ASBCA Holds that Government is Entitled to Daily Compound Interest for a CAS Noncompliance

In Raytheon Company, ASBCA No. 54907 (Aug. 22, 2007), the Armed Services
Board of Contract Appeals (ASBCA) held that a contractor is obligated, under the
Cost Accounting Standards (CAS) statute and implementing regulations, to pay
the Government interest compounded daily, rather than simple interest, for contract
price adjustments due to noncompliance with the CAS. Whereas the long-held
practice was for contractors to pay simple interest on a CAS noncompliance,
much like the accumulation of interest in other aspects of Government Contracting,
such as claims under the Contract Disputes Act or interest on price adjustments
for violation of the Truth In Negotiations Act, of late, the Government has been
asserting entitlement to compound interest for CAS noncompliances. This decision
will have significant economic consequences for contractors, especially for those
with legitimate disputes over the vagaries of the CAS, during which time potential
interest payments will mount rapidly.