ASBCA 62633

ARMED SERVICES BOARD OF CONTRACT APPEALS Appeal of - ) ) Ology Bioservices, Inc. ) ASBCA No. 62633 ) Under Contract No. W911QY-13-C-0010 ) et al. ) APPEARANCES FOR THE APPELLANT: Richard B. O’Keeffe Jr., Esq. Gary S. Ward, Esq. Nicole E. Giles, Esq. Wiley Rein LLP Washington, DC APPEARANCES FOR THE GOVERNMENT: Arthur M. Taylor, Esq. Chief Trial Attorney Patrick B. Grant, 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 penalty for expressly unallowable costs, namely, executive compensation costs above the threshold established by the Office of Federal Procurement Policy (OFPP). The parties have cross-moved for summary judgment. The Board grants appellant’s motion and denies the government’s cross-motion. STATEMENT OF FACTS (SOF) FOR PURPOSES OF THE MOTION The following facts are undisputed for purposes of the motions. Between 2011 and 2013, appellant, Ology Bioservices, Inc. (Ology) entered into four cost reimbursement contracts with the government, including the contract referenced above. A Defense Contract Management Agency (DCMA) contracting officer (CO) was responsible for negotiating and establishing Ology’s final indirect cost rates for the contracts. (Appellant’s statement of undisputed facts (ASUMF) ¶¶ 3-4; Government statement of genuine issues of material fact (GSMF) ¶¶ 3-4; R4, tab 8).  The contracts included FAR 52.242-3, PENALTIES FOR UNALLOWABLE COSTS (MAY 2001), which provides for the assessment of a penalty for costs submitted by the contractor in its proposal that are “expressly unallowable under cost principle in the FAR . . . .” (FAR 52.242-3(d); ASUMF ¶¶ 5, 20; R4, tab 1 at G-000099). The contracts also included FAR 52.242-4, CERTIFICATION OF FINAL INDIRECT COSTS (JAN 1997), which requires a senior official of the contractor to certify, among other things, that the final indirect cost rates do not include any costs that are expressly unallowable under applicable cost principles of the FAR (ASUMF ¶ 5; R4, tab 1 at G-000099; FAR 52.242-4(c)(2)). The dispute involves compensation to Ology’s chief executive officer (CEO). More specifically, it involves his salary, bonuses and stock option awards valued at $2,730,686. Most of this amount stems from stock option awards valued at $2,253,986 (GSMF ¶¶ 32-41; R4, tab 2 at G-0000160). The contract referenced above included FAR 52.216-7, ALLOWABLE COST AND PAYMENT (JUN 2011) (R4, tab 1 at G-000102-03). This clause required Ology to submit its final indirect cost rate proposal within six months after the end of its fiscal year, which for Ology was the calendar year. FAR 52.216-7(d)(2). Ology complied with the clause by submitting its FY 2013 proposal on June 30, 2014. After addressing issues identified by the Defense Contract Audit Agency (DCAA), it submitted a revised proposal on December 18, 2014 (ASUMF ¶¶ 6, 22-23; GSMF ¶¶ 6, 22-23). After a DCAA audit and a lengthy negotiation period between the parties (ASUMF ¶¶ 25-30; GSMF ¶¶ 25-30), the CO issued a final decision on May 13, 2020. Based on an FY 2013 cap for executive compensation of $980,796, the CO determined that Ology had exceeded the cap and included expressly unallowable costs of $1,749,8901 for its CEO in its indirect cost rate proposal. The CO found that $979,938 of this amount was allocated to covered contracts and assessed Ology a penalty in this amount. In addition, she demanded interest that brought the total government claim to $1,109,160 (ASUMF ¶¶ 1, 26, 31; GSMF ¶¶ 1, 26, 31). DECISION I. Summary Judgment Standards Summary judgment is appropriate when there is no genuine issue of material fact and the moving party is entitled to judgment as a matter of law. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 247-48 (1986). When considering a motion for summary judgment, the Board must determine whether there is a genuine issue for 1 $2,730,686 - $980,796 = $1,749,890 2 trial. Id. at 249.