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September 29, 2022

COFC's Long-Awaited Decision on Boeing's Challenge to the Cost Accounting Standards Rule on Offsetting Impacts Dismisses Claims and Leaves Substantive Questions Unanswered


For years now, government contractors have awaited the Court of Federal Claims' (COFC) input on how to calculate cost impacts resulting from multiple cost accounting practice changes and specifically, whether increased and decreased impacts can be offset to calculate any resultant payment due the government. Unfortunately, in The Boeing Company v. United States, Civil No. 17-1969C, the COFC failed to reach the substantive questions presented and instead (again) dismissed Boeing's complaint in its entirety. We have been tracking the developments in this case, including a prior dismissal here and the Federal Circuit's revival of Boeing's challenge here, as industry hoped that the COFC would offer some clarity on this critical and controversial cost accounting standards rule. Alas, the latest decision from the COFC does not address the merits of the challenge that Boeing raised.

Boeing's complaint centers around Federal Acquisition Regulation (FAR) 30.606, which the FAR Council promulgated in April 2005. FAR 30.606(a)(3)(ii) provides that, when a contractor implements multiple changes at once, the government "[s]hall not combine the cost impacts" of those changes "unless all of the cost impacts are increased costs to the Government." In other words, if a contractor implements more than one cost accounting practice change and any one of those changes yields decreased costs to the government, the contractor is not permitted to offset the decreased costs against any increased costs when calculating the cost impact and resultant payment due the government. This FAR provision departs from prior practice, whereby contractors would offset negative impacts against any positive benefit to the government, which could result in a reduced or no contract adjustment. See The Boeing Company, ASBCA No. 57549, 13 BCA ¶ 35427.

Boeing challenged the validity of FAR 30.606 as applied by the government to calculate the impact of multiple changes that Boeing made to its cost accounting practices. Specifically, Boeing alleged that the government applied FAR 30.606 despite that it "violates the CAS statute and was illegally promulgated." On that basis, Boeing raised three counts styled as contract claims as well as a fourth count alleging that an illegal exaction occurred when the government applied FAR 30.606 to Boeing's contracts. Significantly, as it relates to the outcome of the case, Boeing sought monetary relief as to one representative contract as well as declaratory relief that would apply to "each of the relevant contracts between [plaintiff] and the United States."

As to the first three counts, the COFC concluded that they were not contract claims (and thus not properly before the COFC) because Boeing premised its breach allegations on the argument that FAR 30.606 is invalid. The COFC cited Boeing's complaint as support for its conclusion, explaining that "[a]lthough plaintiff couches its claims in terms of breach and money damages," the true relief sought was declaratory relief regarding the allegedly invalid regulation that the government applied resulting in the damages sought. Accordingly, the COFC concluded that Boeing must challenge the regulation in federal district court under the Administrative Procedure Act (APA). This decision seems somewhat inconsistent with the position that the COFC took in its first decision in this case that FAR 30.606 was effectively incorporated into the representative contract between Boeing and the government, which would suggest that it is a challengeable term. And the decision fails to resolve dueling positions between contractors and the government on how to determine cost impacts in the case of multiple cost accounting practice changes.

As to the illegal exaction count, the COFC was confronted with the Federal Circuit's earlier remand holding that the COFC's prior dismissal of this claim for lack of jurisdiction was improper. In that decision, the Federal Circuit confirmed that no money-mandating statute is required to support an illegal exaction claim and that the COFC has jurisdiction to hear Boeing's challenge. In its latest decision, the COFC nevertheless concluded that it "lacks the authority to consider plaintiff's illegal exaction claim because challenges to the application of the CAS statute must be made under the CDA." The COFC thus dismissed Boeing's illegal exaction claim too.

As we noted following the COFC's first dismissal of Boeing's claims, it remains to be seen whether Boeing will appeal this latest decision to the Federal Circuit or seek relief under the APA in federal district court—or both. Unfortunately, in the meantime, government contractors are left to navigate the far-reaching implications of FAR 30.606 on impacts resulting from cost accounting practice changes.

© 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.