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ASBCA Bars Government's $17M Claim Against Arnold & Porter Client Raytheon Based on Statute of Limitations

February 26, 2013

Washington, D.C., February 26, 2013 -- The Armed Services Board of Contract Appeals (ASBCA) today issued its final decision in Raytheon Missile Systems, ASBCA No. 58011, whereby it barred the government's US$17 million claim against Arnold & Porter LLP's client by finding that the claim was invalid as outside the Contract Disputes Act's (CDA) six-year statute of limitations.

It is the latest in a long line of decisions before ASBCA and the Court of Federal Claims in which contractors have successfully invoked the CDA limitations period against such older government claims, and the third handled by Arnold & Porter partner Paul Pompeo.

The most recent decision is particularly noteworthy because it clarifies that the government bears the burden of proving the timeliness of its own claims. The decision is also useful for contractors because the Board squarely rejected the government's principal arguments when faced with such challenges. The Board in Raytheon Missile Systems (RMS) also expressly held that: (1) accrual of a government's claim is not suspended pending a Defense Contract Audit Agency (DCAA) audit or other financial analysis of the underlying facts (citing a prior Raytheon decision at the Court of Federal Claims); (2) accrual of a government's claim does not depend only on when the contracting officer knows or should know of the facts giving rise to the claim; (3) the basis for a government claim is not inherently unknowable when a contractor provides the government with the relevant information, but the government simply delays in assessing that information; and (4) short of misconduct rising to the level of trickery, communications between a contractor and the government about a claim's merits and magnitude (or lack thereof) do not toll the statute of limitations. The RMS decision also reaffirms that the CDA statute of limitations is an objective jurisdictional requirement.

In 2011, the government had formally alleged that, eleven years earlier, RMS had failed to follow one of its disclosed cost accounting practices in preparing a price proposal submitted to the Naval Air Systems Command for remanufactured Tomahawk missiles. Shortly after docketing its appeal, RMS moved to dismiss the claim for lack of jurisdiction based on the government's failure to assert the claim within six years of accrual. On January 28, 2013, ASBCA agreed and today affirmed that decision.

The Government Accountability Office (GAO) reported in December 2012 that the DCAA backlog of incurred cost audits was approximately 25,000 as of the end of fiscal year 2011, representing hundreds of billions of dollars in unsettled contractor costs, some of which date back to 1996. (See GAO Report No. GAO-13-131 at 2.) As a result, agencies are increasingly bringing claims against contractors based on DCAA audits of long-completed contracts and stale facts. In this context, the statute of limitations is proving to be a key contractor defense, and it is critical that in-house counsel familiarize themselves with the elements of the CDA's statute of limitations in order to assess the likelihoods of success of a late government claim in an environment of shrinking budgets where the government is grasping for recoveries in all areas.

The firm's legal team in RMS includes partner Paul Pompeo and associates Dominique Casimir and Steffen Jacobsen. The firm's client advisory on this new development can be found by clicking here.

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