ASBCA 61950

ARMED SERVICES BOARD OF CONTRACT APPEALS Appeal of -- ) ) DynCorp International LLC ) ASBCA No. 61950 ) Under Contract No. W52P1J-07-D-0007 ) APPEARANCES FOR THE APPELLANT: Holly A. Roth, Esq. William T. Kirkwood, Esq. Elizabeth Leavy, Esq. Reed Smith LLP Washington, DC APPEARANCES FOR THE GOVERNMENT: Arthur M. Taylor, Esq. DCMA Chief Trial Attorney Srikanti Schaffner, Esq. Trial Attorney Defense Contract Management Agency Carson, CA OPINION BY ADMINISTRATIVE JUDGE CLARKE This case involves DynCorp International LLC’s (DI) appeal of a Defense Contract Management Agency (DCMA) Contracting Officer’s Final Decision implementing DCAA audits of cost reimbursement contracts and, in particular, the disallowance of severance payments made to DI’s former CEO. We have jurisdiction pursuant to the Contract Disputes Act of 1978 (CDA), 41 U.S.C. §§ 7101-7109. We deny DI’s appeal. The parties have submitted the appeal for decision on the record, pursuant to our Board Rule 11, and only entitlement is before us. FINDINGS OF FACT (Each party relies exclusively on their joint Stipulation of Material Facts as their Proposed Finding of Facts. We adopt the parties’ stipulated facts (stip.) and add additional facts as appropriate.) 1. Appellant is DynCorp International LLC (DI) (stip. ¶ 1). 2. Respondent is the Defense Contract Management Agency (DCMA) acting on behalf of those government agencies for which appellant performed cost type contracts during calendar year (CY) 2015 and CY2016 (stip. ¶ 2).  3. DI and the government are parties to numerous cost reimbursement contracts which are assigned for contract administration purposes to DCMA, including Contract No. W52P1J-07-D-0007 (Contract No. 0007) (stip. ¶ 3). Severance Payments to DI CEO Mr. Gaffney 4. From August 25, 2010 to July 10, 2014, DI employed Steven F. Gaffney as its Chief Executive Officer (CEO). Mr. Gaffney’s terms of employment with DI were subject to a 2010 Employment Agreement. Mr. Gaffney’s employment with DI was terminated on July 10, 2014. In accordance with the 2010 Employment Agreement and 2014 Separation Agreement between Mr. Gaffney and DI, following Mr. Gaffney’s termination, DI agreed to pay severance to Mr. Gaffney in the aggregated amount of $9.2 million (less applicable tax withholdings). The severance amount was calculated in accordance with the 2010 Employment Agreement, which stated that the severance payment would be “equal to two (2) times the sum of the Base Salary and Bonus at Target.” (Stip. ¶ 4; R4, tab 5 at 2) 1 5. As required by the 2010 Employment Agreement and 2014 Separation Agreement, DI made severance payments to Mr. Gaffney in 2014, 2015 and 2016 (stip. ¶ 5; R4, tab 5 at 2). 2015 & 2016 Incurred Cost Proposals 6. In accordance with Federal Acquisition Regulation (FAR) 52.216-7, ALLOWABLE COST AND PAYMENT, DI submitted its CY2015 incurred cost proposal (2015 ICP) to the DCMA on June 30, 2016, to establish DI’s final indirect cost rates for January 1 through December 31, 2015. DI’s 2015 ICP included costs DI incurred relative to DI’s severance payments to Mr. Gaffney in DI’s G&A expense pool. (Stip. ¶ 6; R4, tab 2) 7. On June 21, 2017, DI submitted its CY2016 incurred cost proposal (2016 ICP) to the DCMA to establish DI’s final indirect cost rates for January 1 through December 31, 2016. DI’s 2016 ICP included costs DI incurred relative to DI’s severance payments to Mr. Gaffney in DI’s G&A expense pool. (Stip. ¶ 7; R4, tab 3) DCAA Audit Report 8. On June 26, 2018, the Defense Contract Audit Agency (DCAA) issued Audit Report Nos. 3181-2015D10100001 and 3181-2016D1010001 (the “Audit Reports”) on DI’s proposed amounts on unsettled flexibly priced contracts for CY2015 and CY2016 (stip. ¶ 8). In particular, and with respect to the instant appeal and DI’s 1 The page numbers we cite are PDF page numbers for ease of locating. 2 incurred costs relative to the severance payments at issue, the DCAA audit reports included the following: 5. Indirect Costs a.