ASBCA 60131

ARMED SERVICES BOARD OF CONTRACT APPEALS Appeal of -- ) ) Exelis, Inc. ) ASBCA No. 60131 ) Under Contract Nos. N65236-07-C-5876 ) FA8532-12-C-0002 ) APPEARANCES FOR THE APPELLANT: Steven M. Masiello, Esq. Joseph G. Martinez, Esq. Dentons US LLP Denver, CO APPEARANCES FOR THE GOVERNMENT: E. Michael Chiaparas, Esq. DCMA Chief Trial Attorney Samuel W. Morris, Esq. Trial Attorney Defense Contract Management Agency Chantilly, VA OPINION BY ADMINISTRATIVE JUDGE D'ALESSANDRIS ON APPELLANT'S MOTION TO SUSTAIN THE APPEAL AND DISMISS THE GOVERNMENT'S CLAIM Appellant, Exelis Inc. (Exelis) appeals from a contracting officer's final decision asserting a government claim pursuant to Cost Accounting Standard (CAS) 404, pertaining to Exelis' purportedly noncompliant accounting for the costs of a building lease. The parties do not dispute that Exelis is subject to the CAS by virtue of its performing over $50 million per year in government contracts. See 48 C.F.R. §§ 9901.306, 9903.201. As a contractor subject to the CAS, Exelis is required to measure its indirect costs in accordance with the CAS and its disclosed cost accounting practices. One of these indirect costs is Exel is' cost of leasing office space that is then allocated to Exelis' government contracts. The government asserts that Exelis improperly accounted for the lease costs by treating the lease as an operating lease rather than a capital lease. According to the government, this mischaracterization of the lease resulted in Exelis overcharging the government for the indirect cost of the building lease in each of Exelis' government contracts, both flexibly-priced and fixed-price. Here, the record contains a cost type contract, N65236-07-C-5876 (R4, tab 2) and a firm-fixed-price contract, FA8532-12-C-0002 (R4, tab 13) that the government contends are representative ofExelis' government contracts (R4, tab 11 at 149). In 2007, the Defense Contract Audit Agency (DCAA) released its audit of Exelis' calendar year 2004 final indirect cost rates (R4, tab 3). In the audit report, DCAA questioned Exelis' lease costs, finding that the building lease was a capital lease, and that Exelis could only include building depreciation in its indirect cost pool rather than the entire lease cost (id. at 81 ). Fallowing submissions of additional information from Exelis, and further auditing by DCAA, in June 2015, the Defense Contract Management Agency (DCMA) contracting officer found that Exelis had improperly treated the building lease as an operating lease, rather than a capital lease, pursuant to Federal Acquisition Regulation (FAR) 31.205-11 (m) ( 1998). 1 Based upon the purported FAR violation, DCMA determined that Exelis' accounting treatment was not in compliance with CAS 404, and asserted a government claim in the amount of $3,821,534 due to increased costs purportedly paid by the government on Exelis' contracts from 2003 through the date of the final decision. Pending before the Board is Exelis' motion to sustain the appeal and to dismiss the government's claim for failure to state a claim upon which relief can be granted. Exelis asserts that the government cannot state a claim for a CAS 404 violation, even assuming that the government is correct that Exelis improperly accounted for the building lease. Next, Exelis argues that the final decision asserts a sum certain with regard to the purported CAS violation, but did not assert a sum certain with regard to the purported FAR violation, and; therefore, once the CAS claim is dismissed, the Board must dismiss the government's claim in its entirety for failure to assert a sum certain. The DCMA opposes Exelis' motion. We grant Exelis' motion in part and deny the motion in part. Even if the government is correct that Exelis' accounting for the building lease is in violation of the FAR, we hold that the government cannot establish a CAS violation. However, we hold that the FAR violation and the CAS violation rely upon the same operative facts and therefore that the government is asserting the "same claim" for purposes of the Contract Disputes Act (CDA) and deny Exelis' motion to dismiss the government's claim for failure to assert a sum certain. STATEMENT OF FACTS (SOF) FOR PURPOSES OF THE MOTION 1.