Third Time’s A Charm? Federal Circuit Once Again Sends CAS Dispute Back to the Court of Federal Claims

The U.S. Court of Appeals for the Federal Circuit has confirmed that the Court of Federal Claims (COFC) has jurisdiction to decide whether contractors may offset cost impacts from multiple, simultaneous cost accounting changes when some changes increase costs to the Government, and other changes decrease costs to the Government.

The dispute dates back to 2011, when The Boeing Company made eight simultaneous changes to its cost accounting practices.  The Government, in accordance with the Contract Disputes Act (CDA) and the Administration of Cost Accounting Standards (CAS) clause at FAR 52.230-6, asserted a claim against Boeing for the increased costs allocable to Boeing’s CAS-covered Government contracts that resulted from the changes.  But Boeing argued that, because those increased cost impacts were offset by other cost accounting changes that decreased costs allocable to CAS-covered contracts, the Government’s claim was invalid.  Boeing pointed to the CAS statute, which states that, when the Government is entitled to a contract price adjustment resulting from cost accounting changes, “[t]he Federal Government may not recover costs greater than the aggregate increased cost to the Federal Government.”  41 U.S.C. 1503(b).  The statute is consistent with FAR 52.230-6, which states that the contractor will repay the Government only when there is “aggregate increased cost paid to the Contractor.”  FAR 52.230-6(k)(2).

The Government, however, relied on a separate provision of the FAR, which instructs contracting officers that they shall not “combine the cost impacts of . . . . [o]ne or more unilateral changes” “unless all of the cost impacts are increased costs to the government” (FAR 30.606), and the Government disregarded the changes that decreased costs to the Government in the aggregate.

Boeing appealed the Government’s claim to the COFC, asserting breaches of contract and illegal exaction.  In 2019, the COFC dismissed the case, holding that Boeing waived its breach of contract claim by failing to object to FAR 30.606 before entering into the relevant contracts and that it lacked jurisdiction to consider Boeing’s illegal exaction claim.  The Federal Circuit reversed and remanded in 2020, which we reported on here.  The COFC then dismissed the case in 2022, holding that it lacked jurisdiction over Boeing’s contract claims because “the gravamen” of the claims was “a challenge to the validity” of the regulation—a challenge that is subject to jurisdiction under the Administrative Procedures Act and not the CDA or the Tucker Act.  The COFC likewise held that it lacked jurisdiction over Boeing’s illegal exaction claim for the seemingly inconsistent reason that the claim must be made under the CDA instead of as an illegal exaction. 

The COFC’s dismissal confounded industry and practitioners alike, because it has been long understood that disputes over the cost impacts of cost accounting practice changes are subject to the CDA and appealable to the COFC or the relevant Board of Contract Appeals—and contractors have resolved such disputes under the CDA.  Indeed, the CAS clause at FAR 52.230-2(b) makes this express: “If the parties fail to agree whether the Contractor or a subcontractor has complied with an applicable CAS in 48 CFR part 9904 or a CAS rule or regulation in 48 CFR part 9903 and as to any cost adjustment demanded by the United States, such failure to agree will constitute a dispute under 41 U.S.C. chapter 71, Contract Disputes.”  Moreover, the dismissal seemed to lose sight of the fact that, although Boeing is the plaintiff, the dispute actually involves a Government claim against Boeing, and it is only by virtue of the unique procedures of the CDA that Boeing filed the complaint in this case.

The Federal Circuit again reversed the COFC’s dismissal and remanded the case to the COFC.  The Federal Circuit considered the “true nature” of the action and held that, although Boeing’s arguments implicate the validity of FAR 30.606, it is “undoubtedly a contract dispute.”  The Federal Circuit noted that the dispute entails whether the Government is entitled to reimbursement under Boeing’s CAS-covered contracts, and resolution of that dispute is “inextricably intertwined” with the validity of FAR 30.606.  Therefore, the COFC “has jurisdiction under the CDA to resolve this contract dispute and the validity of the underlying regulation.”

The COFC will now have the opportunity, for the third time, to determine whether the CAS statute, which expressly prohibits the Government from recovering “costs greater than the aggregate increased cost to the Federal Government” means what it says: that simultaneous changes must be aggregated in order to determine the amount owed to the Government for those changes, if any.  Otherwise, the Government would obtain a windfall from contractors.