Arnold & Porter Wins Precedent-Setting Statute of Limitations Case under the Contract Disputes Act for Raytheon Company

Washington, DC, April 3, 2012 -- On April 2, 2012, the Court of Federal Claims held that the statute of limitations in the Contract Disputes Act barred a government claim against Raytheon Company for $25M. Raytheon Company v. United States, No. 09-306C (Fed. Cl., April 2, 2012).   The decision is precedent-setting for several reasons: 1) there is a paucity of case law under the Contract Disputes Act's statute of limitations; 2) the Court applied the limitation against the government; and 3) the case addresses accrual suspension, equitable tolling and the continuing claims doctrines.

The matter involves the allowability of Voluntary Compliance Resolution (VCR) costs arising from a pension plan that was part of Raytheon's acquisition of Hughes Aircraft Company.  In 1999, Raytheon presented a full description of the VCR costs to the government, along with the amounts, and asserted that the costs were allowable, allocable and reasonable for recovery under government contracts.  Raytheon and the government entered into an Advance Agreement in 1999, whereby the government permitted Raytheon to charge the costs to government contracts over time subject to an assessment review of allowability.  The Defense Contract Audit Agency (DCAA) issued an audit report in 2003 finding all of the $105M of VCR costs allowable.  In 2004, the contracting officer concluded that about $5M of the costs were unallowable.  The parties finalized their agreement in 2004 and Raytheon made an adjustment for the amounts that the contracting officer found unallowable.

A few years later, the Department of Defense Inspector General criticized the DCAA audit.  The DCAA issued another audit in 2008, addressing the exact same costs and the exact same information.  In the 2008 audit, which purported to  replace the 2003 audit,  the DCAA concluded  that $25M of the VCR costs charged to government contracts were unallowable.  A contracting officer issued a final decision based on this audit, finding the $25M unallowable.  Raytheon appealed from that decision.

The Court held that the claim had accrued in 1999, when the parties entered into the Advance Agreement and the government knew or should have known whether there was potential liability for unallowable costs.  The Court further held that the government had not framed its argument in terms of the accrual suspension doctrine, but, in any event, had not shown that the potential liability was inherently unknowable.  In addition, the Court held that the government had not met the exacting standard for the application of equitable tolling -- proving misconduct. 

Moreover, the Court rejected the government's argument that each annual submission of a certified claim for indirect costs, including the VCR costs, constituted a separate claim, holding that Raytheon was claiming the costs based on the 1999 Advance Agreement, a single event.  The Court also rejected the government's argument that the Advance Agreement postponed accrual of a claim until the first DCAA audit, because the Federal Acquisition Regulation (FAR) expressly prohibits parties from extending the statute of limitations. (Though parties can agree to shorten the limitations period.)  And, the Court rejected the government's attempt to recharacterize the contracting officer's final decision as including a separate claim under the FAR credits clause.

Paul E. Pompeo was the lead partner on this matter.  The team also included partner Ronald A. Schechter, and associates C. Scott Morrow, Dominique L. Casimir and Bassel C. Korkor.

Arnold & Porter LLP is an international law firm of more than 800 lawyers with offices in Brussels, Denver, London, Los Angeles, New York, Northern Virginia, San Francisco, Silicon Valley, and Washington, DC. The firm, founded in 1946, maintains more than 25 practice areas spanning a broad spectrum of the law, with a primary focus on litigation, transactional matters, and regulatory issues.