By Peter Hutt II and Peter Terenzio
The Federal Circuit’s decision in The Boeing Company v. United States clears the way for resolution of Boeing’s substantive challenge to a controversial Federal Acquisition Regulation provision that can give the government windfall recoveries in Cost Accounting Standards (CAS) matters. The case is notable for several reasons.
First, the court clarified the circumstances in which a contractor will be found to have waived its rights to object to a FAR provision.
Second, the court provided a useful primer on the three different kinds of jurisdiction available under the Tucker Act.
Finally, the Federal Circuit’s remand means the Court of Federal Claims will now address Boeing’s substantive challenge to FAR 30.606, which directs contracting officers to ignore offsets that save the government money when calculating the impact of changes to a contractor’s cost accounting practices.
FAR 30.606 provides that that a contracting officer “shall not combine the cost impacts” of multiple unilateral changes to a cost accounting system “unless all of the cost impacts are increased costs to [the] Government.” This is in contrast to the government’s previous practice, which was to offset any increase in costs with any savings.
In 2011, Boeing made multiple, simultaneous changes to its cost accounting practices. The “unilateral” changes increased the government’s costs by $940,007, but other changes decreased the government’s costs by an additional $2.3 million. Because the changes resulted in a net savings to the government, Boeing’s position was that it did not owe the government any money. The contracting officer, however, followed FAR 30.606, and required Boeing to pay $940,007 plus interest.
The company began paying this sum, and then filed suit in the Court of Federal Claims to get the money back. The contractor’s core argument was that regulation was unlawful because it violated the Cost Accounting Standards statute, which in relevant part provides that the “Federal Government may not recover costs greater than the aggregate increased cost to the government.”
The company argued that the government’s decision to follow FAR 30.606 was a breach of the contractual provision that requires the parties to follow CAS, and the government’s requiring Boeing to pay $940,007 plus interest amounted to an illegal exaction.
The Court of Federal Claims, however, held that Boeing waived its arguments by failing to challenge FAR 30.606 prior to contract award. The court also held that it lacked jurisdiction over the exaction claim because the CAS statute is not “money-mandating.”
The Federal Circuit reversed both Court of Federal Claims holdings on appeal. The circuit court explained that the contractor could not have received relief prior to award through negotiations because FAR 30.606 is a mandatory provision that could not have been bargained away by the parties. Moreover, a pre-award bid protest or other judicial proceeding would have been futile, for a variety of reasons: Boeing could not have filed a pre-award bid protest, because such protests cannot challenge matters of contract administration such as FAR 30.606; the contractor could not have filed an Administrative Procedures Act challenge because the CAS statute provides that that law’s judicial review procedures do not apply to the standard; and any claim would not have been ripe for review prior to contract award in 2008 because the company did not make the disputed cost accounting changes until 2011.
In short, the Federal Circuit held that Boeing had not waived its challenge to the legality of FAR 30.606, and made clear that contractors will not need to file pre-award protests in order to challenge the legality of FAR provisions that might potentially affect them in the future.
The Federal Circuit also explained that there are three types of Tucker Act claims over which the Court of Federal Claims has jurisdiction: contractual, illegal exaction, and those made pursuant to “money-mandating” statutes.
A previous Federal Circuit decision, Norman v. United States, stated that “[t]o invoke Tucker Act jurisdiction over an illegal exaction claim, a claimant must demonstrate that the statute or provision causing the exaction itself provides, either expressly or by necessary implication, that the remedy for its violation entails a return of money unlawfully exacted.”
In the Boeing case, however, the Federal Circuit clarified that the Court of Federal Claims has jurisdiction so long as: the plaintiff paid money to the government; and the plaintiff makes a non-frivolous allegation that the government, in obtaining the money, violated the Constitution, a statute, or a regulation. These types of claims for return of exacted funds are different from claims that seek damages as a result of a government action, which require the existence of either a contract or a money-mandating statute. Thus, the Federal Circuit made clear that jurisdiction over Boeing’s exaction claim did not depend on whether the CAS statute was “money-mandating.”
It is notable that the Federal Circuit was careful to disclaim any opinion as to the merits of Boeing’s challenge to FAR 30.606. We now eagerly await the decision of the Court of Federal Claims on the contractor’s illegal exaction claim on remand.
About the Author
Peter Hutt II is a partner Covington & Burling LLP and represents clients in False Claims Act and fraud litigation. He has testified before Congress concerning proposed amendments to the False Claims Act. He has litigated more than 20 qui tam matters brought under the False Claims Act, including matters alleging Iraqi procurement fraud, cost misallocation, quality assurance deficiencies, substandard products, defective pricing, health care fraud, and false certifications. He has conducted numerous internal investigations and frequently advises clients on whether to make disclosures of potential wrongdoing.
Peter Terenzio an associate at Covington & Burling LLP. Mr. Terenzio advises contractors across a broad range of different issues. His practice includes bid protests, contract claims and disputes, regulatory counseling, and internal investigations.
Source: National Defence