Insights

On April 7, 2025, the Defense Contract Audit Agency (DCAA) announced agency reorganization plans aimed at reducing the number of field offices and centralizing audit operations. DCAA plans to close 40 smaller audit suboffices around the country, many staffed with fewer than 10 personnel, to reduce the costs of associated leases. The agency will also consolidate the existing Region Audit Directorates for the Eastern, Central and Western Regions and four Corporate Audit Directorates (CADs), located proximate to large contractors, into three new Directorates—Land, Sea, and Air. The audit offices of the CADs will be merged into the new Directorate that most closely aligns with a contractor’s product. DCAA’s announcement states that the organizational restructuring will be completed by September 30, 2025. The full text of the announcement is available here.

On January 17, 2025, the Department of Defense (DoD) issued a final rule replacing the term “significant deficiency” in the Defense Federal Acquisition Regulation Supplement (DFARS) with the term “material weakness” for use in reviews of contractor business systems.  Effective immediately, a material weakness is defined as “a deficiency or combination of deficiencies in the internal control over information in contractor business systems, such that there is a reasonable possibility that a material misstatement of such information will not be prevented, or detected and corrected, on a timely basis.  A reasonable possibility exists when the likelihood of an event occurring is probable or more than remote but less than likely.” 

In Bitmanagement Software GMBH v. United States, Case No. 23-1506 (Fed. Cir. Jan. 7, 2025), the U.S. Court of Appeals for the Federal Circuit (Federal Circuit) denied the appeal of Bitmanagement Software Gmbh (Bitmanagement) challenging the Court of Federal Claims’ (COFC) $154,400 damages award, and denying its demand for $85 million in damages resulting from the Navy’s infringement of Bitmanagement’s software copyright.  The Federal Circuit affirmed the COFC’s (1) use of a hypothetical negotiation approach to compute damages; and (2) decision to award damages using a “per use” rather than a “per copy” approach.

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 Department of Defense (DoD) recently announced that it seeks public comments on a proposed change to the contractor business systems regime.  The proposed rule would amend the Defense Federal Acquisition Regulation Supplement (DFARS) by replacing the phrase “significant deficiency” with the new defined term “material weakness,” to mean “a deficiency or combination of deficiencies in the internal control over information in contractor business systems, such that there is a reasonable possibility that a material misstatement of such information will not be prevented, or detected and corrected, on a timely basis.”  In addition, the term would provide that a “reasonable possibility exists when the likelihood of an event occurring is— (1) Probable; or (2) More than remote but less than likely.” 

The Cost Accounting Standards Board (CASB) recently announced that it seeks public comments on “whether and how” to amend the rules to clarify whether the CAS apply to indefinite value contract vehicles (or IDVs, otherwise known as indefinite-delivery / indefinite-quantity, or IDIQ, contracts).  Comments are due no later than August 19, 2024.  The full text of the notice is available here.  The CASB also published a paper discussing six possible approaches and the criteria it will use to evaluate those approaches, but welcomed the public to identify alternatives for the CASB to consider. 

On May 3, 2024, in Geospatial Technology Associates, LLC v. United States, COFC No. 16-346C, the U.S. Court of Federal Claims denied the government’s motion to dismiss for lack of jurisdiction and, alternatively, for summary judgment due to alleged inaccuracies in a copyright registration, holding that plaintiff Geospatial Technology Associates, LLC’s (“plaintiff” or “GTA”) patent and copyright infringement claims pursuant to 28 U.S.C. § 1498 raise issues that “must be addressed at trial.” This newest development follows GTA’s original March 2016 lawsuit against several government agencies—including the Department of the Army, the Department of the Air Force, and the National Geospatial-Intelligence Agency (“NGA”)—alleging patent and copyright infringement of the underlying software code of its product, “NINJA.pro.” 

In Strategic Technology Institute, Inc. v. Sec’y of Def., 91 F.4th 1140 (Fed. Cir. 2024), the Federal Circuit affirmed a decision by the Armed Services Board of Contract Appeals (ASBCA), which held that the government’s 2018 claim was not time-barred by the Contract Dispute Act’s (CDA) six-year statute of limitations.  The ASBCA found that the government’s claim did not begin to accrue until 2014, the date the government received the contractor’s indirect cost rate proposals for fiscal year (FY) 2008 and FY 2009. 

The Federal Circuit’s decision in University of South Florida Board of Trustees v. United States, 22-2248 (Fed. Cir. Feb. 9, 2024) hints at the broad scope of the federal government’s license rights under the Bayh-Dole Act. 

In Vanda Pharmaceuticals, Inc. v. United States, No. 23-629C (Fed. Cl. 2024), 2024 WL 201890, the Court of Federal Claims (COFC) addressed whether government disclosure of a company’s trade secrets and commercial information could create a viable claim for a taking under the Fifth Amendment or for breach of an implied-in-fact contract.  The company, Vanda Pharmaceuticals (Vanda), claimed that the government’s disclosure of its confidential trade secrets—including its trademarked drugs’ dissolution rates—to competitors seeking U.S. Food and Drug Administration (FDA) approval of generic drug alternatives was an unlawful regulatory taking that diminished the value of Vanda’s brand name drugs and infringed upon Vanda’s right to exclude generics from the market.  The government moved to dismiss Vanda’s claims for lack of subject matter jurisdiction and for failure to state a claim.  The COFC denied the government’s motion in part, holding as a matter of first impression that Vanda adequately stated a takings claim based on the government’s disclosures but failed to state a claim for breach of an implied-in-fact contract.  The COFC also held that Vanda’s claims involving one generic drug manufacturer were outside the Tucker Act’s six-year statute of limitations and were time barred. 

In Aviation Training Consulting, LLC, ASBCA No. 63634 (Jan. 11, 2024), the Armed Services Board of Contract Appeals (ASBCA) confirmed that a contractor’s properly asserted claim for relief under Section 3610 of the Coronavirus Aid, Relief, and Economic Security (CARES) Act is a claim under the Contract Disputes Act (CDA) and denied the Air Force’s motion to dismiss for lack of jurisdiction.

In JE Dunn Construction Company, ASBCA No. 63183, the Armed Services Board of Contract Appeals (“ASBCA”) issued its first published decision applying the Federal Circuit’s recent holding that the FAR sum-certain requirement for Contract Disputes Act claims is not jurisdictional. The Board held that, because the government did not raise the issue until after a hearing on the merits, the government forfeited its right to challenge the contractor’s satisfaction of the sum-certain requirement.

The Department of Defense recently issued a long-awaited final rule prohibiting DoD prime contractors from “flowing down” FAR and DFARS clauses in subcontracts for commercial products or services, unless flowdown is specified by regulation. This rule implements language, dating from the 2017 National Defense Authorization Act, intended to reduce administrative burdens on DoD contractors and subcontractors by adding a prohibition on extraneous flowdowns at DFARS 252.244-7000 Subcontracts for Commercial Products or Commercial Services.

In ECC Int’l Constructors Inc. v. Army, No. 2021-2323 (Fed. Cir. Aug. 22, 2023), the Court of Appeals for the Federal Circuit overturned longstanding precedent by holding that the requirement to state a “sum certain” in a claim submitted under the Contract Disputes Act (CDA) is not a jurisdictional requirement.  The Court based its decision on recent Supreme Court guidance to “treat a procedural requirement as jurisdictional only if Congress ‘clearly states’ that it is.”  The Court parsed the CDA and found that Congress never used the words “sum certain,” evidencing that Congress did not intend the requirement to be jurisdictional.  This is important because jurisdictional requirements can be raised at any time—even years after the claim was filed and a full hearing on the merits was held—and result in dismissal of the case.  The Court explained that the “sum certain” is “nonetheless a mandatory rule that claimants must follow.” 

In Voxtel, Inc., ASBCA No. 60129 (March 9, 2023), the Armed Services Board of Contract Appeals (ASBCA) issued a decision that presents a primer on the resolution of indirect cost rate disputes.  The ASBCA granted the contractor’s appeal in part, finding that its claimed executive compensation and independent research and development (IR&D) costs were allowable, but that certain rental costs related to the “fit-up” of a leased facility were unallowable.

In Triple Canopy, Inc., ASBCA Nos. 61415, et al. (March 23, 2023), the Armed Services Board of Contract Appeals (ASBCA) resolved a long-running dispute in favor of the contractor over reimbursement of fees imposed by the Afghan government on large security firms operating in the country. The ASBCA found the fees were akin to after-imposed taxes, reimbursable by the U.S. government, and not penalties for illegal conduct. 

On March 22, 2023, the Department of Defense (DoD) issued a final rule amending the Defense Federal Acquisition Regulation Supplement (DFARS) to allow a procuring contracting officer (PCO) to delegate the authority to the contract administration office (CAO) to negotiate and settle direct costs questioned in an indirect cost rate proposal audit.  After the delegation, the PCO must provide the CAO access to all supporting documentation related to questioned direct costs within 30 days.  After settling the questioned direct costs, the CAO shares the settlement results with the procuring contracting office, which then makes any necessary adjustments to affected contracts.  The delegation authority does not apply to classified contracts.

In General Atomics Aeronautical Systems, Inc., ASBCA Nos. 61633, 61731 (Feb. 8, 2023), released March 14, 2023, the Armed Services Board of Contract Appeals (ASBCA) considered, but declined to answer, the existential question of whether intracompany lease payments are “costs.”  The ASBCA denied the Government’s motion for summary judgment, finding that material facts about the contractor’s intracompany lease payments remained in dispute.  Further, the ASBCA held that because the Government failed to respond to the contractor’s affirmative defense that the Government’s claim was barred by the statute of limitations, the Government was not entitled to summary judgment.

On December 19, 2022, DoD issued a DFARS proposed rule that seeks to (1) implement the data-rights portions of the May 2, 2019 Small Business Innovation Research Program and Small Business Technology Transfer Program Policy Directive (SBIR/STTR Policy Directive), and (2) impose significant changes to technical data and computer software marking requirements.  The SBIR/STTR portion of the proposed rule follows DoD’s advance notice of proposed rulemaking issued on August 31, 2020 (see 85 FR 53758) and incorporates the eight written public comments that DoD received. The proposed changes to marking requirements go beyond the SBIR/STTR Policy Directive and respond to the Federal Circuit’s decision in The Boeing Co. v. Secretary of the Air Force, 983 F.3d 1321 (Fed. Cir. 2020).

The Boeing Company (Boeing) and the U.S. Air Force have settled their long-standing data rights marking dispute two years after the U.S. Court of Appeals for the Federal Circuit held that contractors may include restrictive markings on unlimited rights technical data as long as those markings do not restrict the Government’s rights.  A copy of the settlement agreement is attached to the Armed Services Board of Contract Appeals’ order of dismissal.