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February 14, 2022

ASBCA Rejects Statute of Limitations Defense on Incurred Cost Proposal


The Armed Services Board of Contract Appeals (ASBCA) recently reminded contractors of the importance of documenting submissions to the government and retaining that documentation. In Strategic Technology Institute, ASBCA No. 61911 (January 5, 2022), the government asserted a claim disallowing costs in an incurred cost proposal (ICP) more than six years after the alleged submission. The contractor was unable to prove it timely submitted its ICP and therefore lost the benefit of its statute of limitations defense.

Strategic Technology Institute (STi) received its first cost reimbursement contract, with the Navy, in 2008. STi retained an outside accountant to prepare its FY 2008 and 2009 ICPs. After receiving the final ICPs, STi’s Director of Operations directed an STi employee to load the documents onto CDs for submission to the government. STi alleged this submission occurred, by either the Director or the employee, via UPS or FedEx, but retained no documentation of it occurring. Neither the Director nor the employee still worked at the company at the time of the appeal.

The Defense Contract Management Agency (DCMA) consistently maintained systems for logging incoming submissions. DCMA presented evidence of these systems and that there was no record of ever receiving STi’s FY 2008 or 2009 ICPs. It was not until the Defense Contract Audit Agency (DCAA) audited STi’s FY 2011 and 2012 ICPs in 2014 that DCAA noticed mention of prior year ICPs, but had no record of those prior ICPs. DCAA requested STi provide the 2008 and 2009 ICPs and conducted a multi-year audit. DCAA finalized its audit in 2015, and DCMA issued a final decision unilaterally establishing rates and demanding more than $1.1 million for unallowable costs and penalties on the FY 2008 and 2009 ICPs on November 30, 2018.

STi asserted the statute of limitations barred the government’s claim, as the November 2018 final decision was more than six years after STi supposedly submitted the 2008 and 2009 ICPs (in summer 2009 and 2010 respectively). Citing precedent, the Board explained that when a claim accrues is a fact-specific inquiry, the key to which is “whether the government had sufficient information to know of the claim, but the claim accrual is not suspended to allow the government time to perform an audit.”

The Board found STi failed to establish that it submitted its 2008 and 2009 ICPs prior to 2014. The Board explained that “[a]t best, STi presented testimony that [its officers] thought that the ICPs had been submitted,” but found this supposition insufficient in the absence of “a shipping receipt, waybill, or other evidence that the ICPs were sent to the DCAA auditor.”

By contrast, the Board held that the government established that it did not receive the ICPs until July 11, 2014 by proving that it “maintained incoming mail logs and electronic records systems and found no evidence of receipt of STi’s 2008 and 2009 ICPs.” The Board found that the government had no duty to determine whether STi had submitted its ICP in 2009-2010, explaining that such an argument “attempts to shift [the contractor’s] responsibility to submit an ICP to the government.” The Board was not “on notice” of its claim merely because it should have realized it never received the 2008 and 2009 ICPs. The ASBCA denied the appeal and found that all of the questioned costs were unallowable given government proof and that STi did not challenge any elements of the claim.

Key Takeaways:

  • Contractors need to be wary of the burden to prove submission/receipt of an ICP to start the clock on the statute of limitations. This is especially critical for contractors who are not subject to annual audits, or who may be subject to multi-year audits. And, even in those instances when the government conducts an audit, implicitly demonstrating receipt, the exact date may be important to calculating six years.
  • The ASBCA re-affirmed that a claim unilaterally setting indirect rates cannot accrue before submission of and ICP. (Citing Tech. Sys., Inc., ASBCA No. 59577, 17-1 BCA ¶ 36,361.)
  • The ASBCA re-affirmed that the government’s delay in performing and audit or otherwise appreciating the significance of information a contractor provided, does not suspend claim accrual. (Citing Doubleshot, Inc., ASBCA No. 61691, 20-1 BCA ¶ 37,667 and Raytheon Missile Sys., ASBCA No. 58011, 13 BCA ¶ 35,241.)

© Arnold & Porter Kaye Scholer LLP 2022 All Rights Reserved. This Advisory is intended to be a general summary of the law and does not constitute legal advice. You should consult with counsel to determine applicable legal requirements in a specific fact situation.