"Time is a circus, always packing up and moving away."1 But luckily for us, the fleeting 12 months of 2022 occasioned enduring legal developments in the Contract Disputes Act (CDA) litigation arena, from its "three rings" (the U.S. Court of Appeals for the Federal Circuit, the U.S. Court of Federal Claims, and the boards of contract appeals). This BRIEFING PAPER asks you to "step right up" and join us as we present notable claims cases from 2022, taking some artistic license from the Greatest Show on Earth.
Must Have Ticket To Enter: The Importance Of Recordkeeping For Recovery
Two cases in 2022 highlighted the dangers of contractors maintaining insufficient recordkeeping systems. The first cautioned that even approved purchasing systems do not by operation of law support the reasonableness of incurred costs, and the second made clear that while the Federal Acquisition Regulation (FAR) does not define a "standard record keeping system," more is required than a simple ad hoc practice of maintaining certain records in order to carry a burden of proof.
Mission Support Alliance, LLC v. Department of Energy2 involved a contractor claim for payment of subcontractor costs under a cost type contract. There was no dispute that the contractor, MSA, actually paid the claimed amount to its subcontractors, but the Civilian Board of Contract Appeals (CBCA) found that MSA did not meet its burden to prove that the incurred amounts were reasonable, a burden which the CBCA characterized as "inherently factual."3 The contractor moved for reconsideration, arguing that record evidence proved that it had an approved purchasing system "which had been reviewed and approved by DOE [the respondent, Department of Energy,] and its auditor . . . , for reviewing and approving subcontractor work and costs."4 The board denied the motion, explaining that it "did not consider MSA's arguments that it followed its own procedures to be material."5 Rather, "[p]roof of reasonableness should entail some 'independent evidence of the reasonableness' of the dollars spent-not merely evidence of the contractor's own behavior."6 The board clarified that MSA's reliance on its "Government-reviewed purchasing system" provides some evidence of the reasonableness of costs, because it "is marginally more likely, other things being equal, to have spent money reasonably than is a contractor without such a system."7 But, the board found this evidence to be "circumstantial" and insufficient to carry its burden to prove reasonableness.8 Thus, MSA's repeated assertions that its employees followed proper procedures to approve subcontractor invoices, using a government-approved purchasing system, had some probative value, but was ultimately insufficient to prove the costs were reasonable both in type and in amount. The best practice would be to contemporaneously document the reasonableness of the charge; while this may be more time consuming than simply recording the charge in a purchasing system, such documentation would serve the contractor well in the event of a later dispute.
The Court of Federal Claims provided guidance on what constitutes the "standard record keeping system" required to prove termination for convenience damages for a commercial contract under FAR 52.212-4(l) in ACLR, LLC v. United States.9 The issue arose because the government moved for summary judgment against the contractor's claim for termination damages, arguing that the contractor's record keeping system did not meet the FAR 52.212- 4(l) requirements and therefore did not constitute adequate evidence of reasonably incurred costs. Finding no precedent describing the requirements of a standard record keeping system within the meaning of FAR 52.212-4(l), the court consulted the dictionary definitions of "standard" and "system," and reasoned: "[T]aken together, these definitions indicate that a standard system is a regularly used, carefully thought-out method that involves a set of organizing and orderly procedures."10 The court held that the contractor's system, described as follows, did not meet this requirement:
use of QuickBooks, an accounting software package, to track costs; Microsoft File Explorer, which electronically stores vendor invoices, client work product, and archived communications data; Microsoft Outlook, which tracks company communications; external suppliers and various external file storage devices used to back up and secure company data to ensure against data loss; and paper files for employee and client contract information.11
The court concluded that "a regular, organized method for tracking relevant costs is required," and noted here the contractor "merely describes a vast collection of documents, some of which reflect post hoc estimates, rather than a systematic or organized method of tracking costs relevant to a particular project."12 The court observed that the contractor "has pieced together the voluminous evidence in its possession precisely because no standard system for tracking the relevant data was in place."13 Because the contractor did not prove an essential element of its case, the court granted summary judgment for the government, with the result that the contractor received no damages for the government's admitted termination for convenience of its commercial item contract.14
These two cases remind contractors that maintaining an organized recordkeeping system is a necessary first step to support the contractor's demand, but contractors should take care to document the reasonableness of the types and amounts of the cost claimed.
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1. Ben Hecht, "Elegy for Wonderland," Esquire (Mar. 1, 1959).
2. Mission Support Alliance, LLC v. Dep't of Energy, CBCA 6477-R, 22-1 BCA ¶ 38,210.
3. Mission Support Alliance, LLC v. Dep't of Energy, CBCA 6477-R, 22-1 BCA ¶ 38,210.
4. Mission Support Alliance, LLC v. Dep't of Energy, CBCA 6477-R, 22-1 BCA ¶ 38,210.
5. Mission Support Alliance, LLC v. Dep't of Energy, CBCA 6477-R, 22-1 BCA ¶ 38,210.
6. Mission Support Alliance, LLC v. Dep't of Energy, CBCA 6477-R, 22-1 BCA ¶ 38,210.
7. Mission Support Alliance, LLC v. Dep't of Energy, CBCA 6477-R, 22-1 BCA ¶ 38,210.
8. Mission Support Alliance, LLC v. Dep't of Energy, CBCA 6477-R, 22-1 BCA ¶ 38,210.
9. ACLR, LLC v. United States, 162 Fed. Cl. 610 (2022). FAR 52.212-4(l) provides: "[T]he Contractor shall be paid a percentage of the contract price reflecting the percentage of the work performed prior to the notice of termination, plus reasonable charges the Contractor can demonstrate to the satisfaction of the Government using its standard record keeping system, have resulted from the termination."
10. 162 Fed. Cl. at 615.
11. 162 Fed. Cl. at 613.
12. 162 Fed. Cl. at 616.
13. 162 Fed. Cl. at 616.
14. 162 Fed. Cl. at 616.
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