United States: COFC Decision On Offsetting Impact Of Cost Accounting Practice Changes Paves The Way For Pre-Award Protests

Last Updated: June 14 2019
Article by Paul E. Pompeo and Sonia Tabriz

The Boeing Company v. United States, Civil No. 17-1969C (May 29, 2019) reveals the Court of Federal Claims' (COFC) interpretation of the Cost Accounting Standards (CAS) statute as primarily benefiting the government, and directs contractors challenging the Federal Acquisition Regulation (FAR) 30.606(a)(3)(ii) prohibition on offsetting the impact of simultaneous cost accounting practice changes to raise those challenges in a pre-award protest or risk waiver. Importantly, the court's decision could have broad implications, requiring contractors to protest the applicability and interpretation of any extra-contractual FAR provisions—not just those involving the CAS statute—that expound upon a FAR Part 52 contract clause.

Adopting a novel theory rooted in the US Constitution, The Boeing Company (Boeing) filed an action under the Contract Disputes Act (CDA) alleging that the FAR 30.606 offset prohibition is an "illegal exaction" in violation of the CAS statute, which specifically prohibits windfalls to the government resulting from changes to a contractor's cost accounting practices. Boeing also claimed that FAR 30.606 was "extra-contractual" and therefore, should not preclude Boeing from offsetting changes that increase costs to the government from those that decrease costs. The COFC dismissed Boeing's constitutional claim for lack of subject matter jurisdiction and concluded that Boeing had effectively waived its contract claims upon failing to raise them in a pre-award protest or during negotiations with the government.

The History of FAR 30.606

The long-accepted practice for determining the cost impact of multiple changes in cost accounting practices was to offset negative impacts against any positive benefit to the government. Thus, offsetting cost impacts could result in a reduced or no contract adjustment. Effective April 8, 2005, the FAR Council promulgated FAR 30.606 to address cost impacts under the CAS. 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.

The Armed Services Board of Contract Appeals (ASBCA) waded into the subject of offsetting both before and after the FAR 30.606 offset prohibition took effect. In The Boeing Company, ASBCA No. 57549, 13 BCA ¶ 35427, the ASBCA confirmed that contractors could offset decreased costs to the government against increased costs for other, simultaneous cost accounting practice changes for contracts entered into before the 2005 amendment. The ASBCA concluded that the regulations were previously silent on the subject, and that the practice was to offset. As to those contracts entered into after FAR 30.606(a)(3)(ii) took effect, the ASBCA upheld the validity of the offsetting prohibition. In Raytheon Company, Space & Airborne Systems, ASBCA No. 5781, 15-1 BCA ¶ 36024, the contractor argued, among other things, that FAR 30.606(a)(3)(ii) is invalid because it infringes on the CAS Board's exclusive authority to prescribe and interpret cost accounting standards. The ASBCA rejected this argument, characterizing the offsetting prohibition as "more in the nature of contract administration or a policy determination than an accounting issue." Ultimately, the ASBCA resolved all of the issues affecting contracts entered into after April 8, 2005 on other grounds; thus, under the law of the Federal Circuit, that portion of the Raytheon decision on the validity of FAR 30.606(a)(3)(i) would be non-precedential dicta. See, e.g., Nat'l Am. Ins. Co. v. US, 498 F.3d 1301, 1305 (Fed. Cir. 2007)

Boeing's Most Recent Challenge

Taking note of the ASBCA's position on FAR 30.606(a)(3)(ii), Boeing launched an innovative, constitutional challenge before the COFC, alongside numerous contract claims, contesting its inability to offset simultaneous cost accounting practice changes as memorialized in a contracting officer's final decision on a government claim and the government's rejection of Boeing's claim.

The CAS Statute Benefits the Government, Not Contractors

Boeing first alleged that the government's application of FAR 30.606 constituted an illegal exaction in violation of the US Constitution—specifically, the Due Process Clause of the Fifth Amendment, which prohibits the deprivation of property without due process of law. An illegal exaction arises when money is "improperly paid, exacted or taken from the claimant in contravention of the Constitution, a statute, or a regulation." Norman v. United States, 429 F.3d 1081, 1095 (Fed. Cir. 2005). According to Boeing, FAR 30.606(a)(ii)(3) violates the CAS statute, codified in relevant part at 41 U.S.C. § 1503(b), which provides that when a contractor changes its cost accounting practices, "[t]he Federal Government may not recover costs greater than the aggregate increased cost to the Federal Government."

The government successfully moved to dismiss Boeing's constitutional claim on jurisdictional grounds. According to the COFC, there is no rule barring illegal exaction claims accompanying contract claims under the CDA. Nevertheless, the COFC concluded that it had no subject matter jurisdiction over the illegal exaction claim because Boeing failed to establish that its claim was based upon a "money-mandating statute," as Federal Circuit precedent required. The court rejected Boeing's characterization of the CAS statute as mandating the return of windfalls reaped by the government and concluded that there is "no right to bring a claim for monetary damages expressly contained in the statute."

To the contrary, the COFC held that the CAS statute "primarily protects the government," and not contractors. Thus, while a contractor is permitted to challenge the government's compliance with the CAS statute, it cannot assert an illegal exaction in connection with the CAS statute under the US Constitution.

Are Protests the New Frontier for FAR 30.606 Challenges and Beyond?

Boeing's numerous contract claims were also unsuccessful. According to Boeing, FAR 30.606 was "extra-contractual" because it was not incorporated into its contract either in full text or by reference. Thus, Boeing argued that it should not be bound by the offset prohibition. In response, the government raised the affirmative defense of waiver and argued that Boeing cannot challenge the legality of FAR 30.606(a)(3)(ii) years after entering into and performing under the subject contract. The COFC denied Boeing's claims on this basis.

The COFC stated that Boeing is no stranger to FAR 30.606, having launched numerous challenges to the offset prohibition in the past. The court cited these challenges, as well as Boeing's innumerable contracts subject to FAR 30.606(a)(3)(ii), as evidencing Boeing's actual and constructive knowledge of the provision's applicability. Boeing responded that the contract was at best ambiguous, because it included a reference to the CAS statute, which Boeing reads as contrary to FAR 30.606. The COFC was unpersuaded, characterizing any such ambiguity as patent—i.e., a facial inconsistency requiring Boeing to pursue a "pre-award protest or negotiation with the government, before its contracts were awarded." Having not done so, the court held that Boeing's later contract claims were foreclosed as a matter of law.

This holding is significant, and suggests that protests may be the appropriate mechanism for adjudicating conflicts between the CAS statute and the FAR 30.606(a)(3)(ii) prohibition on offsetting the impact of simultaneous cost accounting practice changes. The COFC was disinclined to permit a sophisticated contractor like Boeing to "change the pricing framework for its contract, years after the competition for that contract ended." As a consequence, all contractors now run the risk of waiving the right to challenge applicability of FAR 30.606 if such challenges are not first raised before contract award.

Additionally, the COFC decision presents the potential for a disturbing, broader application. As discussed above, the court cited Boeing's awareness of FAR 30.606, along with fifty-year-old case law presuming that contractors have constructive knowledge of procurement regulations, as a basis for its holding that Boeing was bound to challenge the FAR 30.606(a)(3)(ii) offset prohibition in a protest or during negotiations before award. That holding could apply with equal force to any provision in the FAR that purports to interpret or implement a FAR Part 52 contract clause. Thus, what might ordinarily have been the subject of a dispute under the CDA, may now be waived absent the filing of a pre-award protest.

It remains to be seen whether Boeing will appeal this decision to the Federal Circuit for further consideration of these potentially far-reaching implications.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

In association with
Related Topics
Related Articles
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Mondaq Free Registration
Gain access to Mondaq global archive of over 375,000 articles covering 200 countries with a personalised News Alert and automatic login on this device.
Mondaq News Alert (some suggested topics and region)
Select Topics
Registration (please scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions