ASBCA 61408

ARMED SERVICES BOARD OF CONTRACT APPEALS Appeal of - ) ) Cellular Materials International, Inc. ) ASBCA No. 61408 ) Under Contract Nos. HR0011-10-C-0054 ) HR0011-10-C-0117 ) N00014-13-C-0201 ) W57HZV-10-C-0148 ) HR0011-14-C-0034 ) APPEARANCE FOR THE APPELLANT: Mr. Doug Long CEO APPEARANCES FOR THE GOVERNMENT: Arthur M. Taylor, Esq. DCMA Chief Trial Attorney Michael T. Patterson, Esq. Trial Attorney Defense Contract Management Agency Chantilly, VA OPINION BY ADMINISTRATIVE JUDGE O’CONNELL ON CROSS-MOTIONS FOR SUMMARY JUDGMENT This appeal involves a government claim arising from the difference between the billing rates of appellant, Cellular Materials International, Inc. (CMI), and final rates established by the contracting officer (CO). The parties have cross moved for summary judgment. The Board grants the government’s motion and denies appellant’s motion. STATEMENT OF FACTS FOR PURPOSES OF THE MOTION The following facts are undisputed or uncontroverted. This appeal arises from five contracts performed by CMI, including the above- referenced representative contract awarded by the Defense Advanced Research Projects Agency on April 28, 2010 (the Contract). The Contract provided for payment of cost plus a fixed fee in the estimated total amount of $4,428,863 and included, among other clauses, Federal Acquisition Regulation (FAR) FAR 52.216-7, ALLOWABLE COST AND PAYMENT (DEC 2002). (R4, tab 1 at 2, 23) 1 1 When citing the Rule 4 file, we reference the .pdf page number for the digital version of that document.  Pursuant to the requirements of this clause, CMI submitted final indirect cost proposals for fiscal years 2010 – 2014 ((gov’t statement of undisputed material facts (GSUMF) ¶¶ 6-9 (citing gov’t mot. at exs. G-2 to G-6)). Initially, the Defense Contract Audit Agency (DCAA) informed CMI that its proposals were low risk and would not be audited (GSUMF ¶ 16; R4, tab 9 at 6). But after receiving this notice, CMI revised its 2010-2014 proposals to add $425,000 ($85,000 per year) in general and administrative (G&A) costs for a consultant, Mr. Haydn Wadley (id.; GSUMF ¶ 10). In addition to his purported work as a consultant, Mr. Wadley was CMI’s largest shareholder, owning up to about 39% of the shares during this period 2 (GSUMF ¶¶ 4, 10, 16; gov’t mot. at ex. G-1). DCAA thereafter performed an audit and issued a report questioning all $425,000 in consultant costs. DCAA stated that the “contractor was not able to provide invoices or other support to include sufficient detail as to the time expended and nature of the actual services provided by the consultant.” It also stated that Mr. Wadley had not been paid for some of the services. (GSUMF ¶ 14 (citing R4, tab 8 at 6)) On August 22, 2017, the CO issued a final decision unilaterally establishing final indirect cost rates and asserting a demand for payment of $511,119, which included the $425,000 for Mr. Wadley (R4, tab 9). The CO concluded that “CMI has not provided sufficient evidence of the nature and scope of the service furnished such that incurrence, allowability, [and] allocability of these costs can be determined ...” (R4, tab 9 at 7). After CMI filed a timely appeal, it produced to the government various documents, including 31 canceled checks, that resulted in the government agreeing that CMI had made $219,583.23 in payments to Mr. Wadley and that these payments were allowable costs. The parties were also able to resolve the portion of the dispute that did not relate to Mr. Wadley, which amounted to an additional $86,119. (GSUMF ¶¶ 16 n.5; compl. ¶¶ 6-8) The amount that remains in dispute is $205,416.57 (GSUMF ¶ 22; compl. ¶ 7). In support of this amount, CMI has provided the government 27 promissory notes executed each month from October 2012 to December 2014 in which CMI promised to pay Mr. Wadley the amount of $7,083.33, for a total amount of $191,249.91. The notes do not provide for interim payments or contain a date for repayment, other than to state that they are payable five days after demand (R4, tab 6; GSUMF ¶¶ 21- 22). As an explanation, Les Gonda, President and Chief Executive Officer of CMI, and Mr.