fast-changing state of CDA statute of limitations jurisprudence at the Board.