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					ABA Section of Public Contract Law
Accounting, Cost & Pricing Committee

               January 11, 2005 Accounting Cost & Pricing Committee Agenda


I.      Informational Items
     A. A.R.P. Wallace, INC. V. US, COFC No. 96-222, December 15, 2004. Plaintiff challenges
        the assessment of liquidated damages for 250 days in a Navy contract where the
        government had provided defective specifications for a portion of the work. In an opinion
        by Judge Allegra, which even cites the 1928 decision Palsgraf v. Long Island R. Co., 284
        N.Y. 339, 162 N.E. 99, the court discusses the issues of sequential and concurrent delays
        and the requirements of Federal Acquisition Regulation (―FAR‖) Clause 52.249-10
        Default (Fixed-Price Construction). Judge Allegra remits damages for only 21 days of
        delay finding that plaintiff failed to prove that the defective specifications caused the bulk
        of the delay and secondarily, that plaintiff failed to meet the FAR notice requirements for
        much of the delay. Includes a discussion of Supreme court and Claims court decisions
        regarding delay.

     B. Rick Vassar v. US, COFC No. 02-946C, December 8, 2004. Postal Service trailer lease
        contract. Contract required plaintiff to maintain trailers in an "as new" condition and
        stated that ―the Postal Service will be liable to the contractor for loss or damage,
        exclusive of fair wear and tear, to equipment of the contractor." Plaintiff claims costs to
        repair damaged trailers at the end of the contract, although plaintiff sells rather than
        repairs the trailers. Government opposes claim arguing that plaintiff's sale, rather than
        repair, of trailers relieves the government of its obligation. Judge Margolis rejects the
        government's finding that the only reasonable interpretation of the contract is that the
        government is liable to contractor for damages to the trailers.

     C. Paranetics Technology, Inc., ASBCA No. 54629, December 20, 2004. Navy contract.
        Appellant submits a claim for unabsorbed overhead under the Eichleay formula for delay
        allegedly caused by late delivery from its subcontractor. The Board denies the appeal
        finding that "Appellant has failed to provide any evidence that the contract work was
        wrongfully suspended or delayed by the CO in the administration of this contract. Nor
        has appellant adduced evidence establishing any breach of contract by the CO. ... In view
        of the foregoing, we conclude that appellant has not shown entitlement to an equitable
        adjustment for the recovery of unabsorbed overhead under the Eichleay formula, or
        otherwise."

     D. Revisions to OMB Circular A-123, Management‘s Responsibility for Internal Control,
        December 21, 2004. ―OMB [Office of Management and Budget] Circular No. A-123
        defines management's responsibility for internal control in Federal agencies. A re-
        examination of the existing internal control requirements for Federal agencies was
        initiated in light of the new internal control requirements for publicly-traded companies
        contained in the Sarbanes-Oxley Act of 2002. Circular A-123 and the statute it
        implements, the Federal Managers‘ Financial Integrity Act of 1982, are at the center of
        the existing Federal requirements to improve internal control. This circular reflects
        policy recommendations developed by a joint committee of representatives from the


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         Chief Financial Officer Council (CFOC) and the President‘s Council on Integrity and
         Efficiency (PCIE). The policy changes in this circular are intended to strengthen the
         requirements for conducting management‘s assessment of internal control over financial
         reporting. The circular also emphasizes the need for agencies to integrate and coordinate
         internal control assessments with other internal control-related activities. The revised
         circular is effective for FY 2006. Agencies should take steps in FY 2005 to prepare for its
         implementation. OMB plans to continue to work closely with the CFOC and the PCIE to
         provide further implementation guidance.― The circular can be accessed at:
         http://www.whitehouse.gov/omb/circulars/a123/a123_rev.pdf]

      E. Analysis of Type of Business Coding for the Top 1,000 Contractors Receiving Small
         Business Awards in FY 2002 , Report for the SBA Office of Advocacy, Research
         Summary No. 246, December 2004. Federal agencies have overstated federal contracting
         dollars going to small businesses by $2 billion in a single year, according to a report
         released by the Small Business Administration's Office of Advocacy. The SBA studied
         the 1,000 top contractors by revenue that federal agencies listed as small businesses in
         2002. It found that 44 of the contractors actually were large businesses, nonprofit
         organizations and government agencies. They received contracts worth $2 billion, of a
         total of $54.1 billion of federal procurement funds that supposedly were paid to small
         businesses that year, said Chad Moutray, an SBA economist.

      F. Government Garage Sales: Online Auctions as Tools for Asset Management, by David C.
         Wyld, November 2004. ―Professor Wyld lays the groundwork for this comprehensive
         and informative review on online auction sales by discussing the theory and practice of
         auctions, explaining how and why auctioning works, and why it is particularly effective
         when brought into the Internet age. He provides an overview of the size and scope of
         auctions and describes how government agencies are now using online auctions as a
         primary vehicle for proactively managing surplus. The report presents five case studies
         of how online auctioning is now being employed: eBay and the Public Sector; the
         Department of Defense and Liquidity Services, Inc.; Bid4Assets—Taking Tax Sales
         off the Courthouse Steps; Property Bureau—Transforming the Police Auction; and
         the Demolition of Three Rivers Stadium. The report presents a decision framework,
         or road map, that government executives can use in making decisions about the
         management of surplus assets in the public sector. Finally, the report presents a series
         of lessons learned. These lessons focus on the need to align the incentives of both multi-
         unit agencies and public-private partnerships to maximize the returns and overall
         effectiveness of online auctions.‖

II.      Regulatory Developments
      A. Potential Comments - DOD: Interim Rule re Task and Delivery Order Contracts;
         Contract Period, 69 Fed. Reg. 74992, December 15, 2004. This interim rule amends
         DFARS section 217.204 to implement sections 843 of the FY2004 National Defense
         Authorization Act and Section 813 of the FY2005 National Defense Authorization Act.
         Section 843 places a 5-year limit on the period of task or delivery order contracts
         awarded under 10 U.S.C. 2304a. Section 813 further amends this statue to permit a total



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Accounting, Cost & Pricing Committee

      period of up to 10 years, which may be exceeded if the head of the agency determines in
      writing that exceptional circumstances require a longer contract period. This new interim
      DFARS rule clarifies that the 10-year limit applies to the ordering period, and that it
      establishes a limit on the length of orders. Draft comments should be completed by
      January 31, 2005.

   B. Final Rule - GSAR Case 2004-G501, Disputes and Appeals, 70 Fed. Reg. 298, January 4,
      2005. The General Services Administration (―GSA‖) is amending the General Services
      Administration Acquisition Regulation (―GSAR‖) to add a clause that supplements the
      FAR Disputes clause. Effective Date: January 4, 2005.

   C. Final Rule - HHS: Acquisition Regulations; Technical Amendments, 70 Fed. Reg. 38,
      January 3, 2005. The Department of Health and Human Services (―HHS‖) announced a
      series of amendments to its acquisition regulation (―HHSAR‖) making editorial and
      procedural changes. Of note, this new regulation adds the terms "veteran-owned" and
      "service-disabled veteran-owned" to describe small business categories in accordance
      with the FAR; permits basic and option periods of up to ten years for all service contracts
      not subject to the Service Contract Act or other statutory requirements; adds a Choice of
      Law (Overseas) clause in solicitations and contracts when contract performance will be
      outside the United States, its possessions, and Puerto Rico; and removes references to the
      Department's General Administration Manual for major system acquisitions. Effective
      Date: March 4, 2005.

   D. Final Rule - Renegotiation Board Interest Rate, Prompt Payment Interest Rate, Contract
      Disputes Act, 69 Fed. Reg. 78522, December 30, 2004. For the period beginning January
      1, 2005 and ending on June 30, 2005, the prompt payment interest rate is 4.250 per
      centum per annum.

   E. ABA Responds - Regarding Transition of Weapons-Related Prototype Projects to
      Follow-On Contracts, December 28, 2004. The ABA Public Contract Section's issued a
      comment letter on the use of streamlined contracting procedures for the production of
      items or processes begun as prototype projects under other transaction agreements.

   F. Proposed Rule – Changes to DOSAR, 69 Fed. Reg. 76660, December 22, 2004. This
      proposed rule would make three changes to the Department of State Acquisition
      Regulations (―DOSAR‖). The proposal would revise ―the DOSAR to (i) Formalize
      Department policy regarding the application of the Small Business Act to contracts
      awarded by domestic contracting activities where contract performance takes place
      overseas; (ii) add language to deal with U.S. Government support to contractors
      performing overseas; and, (iii) revise the coverage regarding Defense Base Act
      insurance.‖ These changes may significantly impact certain contractors‘ oversea
      operations including subcontractors. As noted in this Federal Register publication,
      ―essentially, the (Department of State) policy requires that contractors furnish their
      own in-country non-U.S. Government administrative, logistical, and security
      support. If the Department authorizes the use of U.S. Government-provided
      support, that support shall be set forth in the Statement of Work. An associated


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      contract clause is added at 652.225-72.‖ The basis on when US will provide that
      support is also noticed. This rule will ―clarify the application of Defense Base Act
      insurance to local and third country nationals‖ and when local Workers Compensation
      coverage may be required of contractors.

   G. Final Rule - SBA-Small Business Government Contracting Programs; Subcontracting, 69
      Fed. Reg. 75820, December 20, 2004. This final rule amends the U.S. Small Business
      Administration (SBA) regulations to address comments received in response to SBA's
      proposed rule on subcontracting (noticed October 20, 2003) as well as to SBA's earlier
      proposed rule on contract bundling (noticed January 31, 2003). Specifically, this final
      rule provides a list of factors to consider in evaluating a prime contractor's
      performance and good-faith efforts to achieve the requirements in its
      subcontracting plan. The rule also authorizes the use of goals in subcontracting
      plans, and/or past performance in meeting such goals, as a factor in source selection
      when placing orders against Federal Supply Schedules, government-wide acquisition
      contracts, and multi-agency contracts. In addition, this rule implements statutory
      provisions and other administrative procedures relating to subcontracting goals and
      assistance. In particular, the rule lists the various categories of small businesses that
      must be afforded maximum practicable subcontracting opportunities, and clarifies
      the responsibilities of prime contractors and SBA's Commercial Market Representatives
      under the subcontracting assistance program.

   H. Final Rule - DOD, GSA, NASA: Unallowable Costs; Cost Principles and Penalties
      Applicability, 69 Fed. Reg. 76356, December 20, 2004. The government published a
      proposed rule on November 28, 2003 (see 68 Fed. Reg. 66988), which proposed to: (1)
      remove the requirement to apply the cost principles and procedures at FAR Part 31 when
      pricing a contract if cost or pricing data are not obtained; (2) add a definition to FAR Part
      31 for fixed-price contracts, subcontracts, and modifications; and (3) increase the contract
      dollar threshold for assessing a penalty if the contractor includes expressly unallowable
      costs in its claim for reimbursement (FAR Part 42). After receiving some critical
      comments from the public, the Civilian Agency Acquisition Council and the Defense
      Acquisition Regulation Council (―Councils‖) decided not to adopt the proposed
      revisions to FAR Parts 15 and 31, and to convert the proposed rule at FAR Part 42
      to a final rule. Therefore, the dollar threshold amounts in FAR 42.709(b) and FAR
      42.709-6 are increased from $500,000 to $550,000. Effective Date: January 19, 2005.

   I. Final Rule - DOD, GSA, NASA: Electronic Representations and Certifications, 69 Fed.
      Reg. 76341, December 20, 2004. This final rule amends the FAR to require offerors to
      submit representations and certifications electronically via the Business Partner Network,
      unless certain exceptions apply. The new Online Representations and Certifications
      Application will be the primary Government repository for contractor submitted
      representations and certifications required for the conduct of business with the
      Government, and is available at: http://orca.bpn.gov/. Government contractors covered
      under these regulations will be required to submit their representations and
      certifications via the Internet, and not via paper forms.



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   J. Final Rule - Special Emergency Procurement Authority, FAR Case 2003-022, 69 Fed.
      Reg. 76350, December 20, 2004. This final rule ―increases the amount of the micro-
      purchase threshold and the simplified acquisition threshold for procurements of supplies
      or services by or for an executive agency that, as determined by the head of the agency,
      are to be used in support of a contingency operation or to facilitate the defense against or
      the recovery from nuclear, biological, chemical or radiological attack….‖ These latter
      acquisitions can also be treated as ―commercial items.‖ On November 24, 2004, Deidre
      Lee, Director of Defense Procurement and Acquisition Policy issued a memorandum on
      these increases and stated, for outside the United States, the micro-purchase threshold is
      $25,000 and the simplified acquisition threshold is $1,000,000 for the specified
      procurements.

   K. Final Rule – Financial Accounting Standard 123R Share-Based Payment, December 16,
      2004. The Financial Accounting Standards Board (FASB) issued its final standard on
      accounting for share-based payments, FAS Statement No. 123R (revised 2004). This
      Standard requires companies to expense the value of employee stock options and similar
      awards.

   L. Compendium of Audits of the Federal Technology Service Regional Client Support
      Center, GSA IG Audit, December 14, 2004. General Services Administration‘s audits of
      FY 2003 procurements identified a number of improper contract and task order awards
      involving millions of dollars that did not comply with procurement laws and regulations.

   M. Notice re FAR Semi-Annual Regulatory Agenda, 69 Fed. Reg. 74078, December 13,
      2004. This notice advises release of the semi-annual digest of regulatory actions listing
      all of the pending regulations that pertain to the FAR which have been promulgated by
      DOD, GSA or NASA. Parties with an interest in these rules can find the full text of these
      pending regulations at the government's rulemaking website, http://www.regulations.gov.

   N. General Accountability Office Report GAO-05-23, Air Traffic Control, FAA‘s
      Acquisition Management Has Improved, but Policies and Oversight Need Strengthening
      to Help Ensure Results, November 2004. ―FAA‘s [Federal Aviation Administration]
      Acquisition Management System (AMS) is broader and less prescriptive than the Federal
      Acquisition Regulation (FAR), but both afford managers flexibility. AMS establishes an
      acquisition life-cycle management system, including both a contracting and program
      management system, whereas the FAR is primarily a contracting system. In addition,
      AMS takes the form of guidance—it is not regulatory, while the FAR is a set of
      published regulations—a legal foundation that has the force and effect of law that most
      federal agencies are required to follow. AMS provides some discipline for acquiring
      major ATC systems; however, it does not ensure a knowledge-based approach to
      acquisition found in the best commercial practices for managing commercial and DOD
      product developments that we have identified in numerous past reports. Best practices
      call for (1) use of explicit written criteria to attain specific knowledge at key decision
      points and (2) use of this knowledge by executives at the corporate level to determine
      whether a product is ready to move forward. Attainment and use of such knowledge by
      executives helps to avoid cost, schedule, and performance shortfalls that can occur if they


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          commit to a system design prematurely. While AMS has some good features, including
          calling for key decision points, it falls short of best practices. GAO‘s review of seven
          major ATC systems and analysis of FAA‘s performance in acquiring major systems
          found that AMS has not resolved longstanding problems it experienced prior to its
          implementation of AMS— including developing requirements and managing software—
          and is just beginning to focus on how these acquisitions will improve the efficiency of
          ATC operations. While FAA has made progress by providing guidance for avoiding past
          weaknesses, it has not applied these improvements consistently. According to FAA
          officials, reorganization under and improved oversight by FAA‘s new performance-based
          Air Traffic Organization should help ensure greater consistency and an increased focus
          on results. Past GAO reports have demonstrated that the success of an acquisition process
          depends on good management, whether it be under AMS or the FAR.‖

       O. DoD Launches The New Procedures, Guidance, And Information As A Companion To
          The DFARS, 69 Fed. Reg. 63326, November 1, 2004. ―. . . The new Procedures,
          Guidance, and Information (PGI) site serves as a companion to the DFARS. PGI is an
          online resource to help acquisition professionals more effectively and efficiently do their
          jobs…. PGI was created as a tool to rapidly assist the acquisition community by
          providing DoD internal procedures and other information that does not require
          implementation in the formal regulation,‖ PGI is located at
          http://www.acq.osd.mil/dpap/dars/pgi/.

       P. Various Defense Contract Audit Agency Memorandum

          a. Audit Guidance on Interest Rate for Determining Interest Applicable to Postaward
             Audit Adjustments, September 24, 2004.

          b. Audit Guidance on Removing Requirement to Compute Z-Score and Certain
             Financial Ratios during Financial Condition Risk Assessments, August 26, 2004.

          c. FY 2005 Audit Management and Reporting Guidance for Iraq Reconstruction,
             August 18, 2004.

          d. Audit Guidance on Revisions to FAR Part 31 Under FAC 2001-024, August 16,
             2004.


III.      11th Annual Federal Procurement Institute – Mitigating Business Risks and Legal
          Liabilities in Federal Contracting – February 24 to 26, 2005 – Annapolis, MD

          A. Seminar Thursday and Friday February 24 and 25, 2005.
          B. Council Meeting Saturday February 26, 2005.



The next meeting of the Accounting Cost and Pricing committee will be on February 8, 2005.


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Accounting, Cost & Pricing Committee

             February 8, 2005 Accounting Cost & Pricing Committee Agenda


I. Informational Items
   A) Singleton Contracting Corporation v. Harvey (Secretary of the Army), U.S. Court of
      Appeals for the Federal Circuit (―CAFC‖) No. 04-1119, January 26, 2005. Court affirms
      the Armed Services Board of Contract Appeals (―ASBCA‖) decision that Singleton's
      failure to furnish an insurance certificate was a concurrent source of the delay and
      therefore did not justify an unabsorbed overhead claim. The court did reverse and award
      Singleton termination for convenience settlement costs which the ASBCA did not
      address in its decision.

   B) California Federal Bank v US, CAFC Nos. 03-5070, -5082, January 19, 2005. Winstar
      case. Court affirms the decision of the U.S. Court of Federal Claims (―COFC‖) denying
      CalFed's damages on a lost profit theory. The COFC based its ruling on

      1. "that CalFed had failed to prove its loss of profits from the sale of the assets,
         including the ARMs, was foreseeable;
      2. that CalFed had failed to prove that the ARMs and other assets were sold because of
         the breach; and
      3. that the method of calculating damages advocated by CalFed was too speculative to
         serve as the basis for a damages award."

      Judge Bryson, writing for the court, upholds the COFC opinion on the causation issue,
      and because that is dispositive, does not reach the forseeability and measurement of
      damages issues. Judge Bryson rejects CalFed's argument that the COFC applied wrong
      standard and that the breach need only be a "substantial factor" contributing to the loss.
      Instead, Judge Bryson notes that "the causal connection between the breach and the loss
      of profits must be 'definitely established'. . ."

   C) Bannum, Inc. v. US, CAFC 04-5105, January 12, 2005. Not citable as precedent. Court
      affirms COFC holding that Contract Disputes Act (―CDA‖) interest does not begin to
      accrue until a claim is received or the contractor requests a final decision. Bannum Inc.
      appealed ―…the decision of the United States Court of Federal Claims that ordered entry
      of judgment in Bannum‘s favor in the amount of $258,891, plus interest from August 20,
      2001, in Bannum‘s CDA action against the United States.‖ The CAFC agreed ―…that
      the court should have awarded [Bannum] interest from various dates ranging from
      February 16, 2001 to April 18, 2001.‖

   D) Jacobs Engineering Group, Inc. v US, COFC No. 02-1500C, January 12, 2005.
      Department of Energy (―DOE‖) contract. Contractor was to share 20 percent of the cost
      of a contract for the development of gasification technology. Faced with a cost overrun,
      which could not be funded, the DOE terminated the contract for convenience. Jacobs
      argued that the termination for convenience entitled it to 100 percent of its costs. Judge
      Miller rejects this argument and finds that the Termination for Convenience clause


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      language referring to all costs "reimbursable under this contract" recognizes the 20
      percent cost sharing arrangement. Therefore, the government's motion for summary
      judgment was granted.

   E) United Technologies Corporation, ASBCA Nos. 51410, 53089, 53349, January 21, 2005.
      The Armed Services Board of Contract Appeals (ASBCA) considered and ruled upon an
      appeal made by United Technologies Corporation, Pratt & Whitney and the Air Force
      (AF) in regard to the decision made in United Technologies Corporation. The ASBCA
      ―…sustained the appeals, and concluded that the AF had not proven entitlement to an
      affirmative recovery on its claims under the Truth in Negotiations Act (TINA). ― The
      ASBCA ―…found entitlement under a number of the AF claims, but also found that
      appellant was entitled to offsets that exceeded the government‘s claims.‖

      In its previous decision (i.e., June 23, 1999), the ASBCA denied the motion by the Air
      Force. ―The Air Force sought payment of $95,783,413 plus interest from [United
      Technologies Corporation] based on the submission of defective cost or pricing data
      under its 1984 contract for jet fighter engines pursuant to the contract clause entitled
      ―Price Reduction for Defective Cost or Pricing Data (1970 JAN),‖ DAR7-104.29.(a).

   F) Hook Construction, Inc., GSBCA No. 16470, January 24, 2004. Contractor appeals the
      denial of its claim for an equitable adjustment for supplying brand name casework
      alleging that Contracting Officer (―CO‖) wrongfully rejected an "or equal" product. The
      Board denies the appeal noting that "In order to prevail upon a claim based on the
      Material and Workmanship clause, the contractor bears the burden of either proving it
      supplied the contracting agency with sufficient information to establish its proposed
      alternative product met the specified essential requirements and functions the same in all
      essential respects as the brand name product, or of proving its failure to supply such
      information was excusable. If the contractor cannot make such a showing, the agency is
      not liable for rejecting the proposed product." Contrary to appellant's allegation, Judge
      DeGraff noted that " GSA was not required ... to accept Hook's general assurances
      regarding [the alternative supplier's] capabilities and was not obligated either to contact
      [the alternative supplier] or to revise Hook's shop drawings.‖

   G) ―The Davis Plan,‖ Federal Computer Week. January 24, 2005. Representative Tom
      Davis (Republican-Virginia.) was interviewed on January 13, 2005 and discussed his
      agenda for the 109th Congress. Representative Davis is chairman of the House
      Government Reform Committee. Among the items on his agenda:

      1. The General Services Administration: ―Davis is focusing on a number of issues,
         including whether to maintain the organization's structure, which features various
         regions…. Davis said he is concerned that the Federal Supply Service and the Federal
         Technology Service seem to be competing with each other.‖
      2. Cybersecurity: "This will be a major priority of our committee."
      3. Procurement: ―With a number of scandals grabbing headlines, such as the Defense
         Department's tanker deal with Boeing, some lawmakers might try to roll back



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         procurement reforms from the 1990s. Davis said he will move to deflect any such
         efforts.‖
      4. Privacy officers: ―Davis said he will seek to eliminate the provision of the fiscal 2005
         omnibus spending bill that mandates the creation of chief privacy officer positions at
         agencies.‖

   H) ―Teaching Uncle Sam to Be a Better Buyer: New Procurement Administrator Will
      Oversee How Federal Contracts Are Awarded,‖ Washington Post, January 21, 2005.
      ―While David Safavian, the Bush administration's new chief for government-wide
      procurement policy, cooled his jets waiting for Senate confirmation, federal contracting
      got hot. The government's procurement community was rocked by court testimony from
      Darleen A. Druyun, a former top acquisition official at the Air Force, that she had
      favored Boeing Co. in contract decisions. A review by the inspector general at the
      General Services Administration found that employees of the GSA's Federal Technology
      Service, which buys high-tech products and services on behalf of the government, had
      not followed the rules in awarding and managing millions of dollars in contracts, raising
      questions about whether taxpayers paid too much on some of the contracts. The law that
      created Safavian's position -- administrator for federal procurement policy at the Office of
      Management and Budget -- does not allow Safavian to intervene in ongoing procurement
      actions, but he can use the OMB's budget clout to call agencies on the carpet.‖

   I) ―OMB Announces Establishment of Services Acquisition Advisory Panel,‖ OMB Press
      Release, February 1, 2005. The Office of Management and Budget announced ―…the
      membership of an acquisition advisory panel to review various aspects of Government
      contracting. The Panel is authorized by Section 1423 of the Services Acquisition Reform
      Act (SARA), and is comprised of recognized experts in Government acquisition law and
      policy. Some of the topics the Panel will examine include the use of commercial
      practices, performance-based contracting, and government-wide contracts.‖


II. Regulatory Developments
   A) General Accountability Office Report GAO-05-207, Update of High-Risk Series Reports,
      January 25, 2005. ―GAO's four areas of high risks include the management of
      interagency contracting. Interagency contracts can leverage the government‘s buying
      power and provide a simplified and expedited method of procurement. But several factors
      can pose risks, including the rapid growth of dollars involved combined with the limited
      expertise of some of agencies in using these contracts and recent problems related to their
      management. Various improvement efforts have been initiated to address this area, but
      improved policies and processes, and their effective implementation, are needed to ensure
      that interagency contracting achieves its full potential in the most effective and efficient
      manner.‖

   B) General Accountability Office Report GAO-05-55, Capital Financing: Partnership And
      Energy Savings Performance Contracts Raise Budgeting and Monitoring Concerns,




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      December 2004. GAO studied energy savings performance contracts (―ESPC‖) and
      public/private partnerships to determine

      1. what specific attributes of ESPCs and partnerships contributed to budget scoring
         decisions,
      2. the costs of financing through ESPCs compared to the costs of financing via timely,
         full, and up-front appropriations, and
      3. how ESPCs and partnerships are monitored.

      GAO recommends that OMB require and suggests Congress consider requiring agencies
      that use ESPCs to present an annual analysis comparing the total contract cycle costs of
      ESPCs entered into during the fiscal year with estimated up-front funding costs for the
      same ECMs. GAO also recommends

      1. OMB work with scorekeepers to develop a scorekeeping rule to ensure that the
         budget reflects the government‘s full commitment for partnerships and
      2. agencies perform business case analyses and ensure that the full range of funding
         alternatives, including useful segments, are analyzed when making capital financing
         decisions.

   C) General Accountability Office Report GAO-01-136, Homeland Security: Further Action
      Needed to Promote Successful Use of Special Acquisition Authority, December 2004.
      The Homeland Security Act of 2002 authorized the Department of Homeland Security
      (―DHS‖) to establish a pilot program for the use of acquisition agreements known as
      ―other transactions.‖ Other transactions are exempt form many of the requirements that
      apply to government contracts. The act requires GAO to report to Congress on the use of
      other transactions by DHS. GAO determined that DHS has not developed policies and
      established a workforce to manage other transactions effectively and that DHS has not
      yet developed mechanisms to capture and assess the knowledge gained about the use of
      other transactions to leverage this information for future solicitations that use other
      transactions. To promote the efficient and effective use of its other transactions authority
      GAO recommends that DHS

      1. provide guidance on including audit provisions in other transactions agreements,
      2. develop a training program in the use of other transactions, and
      3. capture knowledge obtained during the acquisition process for use in planning and
         implementing future other transactions projects. [Greg]

   D) Update- Defense Acquisition Guidebook Finalized, November 17, 2004. ―On November
      17th, 2004, Michael Wynne, the Acting Under Secretary of Defense (Acquisition,
      Technology, and Logistics) formally completed the introduction of the Defense
      Acquisition Guidebook by changing its status from provisional to final. The final
      Guidebook contains updated chapter content, a new tutorial, advanced search capability
      and a new Integrated Defense AT&L Life Cycle Management Framework Chart. The
      final Guidebook, identified as v1.00, is an interactive, web-based resource designed to
      provide the acquisition workforce and their industry partners with instant online access to


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       best business practices as well as supporting policy, statute, and lessons learned. The
       Guidebook is available on the internet at http://www.akss.dau.mil/dag.‖



III.   11th Annual Federal Procurement Institute – Mitigating Business Risks and Legal
       Liabilities in Federal Contracting – February 24 to 26, 2005 – Annapolis, MD

       A. Seminar Thursday and Friday February 24 and 25, 2005.
       C. Council Meeting Saturday February 26, 2005.



The next meeting of the Accounting Cost and Pricing committee will be on March 12, 2005.




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                 March 8, 2005 Accounting Cost & Pricing Recent Events


I. Informational Items
   A) Cherokee Nation of Oklahoma v. Leavitt (02-1472), No. 02-1472, 311 F.3d 1054,
      reversed; No. 03-853, 334 F.3d 1075, affirmed; and both cases remanded. March 1, 2005.
      Supreme Court affirms the Federal Circuit decision which had affirmed an Interior
      Board of Contract Appeals decision. The Indian Self-Determination and Education
      Assistance Act (Act) authorizes the Government and Indian tribes to enter into contracts
      in which tribes promise to supply federally funded services that a Government agency
      normally would provide, 25 U.S.C. Section 450(f); and requires the Government to pay,
      inter alia, a tribe's "contract support costs," which are "reasonable costs" that a federal
      agency would not have incurred, but which the tribe would incur in managing the
      program, Section 450j-1(a)(2). Here, each Tribe agreed to supply health services
      normally provided by the Department of Health and Human Services' Indian Health
      Service, and the contracts included an annual funding agreement with a Government
      promise to pay contract support costs. In each instance, the Government refused to pay
      the full amount promised because Congress had not appropriated sufficient funds.
      In the first case, the Tribes submitted administrative payment claims under the Contract
      Disputes Act of 1978, which the Department of the Interior (the appropriations manager)
      denied. They then brought a breach-of-contract action. The District Court found against
      them, and the Tenth Circuit affirmed. In the second case, the Cherokee Nation submitted
      claims to the Department of the Interior, which the Board of Contract Appeals ordered
      paid. The Federal Circuit affirmed. The Court notes that agencies may sometimes choose
      to spend unrestricted appropriated funds to satisfy needs they deem more important than
      fulfilling a contractual obligation. However, according to the Court, the law expects the
      government to avoid such situations (e.g., cut back on other expenditures) or ask
      Congress to protect certain funds with statutory earmarks or to seek additional funding
      from the Congress. Alternatively, the contractor is left ―free to pursue appropriate legal
      remedies arising because the Government broke its contractual promise.‖ Held: The
      Government is legally bound to pay the "contract support costs" at issue.

   B) Greenwood Associates, L.P. v. Stephen A. Perry, Administrator, General Services
      Administration, CAFC No. 04-1286, February 22, 2005. Court of Appeals for the Federal
      Circuit (―CAFC‖) affirms a General Services Board of Contract Appeals decision in a
      GSA lease dispute over property taxes. The court agrees that the term "taxes paid for" in
      the phrase "taxes paid for the calendar year" in they tax adjustment clause of the contract
      was not ambiguous and "In tax parlance, the phrase 'paid for' a certain year refers to taxes
      accrued during that year, regardless when those taxes are actually paid."

   C) American Bank Note Company, AGBBCA No. 2004-146-1, February 1, 2005. Food and
      Nutrition Service requirements contract. Contractor submits a claim at the contract unit
      price for work done in excess of the contract specified maximum. Contractor argues that
      the government has the burden of proving that it is entitled to other than the unit price.
      Writing for the Board, Judge Vergilio denies the appeal finding that contractor has the


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      burden of proving its entitlement to an equitable adjustment for work done in excess of
      the contract maximum and that the contract unit price does not apply to work in excess of
      the maximum.

   D) GAO Bid Protest - MTB Group, Inc., B-295463, February 23, 2005. Protest that
      conducting procurement using reverse auction format is impermissible because vendors'
      prices will be disclosed during the auction is denied; agency is conducting reverse
      auction under simplified acquisition procedures, which encourage use of innovative
      procedures and do not expressly prohibit disclosure of vendors' prices in implementing
      such procedures, and disclosure is not prohibited under the procurement integrity
      provisions of the Office of Federal Procurement Policy Act.

   E) GAO Bid Protest - Lockheed Martin Corporation, B-295402, February 18, 2005. Where
      the record shows that performance requirements, and associated evaluation criteria, were
      altered to delete a significant requirement and an evaluation factor under which the
      protester was viewed as having an advantage, and a senior procurement official, who was
      involved in discussions that culminated in the deletion of the requirement, has
      acknowledged bias in favor of the ultimate awardee, the protest is sustained on the basis
      that the agency has failed to demonstrate that the senior official's acknowledged bias did
      not prejudice the protester and that the integrity of the procurement process was not
      compromised.

   F) GAO Report - 21st Century Challenges Reexamining the Base of the Federal
      Government, GAO Report 05-325SP, February 2005. ―The Government Accountability
      Office has long had a statutory responsibility for monitoring the condition of the nation‘s
      finances. Recently, in our role as the auditor of the U.S. government‘s consolidated
      financial statements, we included an emphasis paragraph in our audit report for the fiscal
      year ended September 30, 2004 expressing our concerns that the fiscal policies in place
      today will—absent unprecedented changes in tax and/or spending policies—result in
      large, escalating, and persistent deficits that are economically unsustainable over the long
      term. This conclusion is based on the results of GAO‘s long-term budget model, which
      the agency has used since 1992.‖ [First paragraph of Report Preface]

II. Regulatory Developments
   A) Final Rule – DFARS; Bonds, 70 Fed. Reg. 8537, February 22, 2005. Final rule amending
      the Defense Federal Acquisition Regulation Supplement (―DFARS‖) to update text
      pertaining to the use of fidelity and forgery bonds under Department of Defense (―DOD‖)
      contracts. Amends DFARS 228.105 to clarify that fidelity and forgery bonds are
      authorized for use under certain circumstances; and Amends DFARS 228.106-7(a) to
      update a cross-reference. DOD published a proposed rule at 69 FR 48444 on August 10,
      2004. Since DOD received no comments on the proposed rule, DOD has adopted the
      proposed rule as a final rule without change.




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   B) Final Rule – DFARS; Resolving Tax Problems, 70 FR 8538, February 22, 2005.Final
      rule amending the DFARS to update text pertaining to resolution of tax problems under
      DOD contracts.

   C) GAO Report - The Air Force Should Improve How It Purchases AWACS Spare Parts,
      GAO Report 05-169, February 16, 2005. Over the past several years, the Air Force has
      negotiated and awarded more than $23 million in contracts to the Boeing Corporation for
      the purchase of certain spare parts for its Airborne Warning and Control System
      (―AWACS‖) aircraft. Since they first became operational in March 1977, AWACS
      aircraft have provided U.S. and allied defense forces with the ability to detect, identify,
      and track airborne threats. In March 2003, the General Accountability Office (―GAO‖)
      received allegations that the Air Force was overpaying Boeing for AWACS spare parts.
      This report provides the findings of GAO's review into these allegations. Specifically,
      GAO identified spare parts price increases and determined whether the Air Force
      obtained and evaluated sufficient information to ensure the prices were fair and
      reasonable. GAO also determined the extent to which competition was used to purchase
      the spare parts.

   D) Potential Comments – Interim Rule – Re-issuance of the Department of Transportation
      Acquisition Regulation, 70 Fed. Reg. 6506, February 7, 2005. For potential comment is
      an interim rule from the Department of Transportation reissuing the Transportation
      Acquisition Regulation (TAR). This interim final rule reflects changes made to
      implement and/or supplement the FAR. The TAR has been substantially revised to
      update references to obsolete policies, procedures and organizations; incorporate
      electronic links to references such as provisions to the FAR, U.S. Codes, the Code of
      Federal Regulations; and adopt by reference Office of Federal Procurement Policy
      Letters and Executive orders. The reissued TAR eliminates coverage that is unnecessary
      or duplicates the FAR or other directives. Only coverage that is suitable and necessary
      will be retained in the regulation. These efforts will create a 2004 edition of the TAR that
      is consistent with the 2001 edition of the FAR. The 2004 edition of the TAR will replace
      the 1994 edition.

   E) Final Rule - DFARS; Tax Procedures for Overseas Contracts, 70 Fed. Reg. 6375,
      February 7, 2005. DOD has issued a final rule amending the DFARS to update text
      pertaining to tax relief for acquisitions conducted in certain foreign countries. The rule
      revises DFARS Subpart 229.70 to remove procedures that DOD contracting officers use
      in obtaining tax relief and duty-free import privileges for acquisitions conducted in Spain
      and the United Kingdom. This rule is a result of a transformation initiative undertaken by
      DOD to dramatically change the purpose and content of the DFARS. This text has been
      relocated to the new DFARS companion resource, Procedures, Guidance, and
      Information (PGI), available at http://www.acq.osd.mil/dpap/dars/pgi.

   F) Potential Comments - Proposed Rule – DFARS; Extraordinary Contractual Actions, 70
      Fed. Reg. 6393, February 7, 2005. Proposed DOD rule to amend the Defense Federal
      Acquisition Regulation Supplement (DFARS) to update text pertaining to processing of
      requests for extraordinary contract adjustments. The proposed DFARS changes: Update


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       requirements for DOD processing of requests for extraordinary contract adjustments and
       delete procedures for preparation of records and submittal of requests to a contract
       adjustment board. This proposed rule is a result of a transformation initiative undertaken
       by DOD to dramatically change the purpose and content of the DFARS. Text on this
       subject will be relocated to the new DFARS companion resource, Procedures, Guidance,
       and Information (PGI), available at http://www.acq.osd.mil/dpap/dars/pgi. Draft
       comments should be completed by April 8, 2005.

   G) Request for Comments - OMB-Improving Government Charge Card Management, 70 FR
      9394, February 5, 2005. The Office of Management and Budget (―OMB‖) requests
      comments on a draft guidance document entitled Improving Government Charge Card
      Management. The draft guidance, located at
      http://www.whitehouse.gov/omb/financial/fia_travel.html, consolidates and updates
      current government charge card program guidance previously issued by OMB, the
      General Services Administration, the Department of the Treasury, and other Federal
      agencies. The draft guidance applies to all Executive Branch departments and agencies,
      establishing standard minimum requirements and suggested best practices in areas of
      charge card management such as planning, training, risk management, data collection,
      credit worthiness, and strategic buying. When this guidance is finalized, it will be issued
      as either a new OMB Circular or as an addendum to an existing OMB Circular. To
      ensure consideration of comments, interested parties should submit comments on or
      before March 28, 2005.

   H) Contract Profit and Incentive Arrangements Memo from Assistant Secretary of the Navy
      John Young, Jr., December 23, 2004. Assistant Secretary of the Navy John Young, Jr.
      issued a memorandum which provides ―clarification‖ to prior direction on the subject of
      contract profit and incentive arrangements. Specifically, flexibility in structuring contract
      profit and incentive arrangements is stressed in order to ―best motivate contractor
      performance….‖ For example, when award fee arrangements are justified, objective and
      subjective criteria should be the basis for the award fee pool and incentives should be
      based upon past performance and not projected performance.


The next meeting of the Accounting Cost and Pricing committee will be on April 12, 2005, and
will include remarks from Ms. Laura Auletta, Executive Director of the Sec. 1423, Acquisition
Advisory Panel.




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          April 12, 2005 Accounting Cost & Pricing Committee Meeting Agenda


I. Remarks of Laura Auletta, Executive Director of the Section 1423 Acquisition Advisory
     Panel. The Acquisition Advisory Panel was established in accordance with the Services
     Acquisition Reform Act of 2003. ―The Panel‘s Statutory Charter is to review Federal
     contracting laws, regulations, and governmentwide policies, including the use of
     commercial practices, performance-based contracting, performance of acquisition
     functions cross agency lines of responsibility, and governmentwide contracts.‖ The Panel
     is comprised of five working groups including Commercial Practices / Commercial
     Items; Performance-based Contracting; Governmentwide Contracts and Interagency
     Contract Vehicles; Cross-cutting Issues – Small Business, and; Cross-cutting Issues –
     Federal Workforce. Panel's Web site at http://www.acqnet.gov/aap.

II. Informational Items
   A) Home Savings Of America, FSB, and H.F. Ahmanson & Company v. US, CAFC Nos.
      04-5020, 5032, March 7, 2005. Winstar case. Summary judgment against plaintiff's suit,
      alleging the government breached a contractual agreement to accord favorable accounting
      treatment with respect to acquisitions of federally insured thrifts, is vacated where there is
      an issue of whether the parties made a binding promise.

   B) Greenwood Associates, L.P. v. Stephen A. Perry, Administrator, General Services
      Administration, CAFC No. 04-1286, February 22, 2005. Court of Appeals for the Federal
      Circuit (―CAFC‖) affirms a General Services Board of Contract Appeals (―GSBCA‖)
      decision in a GSA lease dispute over property taxes. The court agrees that the term "taxes
      paid for" in the phrase "taxes paid for the calendar year" in the tax adjustment clause of
      the contract was not ambiguous and "In tax parlance, the phrase 'paid for' a certain year
      refers to taxes accrued during that year, regardless when those taxes are actually paid."

   C) Information Systems & Networks Corporation v. US, COFC No. 04-385C, March 31,
      2005. In an earlier opinion, Information I, the court held that plaintiff, a Sub Chapter S
      corporation, which held cost-reimbursement and time & material contracts, was entitled
      to be reimbursed for state income taxes paid by its principle shareholder and which were
      reimbursed to the shareholder by the corporation. Plaintiff now appeals the denials of its
      claims that the rule of Information I should also apply to numerous fixed-price contracts
      that it had with the Department of Defense (―DOD‖). Plaintiff also appeals the denials of
      its claims for lost profits on the earlier cost reimbursement contracts. Judge Block rejects
      all of plaintiff's arguments finding that fixed-price contracts are markedly different from
      cost reimbursement contracts and that any claim for lost profits on the cost
      reimbursement contracts would be barred by the prohibition on cost-plus-
      percentage-of-cost contracts.




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   D) International Data Products Corp. v. US, COFC Nos. 01-459C, 03-2515C, March 28,
      2005. The Air Force was required to terminate this Desktop V Indefinite Delivery
      Indefinite Quantity (―IDIQ‖) contract for convenience when plaintiff, an 8(a) firm,
      informed the government that it was being sold to a large business. The contract had a
      $100,000 minimum and the Air Force had ordered some $35 million dollars worth of
      goods and services at the time of termination. The termination letter informed plaintiff
      that it was still required to provide warranty service on the goods that had been supplied.
      Plaintiff's claims for termination costs and additional charges for warranty services were
      denied. Judge George W. Miller affirms the denial of the claim for termination costs, but
      allows the warranty claim.

      "The clear intention of the Reform Act [15 U.S.C. Sect. 637(a)(21)(A)] was to prevent
      non-disadvantaged businesses from performing 8(a) contracts. That goal is achieved only
      if the termination requires the contractor to cease all performance under the contract,
      including warranty and upgrade work." Judge Miller concludes "Because all work must
      cease when the Government terminates for convenience pursuant to 15 U.S.C. Sect.
      637(a)(21)(A), IDP [International Data Products] was not obligated to continue to
      provide warranty and upgrade services under the Desktop V contract. Plaintiff's motion
      for summary judgment is granted and defendant's motion for summary judgment is
      denied regarding the issue of whether IDP was obligated to continue to provide warranty
      and upgrade services under the Desktop V contract."

   E) Fluor Enterprises, Inc. f/k/a Fluor Daniel, Inc. v. Us, COFC No.00-207C, March 24,
      2005. Department of Commerce cost-plus-fixed-fee contract for services including
      Architect and Engineering (―A&E‖) services. Judge Block grants the government's
      motion for summary judgment finding that the 6% fee limitation of 41 USC 254(b) did
      apply to that portion of the contract for A&E services. However, the Court also finds that
      the portion of the contract for A&E services was void ab initio because the government
      failed to comply with the statutory requirements of 41 USC 254(b). The Court, noting
      that the contract has been fully performed and that the government has received the
      services, finds on an implied contract theory that the contractor is entitled to recover on
      a quantum merit basis.

   F) Sunshine Construction & Engineering, Inc. v.US, COFC No. 02-2450C, March 4, 2005.
      Corps of Engineers construction contract claims. In what Judge Miller describes as a
      "troublesome construction project‖ she follows the reasoning set out in the 2004 Court of
      Federal Claims (―COFC‖) decision in R. P. Wallace, Inc. V. US in apportioning
      liquidated damages between contractor and government-caused delays. The Judge
      also notes that ―the case illustrates the importance of a contractor's bona fides in dealing
      with the government, which unfortunately were found lacking."

   G) Billington Contracting, Inc., ASBCA Nos. 54147, 54149, February 28, 2005. Corps of
      Engineers dredging contract. Contractor appeals the denial of a Type I differing site
      conditions claim. The contract specification notified bidders that previous dredging
      contract records were available at the area Corps office, some 750 miles away. Contractor


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      did not review the prior contract records prior to award. Those records disclosed the same
      conditions that were the subject of the instant claim. The Board grants the government's
      motion for summary judgment holding that where "a contractor 'has opportunity to learn
      the facts, he is unable to prove . . . that he was misled by the contract.'"[citations omitted]

   H) Southwest Marine Inc., ASBCA No 54234, February 23, 2005. Legal costs arising from
      contractor‘s unsuccessful defense of a citizen suit that alleged violations of the Clean
      Water Act were not allowable because the costs were similar to costs disallowed under
      Federal Acquisition Regulation (―FAR‖) 31.205-47(b)(2), the ASBCA has ruled.
      Because the costs were specifically covered under the FAR, the Board relied on the U.S.
      Court of Appeals for the Federal Circuit‘s decision, Boeing North American Inc. v.
      Rosche, 298 F.3d 1274 (Fed. Cir. 2002), 44GC ¶ 308, to determine whether the costs
      were ―similar or related‖ to costs covered by the FAR.

   I) American Bank Note Company, AGBBCA No. 2004-146-1, February 1, 2005. Food and
      Nutrition Service requirements contract. Contractor submits a claim at the contract unit
      price for work done in excess of the contract specified maximum. Contractor argues that
      the government has the burden of proving that it is entitled to other than the unit price.
      Writing for the Board, Judge Vergilio denies the appeal finding that the contractor has the
      burden of proving its entitlement to an equitable adjustment for work done in excess of
      the contract maximum and that the contract unit price does not apply to work in
      excess of the maximum.

   J) CourtSmart Digital Systems, Inc.—Costs, B-292995.7, March 18, 2005. Where the
      contracting agency challenges the reasonableness of hourly rates claimed for outside
      legal services for both attorney and legal assistant fees, the General Accountability
      Office (―GAO‖) will recommend reimbursement of actual costs claimed to the extent
      relevant evidence establishes that the actual costs reflect customary rates charges for
      similar services; to the extent customary rates for costs claimed are not established, GAO
      will recommend reimbursement of a portion of the costs by applying rates that the record
      establishes as customary rates charged for similar services.

   K) National Institutes of Health - Food at Government-Sponsored Conferences, B-300826,
      March 3, 2005. The National Institutes of Health (―NIH‖) may pay for legitimate,
      reasonable conference costs, including meals and light refreshments, of a formal
      conference pertaining to Parkinson‘s disease subject to the conditions outlined herein. A
      formal conference typically involves topical matters of interest to, and participation of,
      multiple agencies and/or nongovernmental participants. In addition, other indicators of a
      formal conference include registration, a published substantive agenda, and scheduled
      speakers or discussion panels. An agency hosting a formal conference may consider the
      cost of providing meals and refreshments to conference attendees an allowable
      conference cost so long as (1) meals and refreshments are incidental to the conference,
      (2) attendance at the meals and when refreshments are provided is important for the host
      agency to ensure full participation in essential discussions, lectures, or speeches
      concerning the purpose of the conference, and (3) the meals and refreshments are part of
      a formal conference that includes not just the meals and refreshments and discussions,


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      speeches, or other business that may take place when the meals and refreshments are
      served, but also includes substantial functions occurring separately from when the food is
      served. The NIH conference here satisfies these three criteria. Without statutory authority
      to charge a fee and retain the proceeds, NIH may not charge a registration or other fee to
      defray the costs of providing meals or light refreshments. An appropriation establishes a
      maximum authorized program level, and an agency, without specific statutory authority,
      may not augment its appropriations from sources outside the government.

   L) McCain, Auditors Question Army Modernization Effort, GAO-05-428T, March 16, 2005.
      The GAO was asked to assess (1) Future Combat System (―FCS‖) technical and
      managerial challenges; (2) prospects for delivering FCS within cost and scheduled
      objectives; and (3) options for proceeding. FCS is to provide a new generation of 18
      manned and unmanned ground vehicles, air vehicles, sensors, and munitions linked by an
      information network.

      1. ―In its unprecedented complexity, FCS confronts the Army with significant technical
         and managerial challenges in its requirements, development, finance, and
         management. Technical challenges include the need for FCS vehicles to be smaller,
         weigh less, and be as lethal and survivable as current vehicles, which requires (1) a
         network to collect and deliver vast amounts of intelligence and communications
         information and (2) individual systems, such as manned ground vehicles, that are as
         complex as fighter aircraft.‖

      2. ―Its cost will be very high: its first increment—enough to equip about 1/3 of the
         force—will cost over $108 billion, with annual funding requests running from $3
         billion to $9 billion per year.‖

      3. ―The Army is using a Lead System Integrator to manage FCS and is using a
         contracting instrument—Other Transaction Agreement—that allows for more flexible
         negotiation of roles, responsibilities, and rights with the integrator. The FCS is at
         significant risk for not delivering required capability within budgeted resources.‖

      4. ―Nearly 2 years after program launch and with $4.6 billion invested, requirements are
         not firm and only 1 of over 50 technologies are mature. . . . Progress in critical
         areas—such as the network, software, and requirements—has in fact been slower, . .‖

   M) The Air Force Should Improve How It Purchases AWACS Spare Parts, GAO Report 05-
      169, February 16, 2005. Over the past several years, the Air Force has negotiated and
      awarded more than $23 million in contracts to the Boeing Corporation for the purchase of
      certain spare parts for its Airborne Warning and Control System (―AWACS‖) aircraft.
      Since they first became operational in March 1977, AWACS aircraft have provided U.S.
      and allied defense forces with the ability to detect, identify, and track airborne threats. In
      March 2003, GAO received allegations that the Air Force was overpaying Boeing for
      AWACS spare parts. This report provides the findings of GAO's review into these
      allegations. Specifically, GAO identified spare parts price increases and determined
      whether the Air Force obtained and evaluated sufficient information to ensure the prices


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      were fair and reasonable. GAO also determined the extent to which competition was used
      to purchase the spare parts.

   N) Army Fraud Fighter‘s Website, February 2005. Last month the Army launched its "Army
      Fraud Fighter's Website." Among other things, this website provides current Compliance
      Agreements between the Army and contractors. The Army Fraud Fighter's Website can
      be accessed through the U.S. Army JAG Corps's Home Page (JAGCNET) at
      https://www.jagcnet.army.mil/ use the link under "Civil Law" at the lower portion of the
      JAGCNET home page.

III. Regulatory Developments
   A) Potential Comments – Proposed Rule – Earned Value Management Systems (―EVMS‖),
      70 Fed. Reg.17945, April 8, 2005. The Civilian Agency Acquisition Council and the
      Defense Acquisition Regulations Council (―Councils‖) are proposing to amend the FAR
      to implement the EVMS requirements in OMB Circular A-11, Part 7, Planning,
      Budgeting, Acquisition, and Management of Capital Assets, and the supplement to
      Part 7, the Capital Programming Guide. This proposed rule establishes standard
      EVMS provisions, a standard clause, and a set of guidelines for Governmentwide use.
      The Government is specifically requesting comments on the feasibility of conducting
      Integrated Baseline Reviews before award. Draft comments should be submitted by
      May 25, 2005.

   B) Potential Comments – Proposed Rule – Contracting By Negotiation, 70 Fed. Reg. 14624,
      March 23, 2005. The proposed changes would delete unnecessary text at Department of
      Defense FAR Supplement (―DFARS‖) 215.000, 215.204-1, 215.304(c)(ii), and
      215.305(b), as well as delete text at DFARS 215.204-2 regarding line item identification
      requirements for contracts containing both fixed-price and cost-reimbursement line items.
      The rule would also delete text at DFARS 215.303 and 215.304 containing procedures
      for preparation of source selection plans and examples of source selection evaluation
      factors. This text will be relocated to the new DFARS companion resource, Procedures,
      Guidance, and Information (―PGI‖), available at http://www.acq.osd.mil/dpap/dars/pgi.
      Draft comments should be completed by May 9, 2005.

   C) Potential Comments – Proposed Rule - Waiver of Consequential Damages and ―Post
      Award‖ Audit Provisions, 70 Fed. Reg. 13005, March 17, 2005. The General Services
      Administration (―GSA‖) has announced an extension of the public comments period and
      is seeking comments on whether the GSA Acquisition Regulation (―GSAR‖) should be
      revised to include a waiver of consequential damages for contracts awarded for
      commercial items under the FAR. The GSA is also requesting comments on whether
      "post award" audit provisions should be included in its Multiple Award Schedules
      (―MAS‖) contracts and government-wide acquisition contracts (―GWACs‖). Parties
      interested in presenting at the public meeting must register and submit their presentations
      by April 7, 2005. The GSA will hold its public meeting on April 14, 2005, from 9 a.m. to
      4:00 p.m. EST., at the General Services Administration, National Capital Region, 301 7th




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      and D Street, SW, Washington, DC 20407. Draft comments should be submitted by
      April 25, 2005.

   D) Potential Comments – Interim Rule – Increased Justification and Approval Threshold for
      DoD, NASA, and Coast Guard, 70 Fed. Reg. 11739, March 9, 2005. Interim rule that
      amends the FAR to increase the justification and approval thresholds for DOD, NASA,
      and the U.S. Coast Guard, from $50,000 to $75,000. This rule implements Section 815
      of the Ronald W. Reagan National Defense Authorization Act for Fiscal Year 2005 (Pub.
      L. 108-375), which amended the dollar amounts contained in 10 U.S.C. § 2304(f)(1)(B).
      In addition, this rule amends the outdated reference to "GS-16" with the terminology "a
      grade above GS-15." Draft comments should be submitted by April 22, 2005.

   E) Final Rule – Major Systems Acquisition, 70 Fed. Reg. 14574, March 23, 2005. The
      Defense Department announced a final rule amending the DFARS to update text
      pertaining to major systems acquisition, earned value management systems, and
      cost/schedule status reporting. This final rule deletes the definitions of "systems" and
      "systems acquisition" in DFARS 234.001, since these terms are not used within DFARS
      part 234. The rule also relocates text on earned value management systems from DFARS
      part 234 to part 242, since earned value management system requirements are not
      limited to major systems acquisition. In addition, the rule moves the requirement for
      the procuring contracting officer to obtain assistance from the administrative contracting
      officer when determining the adequacy of a proposed earned value management system
      plan to the new DFARS companion resource, Procedures, Guidance, and Information
      (PGI), available at http://www.acq.osd.mil/dpap/dars/pgi.

   F) Final Rule – Cost Accounting Standards Administration, 70 Fed. Reg. 11743, March
      9, 2005. Final rule that revises language in the FAR pertaining to the Cost Accounting
      Standards (―CAS‖) Administration, and the related FAR contract clause for
      Administration of Cost Accounting Standards. In addition, a new contract clause is
      added titled "Proposal Disclosure--Cost Accounting Practice Changes". This
      announcement ends a process which began on April 18, 2000, with the publication of a
      proposed rule making these changes. The rule describes the process for determining and
      resolving the cost-impact on contracts and subcontracts when a contractor makes a
      compliant change to a cost accounting practice or follows a noncompliant practice.

   G) Final Rule – Defense Federal Acquisition Regulation Supplement; Resolving Tax
      Problems, 70 FR 8538, February 22, 2005.Final rule amending the DFARS to update text
      pertaining to resolution of tax problems under DOD contracts.

   H) Final Rule –Defense Federal Acquisition Regulation Supplement; Bonds, 70 Fed. Reg.
      8537, February 22, 2005. Final rule amending the DFARS to update text pertaining to the
      use of fidelity and forgery bonds under DoD contracts. Amends DFARS 228.105 to
      clarify that fidelity and forgery bonds are authorized for use under certain circumstances;
      and Amends DFARS 228.106-7(a) to update a cross-reference. DoD has adopted the
      proposed rule as a final rule without change.



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   I) Final Rule – Defense Federal Acquisition Regulation Supplement; Tax Procedures for
      Overseas Contracts, 70 Fed. Reg. 6375, February 7, 2005. Final rule amending the
      DFARS to update text pertaining to tax relief for acquisitions conducted in certain
      foreign countries. The rule revises DFARS Subpart 229.70 to remove procedures that
      DoD contracting officers use in obtaining tax relief and duty-free import privileges for
      acquisitions conducted in Spain and the United Kingdom. This text has been relocated to
      the new DFARS companion resource, Procedures, Guidance, and Information (PGI),
      available at http://www.acq.osd.mil/dpap/dars/pgi.

   J) Federal Acquisition Regulation; 2005 FAR Reissue Posted to FAR Website for
      Download and Use, 70 FR 11946, March 10, 2005. The 2005 Federal Acquisition
      Regulation (―FAR‖) Reissue is available for downloading and use at
      http://www.acqnet.gov/far. The FAR is available in HTML and PDF formats. Users
      intending to print the FAR can refer to the downloadable, print-only version in PDF.


IV. An Inside Look at the Legislative Impact of Government Contracting: A Practical
    Guide to Helping Your Clients Survive and Prosper – ABA Section Of Public Contract
    Law Meeting in Asheville, North Carolina – April 28-29, 2005

   A) Seminar Thursday April 28, 2005.

   B) Council Meeting Friday April 29, 2005.


The next meeting of the Accounting Cost and Pricing committee will be on May 10, 2005.




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          June 14, 2005 Accounting Cost & Pricing Committee Meeting Agenda


I. Recent Decisions With Significant Findings Relating To Cost Or Pricing Issues
   A) Omni Development Corporation, AGBCA Nos. 97-203-1 and 98-182-1, May 25, 2005.
      Agricultural Board of Contract Appeals (―AGBCA‖) awards revisionary damages
      under terminated Forest Service (―FS‖) contract to lease office space. In a 102-page
      opinion the AGBCA sustains the appeal and awards approximately $205,000 in damages
      based primarily on the present day reversionary value of the building.

      "While the FS is not in the real estate business, in entering into this lease it entered the
      commercial marketplace. As such, it must be expected to operate in the manner of an
      educated party to transactions in which it engages. It can protect itself, by means of
      contract clauses, but otherwise it is held to normal commercial practice. As we pointed
      out at the outset, the FS has not addressed this matter in any lease clause. When we look
      to what was foreseeable in the commercial marketplace, the evidence and law
      overwhelmingly dictate that the loss of reversionary value is a damage which should have
      been contemplated by a lessee, such as the FS. ..."

      Judge Vergilio dissents vigorously both as to the majority's overturning of the default and
      the damages theory.

      "The majority is innovative in awarding the lessor a reversionary value (the projected
      price that the building would sell for in 2007 less the projected cost to sell the building,
      adjusted to a present value) as breach damages for a building never constructed. Such a
      conclusion is inconsistent with the contract and case law for several readily apparent
      reasons. I need not address the speculative nature of the awarded reversionary value and
      the underlying bases for valuing the unconstructed building, on an undeveloped piece of
      property, with imaginary tenants at conjectured rental rates, which separately supports
      why recovery of a reversionary value is inappropriate."

   B) CACI International, Inc., ASBCA Nos. 53058, 54110, April 29, 2005. CACI Claims
      some $160,000,000 in anticipatory profits from the alleged breach of a no-cost
      license agreement related to a value added network license agreement (―VLA‖) as part
      of DoD‘s Electronic Data Interchange efforts. In a 44-page opinion by Judge Dicus, the
      Board concludes with this summary: ―We have found the government breached the no-
      cost VLA when it did not timely complete the implementation schedule incorporated by
      reference into the VLA and when it did not follow-through on its ‗single face to industry‘
      approach. However, CACI has sought only lost profits, and the lost profits alleged by
      CACI are not recoverable because:

      1) the profits allegedly lost were not the proximate result of the breach;

      2) the profits allegedly lost were not foreseeable by the parties;



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      3) the profits allegedly lost were not reasonably certain;

      4) the damage estimates were not consistent with the facts of the case; and

      5) the profits allegedly lost were too remote and consequential because they would have
         been realized, if at all, through collateral enterprises.‖

   C) Tesoro Hawaii Corporation, Tesoro Alaska Company and Hermes Consolidated, Inc.,
      d/b/a Wyoming Refining Company v. United States, CAFC No. 04-5064, April 26, 2005.
      Decision involving the Defense Energy Support Center (―DESC‖) economic price
      adjustment (―EPA‖) clause where DESC drew its EPA reference prices from the market
      publication known as the Petroleum Marketing Monthly. This may end several cases in
      progress at the U.S. Court of Federal Claims (―COFC‖) since the Federal Circuit reverses
      and holds that the government's use of the EPA clause was proper. The court notes that
      nine of the ten COFC decisions addressing this issues since MAPCO (i.e., 27 Fed. Cl. at
      409), have applied the reasoning of MAPCO and concluded that DESC's use of a market-
      based EPA was not authorized by the Federal Acquisition Regulation (―FAR‖). Only one
      case, Williams Alaska Petroleum, found differently and there Judge Weise concluded that
      the reasoning in MAPCO as contradictory to the plain meaning of the words used in the
      regulation. The court here agrees with the analysis in the Williams decision and holds
      that it was legal error for the COFC to limit the use of market based prices and therefore
      reverses.

   D) Appeal of Lear Siegler Services, Inc., ASBCA No. 54449, April 11, 2005. Air Force
      contract subject to the provisions of the Service Contract Act. Appellant‘s predecessor
      contractor‘s Collective Bargaining Agreement (―CBA‖) provided some of the health and
      welfare benefits under a ―defined-benefit‖ plan. Appellant essentially adopted the
      predecessor CBA with the defined benefit provisions. The CBA did not state a minimum
      cost contribution requirement to be paid by the appellant for those benefits and those
      costs were not a part of the collective bargaining process. Appellant learned during
      performance that its costs for the defined-benefit plan would be increased and submitted
      a price adjustment, and ultimately a certified claim, to the Air Force. Both were denied.
      The Board grants the government‘s motion for summary judgment. In what appears to be
      a case of first impression for a claim for increased costs for a defined-benefits plan, the
      Board agrees with the government‘s position that the Price Adjustment clause in the
      contract ―does not require reimbursement of the increased costs of H&W [health and
      welfare] benefits claimed because the change in cost did not result from the application of
      a DoL [Department of Labor] wage determination or collective bargaining.‖




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II. Regulatory Developments
   A) Potential Comments – Interim Rule – Amend FAR: Submission of Cost or Pricing Data
      on Noncommercial Modifications of Commercial Items, 70 Fed. Reg. 33659 June 8,
      2005. ―The Civilian Agency Acquisition Council and the Defense Acquisition
      Regulations Council [(―FAR Councils‖)] have agreed on an interim rule amending the
      FAR regarding prohibition on obtaining cost or pricing data to implement Section 818 of
      Public Law 108–375 . . . 10 U.S.C. 2306a provides exceptions to the requirement for
      submission of cost or pricing data, including an exception for commercial items. Section
      818 states that the exception for a commercial item does not apply to
      noncommercial modifications of a commercial item that are expected to cost, in the
      aggregate, more than $500,000 or 5 percent of the total price of the contract,
      whichever is greater. . . . The [FAR] Councils are revising the commercial item
      discussion in paragraph (c)(3) of FAR 15.403–1, Prohibition on Obtaining Cost or
      Pricing Data, to reflect the requirements of Section 818. This includes inserting a new
      paragraph (3)(ii). This new paragraph provides the exception to the requirement for cost
      or pricing data for minor modifications that do not change the item from a commercial
      item to a noncommercial item. The exception applies to all such minor modifications for
      acquisitions funded by agencies other than DoD, NASA, and Coast Guard. For
      acquisitions funded by DoD, NASA, and Coast Guard, the exceptions apply to all such
      modifications if the total cost of the modifications do not exceed the greater of $500,000
      or 5 percent of the total price of the contract.‖ Draft comments should be completed
      by July 25, 2005.

   B) Potential Comments – Interim Rule – Amend DFARS: Incentive Program for Purchase of
      Capital Assets Manufactured in the United States, 70 Fed. Reg. 29643, May 24, 2005.
      Interim rule that amends the Department of Defense FAR Supplement (―DFARS‖)
      215.304 and 216.470 to implement Section 822 of the National Defense Authorization
      Act for Fiscal Year 2004 (Public Law 108-136). Section 822 added 10 U.S.C. 2436,
      which requires the Secretary of Defense to (1) establish an incentive program for
      contractors to purchase capital assets manufactured in the United States under
      contracts for major defense acquisition programs; and (2) provide consideration for
      offerors with eligible capital assets in source selections for major defense acquisition
      programs. In addition, 10 U.S.C. 2436 authorizes the Secretary of Defense to use the
      Defense Industrial Capabilities Fund, established under Section 814 of the National
      Defense Authorization Act for Fiscal Year 2004, for incentive payments under the
      program. However, no funds have been appropriated for the Industrial Capabilities Fund.
      This rule was not subject to Office of Management and Budget review under Executive
      Order 12866, dated September 30, 1993. Draft comments should be completed by
      July 11, 2005.

   C) Potential Comments – Interim Rule – OFPP Cost Accounting Standards Board;
      Applicability of Cost Accounting Standards Coverage, May 23, 2005. The Cost
      Accounting Standards (―CAS‖) Board is revising the criteria applicable to United
      Kingdom (―UK‖) contractors for filing a Disclosure Statement, Form No. CASB DS-1.



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      The Board is promulgating this interim rule in order to comply with a specific request by
      the UK Ministry of Defence to simplify the compliance process with CAS Board
      disclosure requirements for UK contractors. Unlike certain other foreign contractors
      (e.g., German and Canadian), UK contractors currently have to file a regular CAS Board
      Disclosure Statement (DS–1). The UK Ministry of Defence initially approached the
      Board with a request to use the corresponding UK form ‗‗Questionnaire on Method of
      Allocation of Costs‘‘ (QMAC), in lieu of the DS–1. After a review of the content of the
      QMAC, the UK and U.S. representatives agreed that it did not have the same scope as the
      DS–1. Therefore, it was agreed that to cover the gap in the coverage a ‗‗Supplemental
      QMAC‘‘ was needed. The CAS Board has approved a Supplemental QMAC that is
      acceptable to the UK Ministry of Defence, and the CAS Board has received a request
      from the UK Ministry of Defence to allow UK contractors to submit their basic QMAC,
      together with the Supplemental QMAC, in lieu of the DS–1. Draft comments should be
      completed by July 22, 2005.

   D) Potential Comments – Proposed Rule – Amend DFARS: Update Text Pertaining to
      Contract Financing, 70 Fed. Reg. 23827, May 5, 2005. The Department of Defense
      (―DOD‖) is proposing to amend the DFARS to update text pertaining to Contract
      Financing, including clarification of text at 232.501-3(b) on limitation of the
      Government‘s liability when the contract price exceeds the funds obligated under
      the contract. Draft comments should be completed by June 21, 2005.

   E) Notice - Contract Financing: Performance-Based Payments, 70 Fed. Reg. 32306, June 2,
      2005. The Director of Defense Procurement and Acquisition Policy (―DPAP‖)
      announced the completion of an internal assessment regarding the use of
      performance-based payments as a method of financing for DOD contracts. This
      assessment produced a number of recommendations for revisions to policy, guidance, and
      training on the use of performance-based payments. Those 47 recommendations
      involve possible revisions to the FAR, the DFARS, the DoD User's Guide to
      Performance-Based Payments (User Guide), and DoD training programs. DOD
      anticipates publishing these recommendations as final rules in July and August of 2006.
      This notice contains a summary of the public responses received by DOD to its request
      for public input.

   F) Final Rule – FAR: Gains and Losses, 70 Fed. Reg. 33673, June 8, 2005. ―The [FAR
      Councils] have agreed on a final rule amending the FAR by revising the contract cost
      principles for Gains and losses on disposition or impairment of depreciable property or
      other capital assets, Depreciation costs, and Rental costs. The final rule adds language to
      specifically address the gain or loss recognition of sale and leaseback transactions to
      be consistent with the date at which a contractor begins to incur an obligation for
      lease or rental costs. A date for recognition of gain or loss associated with sale and
      leaseback transactions was previously undefined within the cost principles. In addition,
      revised language is also added to recognize that an adjustment to the lease/rental cost
      limitations are required to ensure that the total costs associated with the use of the subject
      assets do not exceed the constructive costs of ownership.‖ Primarily relates to FAR
      31.205–16, Gains and losses on disposition or impairment of depreciable property or


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      other capital assets; FAR 31.205–24, Maintenance and repair costs; and FAR 31.205–26,
      Material costs. There are also changes to FAR 31.205–11 and FAR 31.205–36 .

   G) Final Rule – FAR: Deferred Compensation and Postretirement Benefits Other Than
      Pensions, 70 Fed. Reg. 33671, June 8, 2005. ―The [FAR Councils] have agreed on a final
      rule amending the FAR by revising the cost principles for Deferred compensation other
      than pensions, and Postretirement benefits other than pensions. The related contract
      clause, Reversion or Adjustment of Plans for Postretirement Benefits Other Than
      Pensions, is also revised. . . . The revisions are intended to revise contract cost
      principles and procedures, in light of the evolution of Generally Accepted
      Accounting Principles, the advent of Acquisition Reform, and experience gained
      from implementation of the cost principles in the FAR.‖

   H) Final Rule – Federal Employees Health Benefits Acquisition Regulation: Large Provider
      Agreements, Subcontracts, and Miscellaneous Charges, 70 Fed. Reg. 31374, June 1,
      2005. The Office of Personnel Management (―OPM‖) has issued a final rule to amend its
      Federal Employees Health Benefits Acquisition Regulation (―FEHBAR‖). This new rule
      establishes additional requirements, including audit, for Federal Employees Health
      Benefits Program (―FEHB‖) experience-rated carriers' Large Provider Agreements.
      The new rule also modifies the dollar threshold for review of carriers' subcontract
      agreements, raising it to $550,000; revises the definitions of Cost or Pricing Data and
      Experience-rate to reflect mental health parity requirements; updates the contract records
      retention requirement; updates the FEHB Clause Matrix; and conforms subpart and
      paragraph references to FAR revisions made since the last FEHBAR update.

   I) Final Rule – Federal Employees Health Benefits Program; Revision of Contract Cost
      Principles and Procedures, and Miscellaneous Changes, 70 Fed. Reg. 31389, June 1,
      2005. The OPM has issued a regulation which amends the FEHBAR to provide
      additional contract cost principles and procedures for FEHB Program experience-rated
      contracts. Both the FEHBAR and FAR Part 31 govern the cost accounting principles and
      practices for FEHB contracts. These new regulations may apply to contractors that also
      allocate costs to other federal contracts subject to CAS-coverage or FAR provisions
      related to cost-based contracts. The new regulation:
       Provides guidance on allocating certain indirect costs to FEHB experience-rated
          contracts;
       Provides guidance on determining logical cost groupings as required by FAR
          31.203(c);
       Provides methods for achieving the FAR 31.201-4 requirement that costs are to be
          allocated on the basis of relative benefits received or other equitable relationship;
       Provides guidance on the allocation of business unit general and administrative
          (―G&A‖) expenses (FEHBAR 1631.203-71) and home office expenses to carriers'
          business segments (FEHBAR 1631.203-72) to supplement FAR 31.203;
       Specifically recognizes that monthly indirect cost rates are a practice of the insurance
          industry and are therefore permitted by FAR 31.203;



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         Contains other changes that relate to the allowability of facilities cost of money and
          the assignability of compensated personal absences.

   J) Memo – OMB Promotes Use of Strategic Sourcing in Acquisitions, May 25, 2005. The
      Office of Management and Budget (―OMB‖) has issued a memorandum requiring
      agencies to leverage the government's buying power by applying strategic sourcing
      principles to acquisitions. Strategic sourcing is the collaborative and structured process
      of analyzing an organization's spending and using the information to develop strategies
      that reduce the purchase price for goods. Agency Chief Acquisition Officers will lead the
      government-wide strategic sourcing initiative in coordination with agency Chief
      Financial Officers, Chief Information Officers, agency small business advocates, and
      other organization leaders. Chief Acquisition Officers will spearhead agency efforts to
      analyze spending data, identify high-volume commodity purchases, and develop
      strategies to minimize acquisition prices for each agency.

   K) Auditing Internal Control Over Financial Reporting, PCAOB Staff Questions And
      Answers, May 16, 2005. The Public Company Accounting Oversight Board (―PCAOB‖)
      offered guidelines on how to reduce the cost of internal reviews and financial reporting
      analyses necessary for the implementation of Sarbanes-Oxley. The Securities and
      Exchange Commission (―SEC‖) said some of the costs "may have been unnecessary, due
      to excessive, duplicative or misfocused efforts‖. The staff guidance was accompanied by
      a 14-page policy statement from the five-member oversight board.
   L) Semiannual Regulatory Agenda for Department of Defense, General Services
      Administration, National Aeronautics and Space Administration, Federal Acquisition
      Regulation; 70 Fed. Reg. 27822, May 16, 2005. This agenda provides summary
      descriptions of regulations being developed by the Civilian Agency Acquisition Council
      and the Defense Acquisition Regulations Council in compliance with Executive Order
      12866 ``Regulatory Planning and Review.'' The Regulatory and Federal Assistance
      Division has attempted to list all regulations pending at the time of publication, except for
      minor and routine or repetitive actions.

   M) ABA Responds – Comment Letter Dated May 10, 2005 Addresses GSAR Revision
      Regarding Post-Award Audit Provisions; Advance Notice of Proposed Rulemaking
      2005-N01, 70 Fed. Reg. 19051, April 12, 2005. Addressed whether post-award audit
      provisions should be included under GSA‘s Multiple Award Schedule (―MAS‖) contracts
      and Government-wide acquisition contracts (―GWACs‖). ―In sum, any contemplated
      expansion of post-award audit rights finds no basis in law or executive order and, in fact,
      is contrary to expressed legislative intent. . . .‖

   N) ABA Responds – Comment Letter Dated May 10, 2005 Addresses GSAR Revision
      Regarding Limitation on Consequential Damages; Advance Notice of Proposed
      Rulemaking 2005-N01, 70 Fed. Reg. 19051, April 12, 2005. Addressed whether the
      GSA Acquisition Regulation (―GSAR‖) should be revised to include a waiver of
      consequential damages for contracts awarded for commercial items under the FAR. ―The
      Section strongly encourages GSA to move forward with a proposed rule to amend the


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      GSAR to supplement and expand the limited waiver of consequential damages currently
      provided for in FAR 52.212-4 ‗Contract Terms and Conditions – Commercial Items‘.
      The Section also recommends that the FAR Council amend FAR 52.212-4 to provide for
      the same change, thereby making the GSAR amendment unnecessary.‖

   O) Policy Letter – Developing and Managing the Acquisition Workforce, 70 Fed. Reg.
      20181, April 18, 2005. The Office of Management & Budget, Office of Federal
      Procurement Policy (―OFPP‖) announces the publication of OFPP Policy Letter 05-01,
      which sets policies to promote uniform implementation of a program to develop the
      federal acquisition workforce. This Policy Letter supersedes and rescinds Policy
      Letters 92-3 and 97-01 and applies to all federal agencies except those subject to the
      Defense Acquisition Workforce Improvement Act (―DAWIA‖).

   P) ―Audit Close-Out Initiative‖ Memorandum For Secretaries of the Military
      Departments, April 15, 2005. Memorandum that kicked-off an initiative ―that will ensure
      that contracting personnel are efficiently working to close-out Defense Contract Audit
      Agency (DCAA) audit reports . ..‖ The Action Plan for this initiative is as follows:
      ―April 22, 2005: The Military Departments and Defense Agencies will identify a POC
      [point of contact] for the subject initiative and notify my point of contact, Mr. David
      Capitano, by e-mail at david.capitano@,osd.mil.
      May 4, 2005: DPAP [Director, Defense Procurement and Acquisition Policy] will
      distribute a list to the Military Departments and Defense Agencies of all open DCAA
      audit findings that are six months or older.
      June 6, 2005: The Military Departments and Defense Agencies will provide input to
      DPAP on the open DCAA audit findings, including (a) the reason the audit findings have
      not be resolved, and (b) what actions are being taken to facilitate close-out.
      June 30, 2005: DPAP will produce an initial report (a) summarizing the reasons for the
      open audit reports, (b) providing an implementation strategy for reducing the number of
      open audit reports (e.g., prioritizing the open reports based on age), and (c) identifying
      recommend solutions to any systemic problems impeding audit close-out.‖

   Q) The Need For Regulatory And Statutory Reform To Provide For More Equitable
      Payment Of Interest In Disputes, Claims And Similar Situations; by Alan V.
      Washburn, Alan E. Peterson and Thomas D. Patrick; June 8, 2005; Statement To The
      Acquisition Advisory Panel. Opening Remarks are reproduced below:
      ―Virtually every merchant, businessperson, tradesman, accountant, academic and
      economist in the United States believes that interest, or financing cost, must be
      recognized in order to measure properly the cost of capital, advance of funds, or loan
      made over time, or, in simplest terms, when a delay occurs in the receipt of money. As
      renowned educator and author on costs, Professor Charles Horngren, said long ago on
      interest as a cost:




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             Interest is the cost of using money. It is the rental charge for
             funds, just as rental charges are made for the use of buildings and
             equipment. Whenever a time span is involved, it is necessary to
             recognize interest as a cost of using invested funds. This applies
             even if the funds in use represent ownership capital and if interest
             does not entail an outlay of cash. [Emphasis added.]

      Indeed, the concept aptly described by Professor Horngren and one so integral to today‘s
      business conduct as well as life in general, is well understood by the average ‗person on
      the street,‘ too. Everyone who has purchased a house, bought a car, or who has a credit
      card understands that when funds are advanced or payment is delayed, interest applies.
      And, in the commercial world, whenever a significant delay occurs for an amount
      otherwise owed, interest is routinely assessed against the entity failing to make the
      payment. Interest as a real cost is economic truth.

      Astonishingly, though, the U.S. Federal Government, in its capacity as the world‘s largest
      purchaser of goods and services—both as a matter of regulatory policy and as a result of
      real ambiguity in various statutes and case decision outcomes—avoids payment of
      interest on amounts otherwise acknowledged, or judicially determined, to be Federal
      Government debts. The resulting subsidy of the Federal Government by its suppliers and
      others who engage in Federal transactions is unconscionable, in and of itself. Such a
      ‗free ride‘ also adversely affects our nation‘s procurement objectives by discouraging
      companies from competing in the Federal marketplace and depriving those, that must go
      through a disputes process to try to collect monies otherwise owed, of the funds needed to
      hire workers, invest in plant and new technologies and become stronger competitors in
      the international, as well as the national marketplaces.

      The interest cost hardships which U.S. Federal Government interest policies impose on
      small businesses are especially egregious.‖

   R) The Issue That Will Not Die - How Much Should Contractors Be Paid For Work They
      Assign To Subcontractors? There has been another series of articles recently. Summary
      points are provided below.
         FAR 52.232-7(b) (4) (iii) -- Payments Under Time-and-Materials and Labor-Hour
          Contracts. "The government will not reimburse the contractor for any costs arising
          from the letting, administration or supervision of performance of the subcontract, if
          the costs are included in the hourly rates."




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          The GSA has ruled that in some situations, prime contractors on GSA schedules can
           charge the government their own rates for work performed by subcontractors. In other
           instances, the GSA has said the prime contractor can charge the government only
           what it is paying the subcontractor (i.e., zero mark-up for profit or even overhead).
          DCAA memo "causing uncertainty among auditors and contractors as to what rates
           should be used to reimburse the prime contractor for the effort of the subcontractor."
          GSA agreements (per GSA web site): 1) Contractor Team Agreement (i.e.,
           contractors collaborate and hold joint responsibility) -- contractors can charge only
           the rate that they have negotiated with GSA. 2) Prime-subcontractor relationship --
           Prime contractor can charge its own rate for the entire project and keep the difference
           between what the prime pays the sub and what the prime is paid.
          David Drabkin, Deputy Chief Acquisition Officer at GSA: "If the contract is a fixed-
           price, performance-based contract, the prime contractor, as long as it delivers the
           level of services contracted for, has the freedom to choose how to best achieve the
           agency's outcome. In other cases, it is very fact-specific and there is no general
           answer."
   S) Congratulations To The Recently Nominated Leaders of the ABA Public Contract Law
      Section!
          Vice-Chair : Patricia A. Meagher
          Secretary: Michael W. Mutek
          Budget Officer: Carol N. Park-Conroy
          Section Delegate: Mary Ellen Coster Williams
          Council Members: Daniel F. Doogan, E. Sanderson Hoe, Jery K. Somer, Holly
           Emrick Svetz and Jennifer L. Dauer



The next meeting of the Accounting Cost and Pricing committee is scheduled for Wednesday,
July 13, 2005. This meeting will be held jointly with the ABA Contract Claims and Disputes
committee. We will discuss Defective Pricing Issues in light of United States ex rel. Woodlee v.
SAIC, No. SA-02-CA-28-WJ (W.D. Texas), as well as other topics.




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           July 13, 2005 Accounting Cost & Pricing Committee Meeting Agenda


I. Panel Discussion relating to Defective Pricing Issues and United States ex rel. Woodlee v.
      SAIC, No. SA-02-CA-28-WJ (W.D. Texas).
   Background: In the SAIC case, the government alleged that the contractor violated the
   Truth in Negotiations Act ("TINA") by failing to disclose to the Air Force certain "risk
   reserve" analyses used in pricing an environmental cleanup contract. TINA-covered
   contracts require submission to the government certain "cost or pricing data" to support
   negotiations regarding the contract price, and the contractor must certify that the data
   submitted are current, accurate, and complete. In response to the Air Force's "Defective
   Pricing Notice", the Professional Services Council ("PSC") asserted that the Air Force
   significantly expanded the definition of "cost or pricing data" under TINA. In particular,
   PSC said that the Air Force sought to require the disclosure of managerial judgments, rather
   than the solely factual information contemplated by TINA. PSC also objected that the Notice
   was not clearly limited to SAIC, and that the Air Force was attempting to establish
   acquisition policy without complying with the procedural requirements for notice and
   comment rulemaking. In response, Air Force Deputy Assistant Secretary for Contracting
   Charlie Williams assured the PSC that the Notice had no broader application than in the
   SAIC case. However, a subsequent Supplemental Notice from Steven Shaw, Air Force
   Deputy General Counsel for Contractor Responsibility, stated that the substantive concerns
   set out in the Notice "apply to all TINA-covered contract actions with all contractors, not just
   SAIC." On April 27, 2005, without admitting wrongdoing, Science Applications
   International Corp. ("SAIC") agreed to pay $2.5 million to resolve the case.
   Discussion Leaders - The panelists for what is sure to be a lively discussion will include:
   Alan Chvotkin has been a senior vice president of the Professional Services Council since
   November 2001. He draws on his years of government and private sector procurement and
   business experience to facilitate congressional and executive branch knowledge of and
   interest in issues facing PSC's membership. Previously, he was the AT&T vice president,
   large procurements and state and local government markets. Earlier at AT&T, he was vice
   president, business management. From 1986 to 1995, he was corporate director of
   government relations and senior counsel at Sundstrand Corporation.
   Rodney A. Grandon is Assistant Deputy General Counsel (Acquisition) in the Office of the
   General Counsel, Department of the Air Force. In this capacity, he provides advice and
   assistance concerning acquisition matters to the Assistant Secretary of the Air Force for
   Acquisition, Program Executive Officers, and to other senior Air Force leaders. Prior to
   joining the General Counsel's office, Mr. Grandon was a partner at Patton Boggs LLP, a trial
   attorney with the Army Contract Appeals Division, and legal counsel at the U.S. Army Tank
   and Automotive Command.
   Karen L. Manos is a partner in the Washington, D.C. office of Howrey LLP and chair of the
   firm's government contracts practice. Karen has extensive experience on a broad range of
   government contracts issues, including civil and criminal fraud investigations and litigation,
   qui tam suits under the False Claims Act, defective pricing, cost allowability, the Cost


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   Accounting Standards, bid protests, suspension and debarment, and corporate compliance
   programs. Karen is the author of the two-volume book, Government Contract Costs &
   Pricing, published by Thomson-West in April 2004.
   Gregory H. Petkoff is the Deputy Chief, Contracting Operations Division, in the Office of
   the Assistant Secretary of the Air Force for Acquisition. In this capacity, he helps manage the
   organization that provides business advice to contracting offices throughout the Air Force
   and that also works the day to day contracting problems that come to the attention of
   Headquarters Air Force. He was formerly an Associate General Counsel (Acquisition) in the
   Office of the General Counsel, Department of the Air Force, where he provided advice and
   assistance on acquisition, and logistics law issues to senior Air Force managers.


II. Recent Decisions With Significant Findings Relating To Cost Or Pricing Issues
   A) Fluor Hanford, Inc. v. United States, COFC Nos. 02-759C, 03-1287C, July 01, 2005.
      Provides a discussion of Federal Acquisition Regulation (―FAR‖) 31.205-47 - Costs
      Related to Legal and Other Proceedings – and states in part:
      ―Fluor Hanford alleges that the Department of Energy breached its contract by refusing to
      reimburse legal costs and expenses that plaintiff incurred defending a qui tam action.
      The issue is whether plaintiff should be reimbursed for its legal expenses or limited to a
      lesser amount. The Government does not dispute that it owes Fluor a portion of the cost,
      perhaps eighty percent. The parties filed cross-motions for partial summary judgment on
      the amount to which Fluor is entitled.‖
      ―This case is controlled by an opinion of the Court of Appeals for the Federal Circuit on a
      related issue. See Boeing N. Am., Inc. v. Roche, 298 F.3d 1274 (Fed. Cir. 2002). We
      must grant defendant‘s motion to cap plaintiff‘s reimbursement at eighty percent.‖
   B) General Motors Corp., v. U.S., COFC No. 00-40C, June 28, 2005. Judge Firestone
      opinion on the government's motion to dismiss and GM's cross-motion for summary
      judgment. It appears that this decision will significantly change the scope of the
      Government's obligation to pay for segment closing deficits. If so, major changes will be
      required to the DCMA / DCAA Joint Guidance Implementing The Teledyne Decision On
      CAS 413.50(c)(12) Segment Closing Adjustments, which was issued July 23, 2004. The
      Conclusion is reproduced below.
      "In conclusion, the court GRANTS-IN-PART and DENIES-IN-PART the government's
      motion. The court holds that the plaintiff is barred from bringing any contract claims that
      do not comport with the CDA and GRANTS the government's motion with regard to the
      plaintiff's claims that might fall outside of the CDA. The court therefore DENIES the
      plaintiff's motion as it pertains to this jurisdictional issue. The court DENIES the
      government's motion as it pertains to its funding arguments, its arguments regarding
      release of claims, and its arguments under the Limitation of Cost and Limitation of Funds
      clauses. The plaintiff is not barred under any of these provisions from recovering any
      segment-closing adjustment that it might be owed pursuant to a segment-closing under
      CAS 413. The plaintiff's motion for summary judgment with regard to these issues is


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      GRANTED. However, as discussed above, GM will be required to pay any deficit not
      otherwise paid into the Allison segment pension funds into those funds. The
      government's motion is GRANTED with regard to the plaintiff's right to profit as part of
      the segment-closing adjustment. The plaintiff is entitled to a settling-up pursuant to CAS
      413; it is not entitled to a profit on its CAS 413 adjustment. The plaintiff's motion for
      summary judgment with regard to profit is therefore DENIED. IT IS SO ORDERED."

      We plan to have a panel discussion relating to Segment Closing Adjustments in our
      September or October meetings.

   C) Short Brothers, PLC v. United States, COFC No. 98-894C, June 10, 2005. Army contract
      for the procurement of aircraft for the National Guard. In 172-page opinion Judge Miller
      rejects all of plaintiff's arguments. Provides discussion of the following issues: (1)
      improper use of firm fixed-price contract under the DoD Appropriations Act, 1991 and
      the DoD Appropriations Act, 1992; (2) improper use of firm fixed-price contract under
      the FAR; (3) impossibility of performance; (4) commercial impracticability; (5) failure to
      disclose superior knowledge; (6) mutual mistake; (7) defective government furnished
      property; (8) breach of implied duties of good faith, cooperation, and fairness; and (9)
      unjust enrichment.
   D) Appeal of Alpine Computers, Inc., ASBCA 54659, June 22, 2005. Army contract which
      was terminated for default. This is an appeal by a subcontractor which was not sponsored
      by the prime. The Board grants the government's motion to dismiss for lack of
      jurisdiction. The opinion by Judge James discusses the various theories by which a
      subcontractor may have a right to appeal.
      ―Appellant does not dispute that it was a subcontractor and NRS has not sponsored
      Alpine's claim (SOF, ∂ ∂ 5, 11; app. opp'n at 6). Appellant argues that this is one of the
      rare exceptions when a subcontractor may prosecute a CDA appeal, relying principally
      on Johnson Controls; D&H Distributing Co. v. United States, 102 F.3d 542 (Fed. Cir.
      1996); and FloorPro, Inc., ASBCA No. 54143, 04-1 BCA ∂ 32,571. Johnson analyzed
      two exceptions to the privity requirement: when the prime contractor was a
      purchasing agent for the government, and when the contract documents provide for
      a direct appeal by a subcontractor. 713 F.2d at 1551-55. D&H and FloorPro analyze
      privity arising from a third-party beneficiary's rights and from an implied-in-fact
      contract. We review appellant's arguments sequentially.‖
      CONCLUSION: ―For the reasons stated above, Alpine has failed to sustain its burden of
      establishing jurisdiction of the ASBCA to entertain this appeal. We grant the
      government's motion and dismiss the appeal.‖
   E) Grove Resource Solutions, Inc., B-296228; B-296228.2, July 1, 2005. Excerpt of Digest:
      ―Agency‘s price realism analysis of the awardee‘s proposal was reasonable where the
      agency determined that the labor rates proposed by the awardee were, among other
      things, similar to those listed for similar labor categories on the awardee‘s and other
      vendors‘ federal supply schedule contracts, and were sufficient to provide acceptable
      personnel.‖



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   F) Johnson Controls World Services, Inc., B-295529.2; B-295529.3, June 27, 2005. Digest:
      ―In the context of a cost comparison study of base operation services conducted pursuant
      to Office of Management and Budget Circular A-76, a decision by the agency's
      Independent Review Official to withdraw its certification that the agency's plan for
      performing the services includes all of the required costs associated with in-house
      performance renders academic a protest alleging that the agency's cost estimate for
      performing the work in-house failed to include all required costs.‖
   G) Metro Machine Corporation, B-295744; B-295744.2, April 21, 2005. Digest: ―1. Cost
      realism evaluation of offerors' proposals was unobjectionable where record shows that
      agency reasonably considered the information submitted in each offeror's proposal and
      that the agency's methodology and rationale for its analysis were reasonable. 2.
      Contracting agency's cost realism analysis of protester's proposal was reasonably based
      on information reasonably available to it, even when it did not inquire into the
      conclusions of a Defense Contract Audit Agency audit report, where the agency instead
      sought additional information from the offeror itself through discussions. 3. Contracting
      agency engaged in meaningful discussions concerning proposed direct and subcontractor
      labor rates, such that the protester should have known and understood the agency's
      concerns, where it specifically requested during written discussions that offeror explain
      the rationale for the rates being proposed. . . .‖
   H) Honeywell Technology Solutions, Inc.; Wyle Laboratories, Inc., B-292354; B-292388,
      September 2, 2003. Digest: ―Agency's evaluation of proposals was not reasonable where
      the agency, during the cost realism evaluation, made significant adjustments to the
      protester's proposed staffing levels in calculating the most probable cost associated with
      the proposal that were inconsistent with the agency's view during the technical evaluation
      of the proposal that the proposed staffing level was appropriate, and where the record
      casts serious doubts on the reasonableness of the government estimate and the
      mechanical way it was used in the cost realism evaluation.‖
   I) Tesoro Hawaii Corporation, Tesoro Alaska Company and Hermes Consolidated, Inc.,
      d/b/a Wyoming Refining Company v. United States, CAFC No. 04-5064, April 26, 2005.
      After we discussed this matter last month Keith Burt made me aware of an interesting
      Amicus Brief authored by Ralph Nash and Robin Conrad for the Chamber of Commerce
      of the United States, dated June 10, 2005. Provides discussion of FAR 16.203.3 and
      15.804-3. Excerpt provided below:
      ―The panel reached this erroneous holding by concluding that the term ‗established
      prices‘ mean any prices in the marketplace – not the contractor‘s established prices. This
      interpretation of the meaning of the term ‗established prices‘ fails to consider the full
      context of the . . .FAR language, and is inconsistent with the clear intent of the FAR . . .
      ―. . . By tying ‗established prices‘ to market prices, rather than a contractor‘s established
      prices, the panel‘s decision permits contracting officers to use EPA clauses that frustrate
      the FAR‘s goal of adjusting contract prices when changes in economic conditions impact
      a particular contractor. That outcome fundamentally upsets the risk allocation scheme of
      the FAR by unhitching contract price adjustments from a particular contractor‘s
      economic circumstances. . . .‖


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III. Regulatory Developments
   A) Potential Comments – Proposed Rule – Buy-Back of Assets, 70 Fed. Reg. 34080, June
      13, 2005. The Civilian Agency Acquisition Council and the Defense Acquisition
      Regulations Council ("Councils") are proposing to amend the FAR by revising the
      contract cost principle regarding depreciation. The proposed rule adds language which
      addresses the allowability of depreciation costs of reacquired assets involved in a sales
      and leaseback arrangement. In response to public comments related to FAR 31.205–16
      (submitted under FAR Case 2002–008), the Councils revised the proposed rule to state
      that the disposition date is the date of the sale and leaseback arrangement, rather than at
      the end of the lease term. During the deliberations on this case, the Defense Contract
      Audit Agency brought to the Councils‘ attention a concern regarding the cost treatment
      when a contractor ‗‗buys back‘‘ an asset after a sale and leaseback transaction is
      recognized under the revised proposed rule. The Councils recognized this concern, not
      just for sale and leaseback arrangements, but also for assets that are purchased,
      depreciated, sold, and repurchased. As such, the issue involves a myriad of situations
      where a contractor depreciates an asset or charges cost of ownership in lieu of lease costs,
      disposes of that asset, and then reacquires the asset. The coverage related to a sale and
      leaseback arrangement is needed as a result of the changes made under FAR Case 2004–
      005, Gains and Losses (see Federal Register 70 FR 33673, dated June 8, 2005). FAR
      31.205–11(f) and 31.205–36(b)(3) currently provide coverage for typical sale and
      reacquisition transactions at less than arm‘s–length. In addition, FAR 31.205–11(i)
      requires contractors to treat leases meeting the definition of a capital lease in FAS–13 as
      an asset owned by the contractor. The subsequent acquisition of title to the asset is not a
      disposition and therefore no gain or loss need to be considered. In addition, the GAAP
      treatment of the acquisition of an asset under a capital lease, which in effect steps–up the
      value of the asset, would result in an unallowable cost, based on the intent of the FAR as
      shown in FAR 31.205–52, Asset valuations resulting from business combinations. The
      Councils recommend revising FAR 31.205–11, Depreciation, to include specific
      language regarding the treatment of assets reacquired after entering into a sale and
      leaseback arrangement. . . .The Councils believe that, for Government contract costing
      purposes, a contractor should not benefit or be penalized for entering into a sale and
      leaseback arrangement. The Government should reimburse the contractor the same
      amount for the subject asset as if the contractor had retained title throughout the service
      life of the asset. Therefore, the Councils recommend that the determination of allowable
      depreciation expense of the reacquired asset consider— Any gain or loss recognized in
      accordance with FAR 31.205–16(b); any depreciation expense included in the calculation
      of the normal cost of ownership for the limitations at FAR 31.205–11(h)(1) and 31.205–
      36(b)(2); and the depreciation expense taken prior to the sale and leaseback arrangement.
      Draft comments are due by July 29, 2005.
   B) Correction to Final Rule – OFPP-Capitalization of Tangible Assets; Correction-Cost
      Accounting Standards Board, 70 FR 37706, June 30, 2005. This document contains
      technical corrections to the Illustrations in CAS 9904.404, "Capitalization of Tangible
      Assets." An amendment to this Standard was published on February 13, 1996 (61 FR
      5520). However, while the contractor's minimum cost criteria for capitalization was


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       increased from $1,500 to $5,000 in the body of the Standard, this change was not
       reflected in the Illustrations part of the Standard. This technical correction brings the
       figures in the relevant Illustrations into line with the $5,000 minimum cost criteria for
       capitalization currently incorporated in the body of the Standard.
   C) ABA Responds – Comment Letter Dated June 13, 2005 on General Services Acquisition
      Regulation; Federal Agency Retail Pharmacy Program; 70 Fed. Reg. 19045; GSAR Case
      2005-G501. Final submitted version of the Section's comment letter on the Federal
      Agency Retail Pharmacy Program.
   D) ITAA and PSC Comments on the Proposed EVMS Regulations, June 7, 2005. The
      Information Technology Association of America ("ITAA") and the Professional Services
      Council ("PSC") submitted these joint comments in response to the proposed rule dated
      April 8, 2005 (70 Fed. Reg. 17,945) to amend the Federal Acquisition Regulation (the
      "FAR") to implement an earned value management system ("EVMS") policy
      Government-wide.
IV. American Bar Association Section of Public Contract Law: 2005 Annual Meeting
    Chicago – August 5-8, 2005

   A) Seminars on Friday, August 5, 2005.

   B) Seminars and Council Meeting on Saturday, August 6, 2005.

   C) Seminars and Committee Meetings on Sunday, August 7, 2005

   D) Seminar on Monday, August 8, 2005


The next meeting of the Accounting Cost and Pricing committee is scheduled for 1:00 PM on
Sunday, August 7, 2005 at the Hotel InterContinental, 505 N. Michigan Ave., 8th Floor, Sullivan
Room




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          August 7, 2005 Accounting Cost & Pricing Committee Meeting Agenda


I. Recent Decisions With Significant Findings Relating To Cost Or Pricing Issues
   A) Southern Comfort Builders, Inc. v United States, COFC No. 00-542C, July 29, 2005.
      NASA construction contract. Plaintiff seeks damages for defective specifications, Type
      I differing site conditions and lost productivity. Judge Horn rejects most of plaintiff's
      claims finding "... that the plaintiff is not entitled to loss of productivity damages as
      claimed in its certified claim to the contracting officer and apparently claimed in the
      improper contract administration count included in plaintiff's complaint in this court. The
      court finds that many of the obstructions and interferences encountered by SCBI could
      have been identified by SCBI, had SCBI drafted the coordination drawings required by
      the contract. Furthermore, SCBI's failure to attend the pre-bid site visit resulted in SCBI's
      failure to compare the solicitation and contract specifications to the existing conditions."
   B) Renda Marine, Inc. v United States, COFC No. 02-306C, July 28, 2005. Judge Hewlitt
      denies plaintiff's claims, most of which were Type I differing site condition claims
      relating to a Corps of Engineers dredging contract. Decision provides a primer on Type I
      claims and the elements of required proof. Judge Hewitt does note that
      "This result is particularly harsh in this case because plaintiff received several equitable
      adjustments during contract performance to which, in the court's view, plaintiff was not
      entitled under the law governing the proof of Type I differing site conditions and the
      evidence adduced at trial. Plaintiff's entitlement to those monies under its chosen theory
      of recovery was tried de novo in this court and plaintiff did not prevail."
      She also states that she "believes that the evidence adduced at trial might support a claim
      of a breach of the implied duty of the government not to hinder a contractor's
      performance. For example, both the government's failure to respond timely to plaintiff's
      request for guidance about the West Levee realignment, and the government's failure,
      upon observing plaintiff's relocation of the levee, to correct what the government now
      claims is plaintiff's misunderstanding, appear on their face to be unreasonable. The court
      would entertain a motion to deem a claim for a breach of the duty not to hinder to have
      been tried by consent and would consider as well a motion to schedule additional
      briefing, to be based entirely on the testimony and documentary evidence in the trial
      record, on that additional claim."
   C) Bank of America, FSB, et al. v United States, COFC Nos. 95-660C, 95-797C, and 95-
      7971C, July 21, 2005. Winstar damages case.
      ―BACKGROUND: This action belongs to the final wave of cases known collectively as
      the Winstar litigation —the more than 120 suits filed in the early to mid-1990s in
      response to the government‘s passage of the Financial Institutions Reform, Recovery, and
      Enforcement Act of 1989 (―FIRREA‖), . . . . The court must now determine what
      damages, if any, are properly identifiable with the government‘s breach.




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      ―CONCLUSION: In the final analysis, plaintiff maintains that HonFed was required to
      pay $44 million to raise $85 million, a proposition that we have great difficulty accepting.
      As discussed at length above, we believe that plaintiff‘s damages should instead be
      measured by the sum of the dividends paid on the common shares, the preferred shares,
      and the retained earnings, combined with the corresponding transaction and wounded
      bank costs, offset by any benefit conferred by the capital infusion (represented by
      HonFed‘s average cost of funds). The parties‘ damages models allow us to identify at
      least a portion of these costs: a net cost of $6.572 million associated with the payment of
      preferred dividends; $4.977 million in transaction costs; and $573,000 in allowable
      wounded bank damages. In order for the court to make the adjustments necessary to
      determine the remaining costs, the parties are directed to identify the dividends associated
      with the retained earnings and common shares and offset that amount by HonFed‘s
      average cost of funds consistent with this opinion. Accordingly, on or before August 26,
      2005, the parties shall file a joint calculation of damages consistent with this decision.
      Thereafter, the court will direct the Clerk to enter judgment in plaintiff‘s favor and to
      dismiss all remaining claims in these consolidated cases.‖

   D) Fluor Hanford, Inc. v. United States, COFC Nos. 02-759C, 03-1287C, July 1, 2005.
      Provides a discussion of Federal Acquisition Regulation (―FAR‖) 31.205-47 - Costs
      Related to Legal and Other Proceedings – and states in part:
      ―Fluor Hanford alleges that the Department of Energy breached its contract by refusing to
      reimburse legal costs and expenses that plaintiff incurred defending a qui tam action.
      The issue is whether plaintiff should be reimbursed for its legal expenses or limited to a
      lesser amount. The Government does not dispute that it owes Fluor a portion of the cost,
      perhaps eighty percent. The parties filed cross-motions for partial summary judgment on
      the amount to which Fluor is entitled.‖
      ―This case is controlled by an opinion of the Court of Appeals for the Federal Circuit on a
      related issue. See Boeing N. Am., Inc. v. Roche, 298 F.3d 1274 (Fed. Cir. 2002). We
      must grant defendant‘s motion to cap plaintiff‘s reimbursement at eighty percent.‖

   E) General Motors Corp., v. U.S., COFC No. 00-40C, June 28, 2005. Judge Firestone
      opinion on the government's motion to dismiss and GM's cross-motion for summary
      judgment. It appears that this decision will significantly change the scope of the
      Government's obligation to pay for segment closing deficits. If so, major changes will be
      required to the DCMA / DCAA Joint Guidance Implementing The Teledyne Decision On
      CAS 413.50(c)(12) Segment Closing Adjustments, which was issued July 23, 2004. We
      plan to have a panel discussion relating to Segment Closing Adjustments in our
      September or October meetings.




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   F) Short Brothers, PLC v. United States, COFC No. 98-894C, June 10, 2005. Army contract
      for the procurement of aircraft for the National Guard. In 172-page opinion Judge Miller
      rejects all of plaintiff's arguments. Provides discussion of the following issues: (1)
      improper use of firm fixed-price contract under the DoD Appropriations Act, 1991 and
      the DoD Appropriations Act, 1992; (2) improper use of firm fixed-price contract under
      the FAR; (3) impossibility of performance; (4) commercial impracticability; (5) failure to
      disclose superior knowledge; (6) mutual mistake; (7) defective government furnished
      property; (8) breach of implied duties of good faith, cooperation, and fairness; and (9)
      unjust enrichment.
   G) Grove Resource Solutions, Inc., B-296228; B-296228.2, July 1, 2005. Excerpt of Digest:
      ―Agency‘s price realism analysis of the awardee‘s proposal was reasonable where the
      agency determined that the labor rates proposed by the awardee were, among other
      things, similar to those listed for similar labor categories on the awardee‘s and other
      vendors‘ federal supply schedule contracts, and were sufficient to provide acceptable
      personnel.‖
   H) Johnson Controls World Services, Inc., B-295529.2; B-295529.3, June 27, 2005. Digest:
      ―In the context of a cost comparison study of base operation services conducted pursuant
      to Office of Management and Budget Circular A-76, a decision by the agency's
      Independent Review Official to withdraw its certification that the agency's plan for
      performing the services includes all of the required costs associated with in-house
      performance renders academic a protest alleging that the agency's cost estimate for
      performing the work in-house failed to include all required costs.‖
   I) Liquidity Services, Inc. B-294053. August 18, 2004. DIGEST: ―Price evaluation was
      unreasonable where comparison of offerors‘ ‗discount rates‘ for transportation and
      warehousing did not reflect actual proposed prices or the cost to the government for these
      services.‖
II. Regulatory Developments
   A) Potential Comments − Proposed Rule - DFARS − Contractor Insurance/Pension
      Reviews, 70 Fed. Reg. 35606, June 21, 2005. The proposed rule updates and clarifies
      DFARS requirements and responsibilities for government review of a contractor's
      insurance programs, pension plans, and other deferred compensation plans; and also
      deletes text addressing procedural matters relating to these reviews. The text from these
      deleted provisions will be relocated to the online DFARS companion resource,
      Procedures, Guidance, and Information (PGI). Draft comments should be completed by
      August 8, 2005.




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   B) Potential Comments − DOE: Technical Revisions or Amendments to Update Clauses, 70
      Fed. Reg. 43832, July 29, 2005. This notice of proposed rulemaking issued by the
      Department of Energy (―DOE‖) announces the intent of the DOE to amend its acquisition
      regulations to remove, add, or revise clauses currently contained in the Department of
      Energy Acquisition Regulation. Draft comments should be completed by August 15,
      2005.
   C) Potential Comments − Proposed Rule - DFARS − Material Inspection and Receiving
      Report, 70 Fed. Reg. 39975, July 12, 2005. The DOD is proposing to amend the
      DFARS to update requirements for preparation of material inspection and receiving
      reports under DOD contracts. Specifically, this rule proposes to amend the DFARS
      Appendix F requirements for preparation of DD Form 250, including clarifying
      requirements for marking of shipments when a contractor's certificate of compliance is
      used as the basis for acceptance, clarifying that use of the Wide Area WorkFlow-Receipt
      and Acceptance electronic form satisfies DD Form 250 distribution requirements, and
      relocating to the new DFARS companion resource procedures for documenting
      government contract quality assurance performed at a subcontractor's facility. Draft
      comments should be completed by August 29, 2005.
   D) Potential Comments − Proposed Rule − DOD, NASA, GSA: Fast Payment Procedures,
      70 Fed. Reg. 40279, July 13, 2005. This is a proposed rule that would amend the FAR
      fast payment procedures to permit, but not require, fast payment when invoices and/or
      outer shipping containers are not marked ―Fast Pay‖ provided the contract includes the
      ―Fast Payment Procedure‖ clause. Draft comments should be completed by August
      29, 2005.
   E) Potential Comments − Proposed Rule − Cost Accounting Standards Board:
      Accounting for Costs of ESOPs, 70 Fed. Reg. 42293, July 22, 2005. ―SUMMARY:
      The Cost Accounting Standards Board (CASB), Office of Federal Procurement Policy,
      invites public comments on proposed amendments to the Cost Accounting Standards
      (CAS) 412, ―Cost accounting standard for composition and measurement of pension
      cost,‖ and CAS 415, ―Accounting for the cost of deferred compensation.‖ These
      proposed amendments address issues concerning the recognition of the costs of
      Employee Stock Ownership Plans (ESOPs) under Government cost-based contracts and
      subcontracts. These proposed amendments provide criteria for measuring the costs of
      ESOPs and their assignment to cost accounting periods. The allocation of a contractor‘s
      assigned ESOP costs to contracts and subcontracts is addressed in other Standards. The
      proposed amendments also specify that accounting for the costs of ESOPs will be
      covered by the provisions of CAS 415, ―Accounting for the cost of deferred
      compensation‖ and not by any other Standard.‖ Draft comments should be completed
      by September 6, 2005.




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   F) Potential Comments − Interim Rule − DFARS: Business Restructuring Costs −
      Delegation of Authority to Make Determinations Relating to Payment, 70 Fed. Reg.
      43074, July 26, 2005. This interim rule amends the DFARS to implement Section 819 of
      National Defense Authorization Act of 2005 containing changes concerning delegation of
      authority to make determinations relating to payment of defense contractors for business
      restructuring costs.
      ―BACKGROUND: 10 U.S.C. 2325(a)(1), Limitation on Payment of Restructuring Costs,
      prohibits DoD from reimbursing a defense contractor for restructuring costs arising from
      a business combination that occurs after November 18, 1997, unless the Secretary of
      Defense determines in writing either: (i) That the amount of projected savings for DoD
      associated with the restructuring will be at least twice the amount of the costs allowed; or
      (ii) that the amount of projected savings for DoD associated with the restructuring will
      exceed the amount of the costs allowed and that the business combination will result in
      the preservation of a critical capability that otherwise might be lost to DoD. 10 U.S.C.
      2325(a)(2) previously prohibited the Secretary of Defense from delegating the authority
      to make such written savings determinations below the level of an Assistant Secretary of
      Defense. The Secretary of Defense delegated the authority to make such determinations
      to the Under Secretary of Defense (Acquisition, Technology, and Logistics)
      (USD(AT&L)), or his Principal Deputy. Section 819 of the National Defense
      Authorization Act for Fiscal Year 2005 (Public Law 108–375) amended 10 U.S.C.
      2325(a)(2) to permit the Director of the Defense Contract Management Agency to make
      the required written determination of savings when restructuring costs are expected to be
      less than $25 million over a 5-year period. . . .‖ Draft comments should be completed
      by September 12, 2005.
   G) Potential Comments − Proposed Rule − DFARS: Transportation, 70 Fed. Reg. 43109,
      July 26, 2005. The DOD is proposing a rule that would amend the DFARS to update text
      on transportation matters relating to DoD contracts. ―The proposed DFARS changes—
      o Delete text on transportation matters that are sufficiently addressed in the Federal
          Acquisition Regulation or in DoD transportation regulations;
      o Clarify requirements for inclusion of shipping instructions in solicitations and
          contracts; and
      o Delete procedures for contracting for the preparation of property for shipment or
          storage; and for preparation of consignment instructions.
      Text on these subjects will be relocated to the new DFARS companion resource,
      Procedures, Guidance, and Information (PGI).‖ Draft comments should be completed
      by September 12, 2005.




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   H) Potential Comments − Proposed Rule − Notification Requirements for Critical Safety
      Items, 70 Fed. Reg. 44077, August 1, 2005. The DOD is proposing to amend the DFARS
      to add policy regarding notification of potential safety issues under DOD contracts. The
      proposed rule contains a contract clause requiring contractors to promptly notify the
      Government of any nonconformance or deficiency that could impact item safety. Draft
      comments should be completed by September 16, 2005.
   I) Final Rule − FAR: Payment Withholding, 70 Fed. Reg. 43580, July 27, 2005. This rule
      amends the FAR to remove the mandatory requirement that a contracting officer withhold
      5 percent of the payments due under a time-and-materials contract, unless it is necessary
      to withhold payment to protect the government‘s interest or otherwise prescribed in the
      contract schedules.
   J) OMB − Audits of States, Local Governments, and Non-Profit Organizations; Notice
      of Availability of the 2005 Circular A-133 Compliance Supplement, 70 Fed. Reg. 41242,
      July 18, 2005. This notice announces the availability of the Compliance Supplement for
      2005. The Single Audit Act Amendments of 1996 and OMB Circular A-133 provide for
      the Office of Management and Budget (―OMB‖) to issue a compliance supplement to
      assist auditors in performing the required audits under Circular A-133.
   K) Summary of Accounting Cost & Pricing Developments from September 2003 to the
      Present – Selected Past Committee Agendas and Summaries


The next meeting of the Accounting Cost and Pricing committee will be on Tuesday, September
13, 2005 at the offices of Navigant Consulting, 1801 K Street, NW, Suite 600.




                                           Page 43
ABA Section of Public Contract Law
Accounting, Cost & Pricing Committee

                              Summary of Recent Events
                                     September 12, 2005


I. Regulatory Developments
   E) Potential Comments − Interim Rule − DOD: Levy On Payments to Contractors, 70
      Fed. Reg. 52031, September 1, 2005. This interim rule issued by the Department of
      Defense amends the DFARS to require DOD contractors to notify the contracting office
      if an Internal Revenue Service (IRS) levy imposed on a contract will jeopardize contract
      performance. Draft comments should be completed by October 17, 2005.
   F) OMB − Grants Policy Streamlining Overview on Non-procurement Debarment and
      Suspension and Cost Principles Guidance, 70 Fed. Reg. 51863, August 31, 2005.
   G) OMB − Cost Principles for Educational Institutions (Circular A-21), 70 Fed. Reg. 51880,
      August 31,2005. The Office of Management and Budget (OMB) is relocating OMB
      Circular A-21 ―Cost Principles for Educational Institutions,‖ to Title 2 in the Code of
      Federal Regulations (2 CFR), subtitle A, chapter II, part 220.
   H) OMB − Cost Principles for State, Local, and Indian Tribal Governments (Circular A-87),
      70 Fed. Reg. 51910, August 31, 2005. The OMB is relocating Circular A-87, ―Cost
      Principles for State, Local, and Indian Tribal Governments‖ to Title 2 in the Code of
      Federal Regulations (2 CFR), Subtitle A, Chapter II, part 225.
   I) OMB − Cost Principles for Non-Profit Organizations (Circular A-122), 70 Fed. Reg.
      51927, August 31, 2005. The OMB is relocating Circular A-122, ―Cost Principles for
      Non-Profit Organizations,‖ to Title 2 in the Code of Federal Regulations (CFR), subtitle
      A, chapter II, part 230.
   J) ABA Responds – Comment Letter Dated August 10, 2005 on Submission of Cost or
      Pricing Data on Noncommercial Modifications of Commercial Items, 70 Fed. Reg.
      33659, FAC 2005-04, FAR Case 2004-035. ―. . . The Section has two comments on the
      interim rule implementing Section 818.‖
          1) ―First, the Section recommends that ―$500,000‖ be changed to ―$550,000‖ where
             it appears in the interim rule in FAR 15.403-1(c)(3)(ii)(B) and (C). . . .‖
          2) ―Second, the Section is recommending a change to the FAR language describing
             the threshold to avoid the possibility that the FAR might be misconstrued and
             implemented in a way that would prove impracticable.‖
   K) Defense Contract Audit Agency (―DCAA‖) Memorandum for Regional Directors,
      SUBJECT: Audit Guidance on Revised FAR Cost Principles Regarding Recognition of
      Gains and Losses on Disposition of Assets Associated with Sale-and-Leaseback
      Transactions. August 15, 2005.
      ―FAC 2005-004 revised the FAR cost principles at 31.205-16, Gains and losses on
      disposition or impairment of depreciable property or other capital assets; 31.205-11,


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ABA Section of Public Contract Law
Accounting, Cost & Pricing Committee

      Depreciation; and 31.205-36, Rental costs. The revised rules are effective on cotracts
      awarded on or after July 8, 2005. This memorandum provides audit guidance on: (1) the
      specific provisions added to FAR 31.205-16 regarding the recognition of gains and losses
      on assets associated with sale-and-leaseback transactions, and (2) related changes to FAR
      31.205-11 and FAR 31.205-36 to recognize the gain of loss as part of the lease/rental cost
      limitation.‖
      ―The revised rules provide that gains and losses on disposition of assets associated with
      sale-and-leaseback transactions be recognized as of the date at which a contractor begins
      to incur an obligation for lease or rental cost, i.e. the inception of the lease term. A date
      for recognition of gains or losses associated with sale-and-leaseback transactions was not
      previously specified within the cost principles. In addition, as a result of the specified
      recognition date for gains and provisions at FAR 31.205-11 and FAR 31.205-36 to ensure
      that the total allowable costs for the use of the subject assets do not exceed the
      constructive costs of ownership.‖
I. Recent Decisions With Significant Findings Relating To Cost Or Pricing Issues
   A) First Heights Bank, FSB, Pulte Diversified Companies, Inc., and Pulte Homes, Inc. v.
      United States, CAFC Nos. 04-5021, -522, August 17, 2005.
      ―This case is one of many arising out of the savings and loan crisis of the 1970s and
      1980s. . . . At the heart of these ―Winstar‖ cases are government actions that were taken
      to induce otherwise healthy businesses and financial institutions to acquire troubled
      savings and loan associations (―thrifts‖). . . . after extended negotiations with
      representatives of the Federal Home Loan Bank Board and the Federal Savings and Loan
      Insurance Corporation (―FSLIC‖), plaintiffs acquired five failing thrifts in exchange for
      various considerations detailed in the Assistance Agreement. A primary benefit of the
      Assistance Agreement from plaintiffs‘ perspective was the expected ability to claim the
      net liabilities of the failing thrifts as tax deductions . . . Several years after plaintiffs
      acquired the failing thrifts, Congress enacted section 13224 of the Omnibus Budget
      Reconciliation Act of 1993, Pub. L. No. 103-66, § 13224, 107 Stat. 312, 485-86, which is
      also known as the Guarini Amendment. The Guarini Amendment had the effect of
      disallowing the acquiring firms from claiming reimbursed net liabilities as tax
      deductions. Plaintiffs brought suit in the Court of Federal Claims in 1996, alleging that
      the Guarini Amendment breached the Assistance Agreement. The trial court entered
      summary judgment in favor of plaintiffs, concluding, inter alia, that the Guarini
      Amendment breached the implied covenant of good faith and fair dealing and awarding
      damages of $48.7 million in favor of plaintiffs. The government appeals the trial court‘s
      summary judgment as to liability and damages, and plaintiffs cross-appeal the trial
      court‘s rejection of its claim for lost profits.‖
      ―In sum, we conclude that PDCI has standing to assert the damages claimed in this case,
      section 9(i) of the Assistance Agreement does not provide the exclusive remedy for a
      breach of the kind asserted in this case, plaintiffs reasonably mitigated damages, the trial
      court properly considered plaintiffs‘ expert testimony on the amount of damages, and
      plaintiffs are not entitled to lost profit damages. Accordingly, the judgment of the trial
      court is affirmed.‖


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ABA Section of Public Contract Law
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   B) Bluebonnet Savings Bank FSB, Stone Capital, Inc. and James M. Fail v. United States,
      COFC No. 95-532C, August 17, 2005.
      ―This Winstar-related case comes before the court after a trial devoted toward
      ascertaining the quantum of damages. Neither the parties nor the court were starting
      from scratch as six previous opinions and an extensive initial damages trial had
      already been etched onto the tablet. The issue examined at trial, therefore, did not
      concern entitlement as the United States Court of Appeals for the Federal Circuit (Federal
      Circuit) had on two separate occasions rejected defendant‘s argument that plaintiffs
      should receive no damages. . . . Rather, in light of the Federal Circuit‘s most recent
      mandate, it was established that the court properly began its analysis ‗by treating the
      entire $132,398,200 in surrendered equity as a cost resulting from the breach . . . .‘
      The difficult question posed to the court involves determining whether, if at all, that
      amount should be reduced to reflect the true extent of the harm. . . . Mr. James M. Fail,
      . . . collectively referred to as plaintiffs, maintain that defendant bears the burden of
      proving any offset to the amount of damages, a burden which defendant allegedly has not
      met. Plaintiffs contend that the Federal Circuit mandated an examination of the ―but-for‖
      world from a 1992 perspective and concluded that no equity would have been
      relinquished in the absence of the breach. Plaintiffs do, however, concede a nominal
      amount of ―but-for‖ costs and assert they are entitled to $129,827,388 in damages. On the
      other hand, defendant maintains that because plaintiffs are seeking expectancy damages,
      they bear the burden of propounding a realistic ―but-for‖ world. Defendant also contends
      that the Federal Circuit‘s opinion did not limit the court‘s analysis to any particular time-
      frame. Further, defendant avers that the Federal Circuit‘s opinion did not preclude the
      possibility of plaintiffs surrendering equity in the ―but-for‖ world. Defendant concludes
      that, depending on the ―but-for‖ world start date, plaintiffs should receive either $545,219
      or $20,692,620 in damages. Lastly, both parties proffer estimated damages and a
      sensitivity analysis in the event the court relies on the jury verdict method to calculate
      damages.‖

      ―For the above-stated reasons, the Clerk of the Court is hereby directed to enter judgment
      in favor of plaintiff James M. Fail in the amount of $96,798,842. No costs.‖

   C) Richlin Security Services Co., v. United States Department of Justice, No. WRO-06-90,
      WRO-03-91, DOTCAB, June 30, 2005.
      ―BACKGROUND: The contracts in dispute were between Richlin and the Immigration
      and Naturalization Service (INS) for guard services. Richlin submitted a $1,568,477.12
      certified claim for increased costs associated with the parties‘ misclassification of
      Richlin‘s employees as Guard I rather than Guard II, which commanded a higher rate of
      pay. In our entitlement decision we granted the appeal in part and denied it in part. We
      held that reformation of the contract price was appropriate because of the parties‘
      mistake. However, we also held that, to prevent bestowing a windfall upon Richlin, the
      reformation could not be completed until Richlin had liquidated and satisfied its liability
      for the unpaid wages. The denial was ‗without prejudice to make further claim at such
      time as Richlin‘s liability for back wages becomes liquidated and satisfied.‘ Richlin



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       Security Services Co., 98-1 BCA ¶ 29,651 (DOTBCA 1997) (Richlin I). Throughout this
       proceeding Richlin appeared before the Board pro se.‖
       ―Decision: The EAJA application is granted in part. We award a total of $50,425.00 in
       attorney fees, $10,587.50 in paralegal expenses, and $ 1,515.46 in other expenses.
       Otherwise the application is denied.‖


Note that the ABA Public Contract session web site contains an extensive repository of
information relating to Federal, State and Local procurement issues. See
http://www.abanet.org/contract/home.html for the ABA Section of Public Contract Law main
page. The Accounting Cost and Pricing Committee web site is located at
http://www.abanet.org/dch/committee.cfm?com=PC401500. Our committee web site includes
meeting agendas from 1996 to present. Also note that the Regulatory Coordinating committee
web site contains Prior Section Comments organized by topic (See
http://www.abanet.org/dch/committee.cfm?com=PC407500).


The next meeting of the Accounting Cost and Pricing committee will be held on Tuesday,
October 11, 2005 at the offices of Navigant Consulting, 1801 K Street, NW, Suite 600. This
meeting will feature a panel discussion on various pension issues relating to
      DCMA / DCAA Joint Guidance Implementing The Teledyne Decision On CAS
       413.50(c)(12) Segment Closing Adjustments, July 23, 2004.
      General Motors Corp., v. U.S., COFC No. 00-40C, June 28, 2005.
      General Electric v. US, COFC No. 99-172C, May 27, 2004.
Discussion Leaders will include
      Lawrence S. (―Larry‖) Rabyne of the Defense Contract Management Agency
      Howard J. Stanislawski of Sidley & Austin
      Someone from industry yet to be determined




                                           Page 47
ABA Section of Public Contract Law
Accounting, Cost & Pricing Committee

        October 11, 2005 Accounting Cost & Pricing Committee Meeting Agenda


I. Panel Discussions of Various Pension Issues. Discussion Leaders will Include:
   A) First Panel – Legislative and Case Developments
      1. Lawrence S. (―Larry‖) Rabyne of the Defense Contract Management Agency
      2. Howard J. Stanislawski of Sidley & Austin
   B) Second Panel – Proper Pricing of Contracts or Re-Opening Closed Deals?
      1. Karen Manos of Howrey & Simon
      2. Richard C. Loeb, co-Chair, Accounting, Cost & Pricing Committee and previous
         Executive Secretary, CAS Board
   Background:
   A) Current Legislation
      1. Portions of current ERISA law will expire on December 31, 2005.
      2. House Bill (HR 2830, and Senate Bill (S 219) are proposed to be effective as of
         January 1, 2006 and will
          (1) Require increased funding of defined benefit pension plans
          (2) Reduce amortization period for unfunded liabilities
          (3) Limit choice of interest rate assumptions
          (4) Numerous other provisions
      3. Cost Accounting Standards Board Meeting Minutes, 46th meeting, July 19, 2005:
         ―Potential Pension Legislative Reforms - The Board discussed the need to stay
         abreast of current Congressional initiatives that may significantly overhaul the
         existing pension funding rules. Certain proposals could eliminate many of the core
         ERISA funding concepts in place now and introduce new funding concepts,
         measurements and methods. If a significant change is made to pension funding rules,
         it may be necessary for the CASB to consider a comparable change in the CAS 412
         regulations to coordinate the cash contribution requirements to the pension plan and
         the government reimbursable expense for companies contracting with the
         government. The Board instructed the staff to coordinate with Mssrs. Patrick
         Ring of DCMA and Elliot Friedman of Lockheed Martin to monitor and update
         the Board on the progress of the pension funding legislation to reform pension
         funding requirements and the impact the legislation could have on the current
         CAS 412 provisions.‖




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ABA Section of Public Contract Law
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   B) General Motors Corp., v. U.S., COFC No. 00-40C, June 28, 2005. Judge Firestone
      opinion on the government's motion to dismiss and GM's cross-motion for summary
      judgment. "In conclusion, the court GRANTS-IN-PART and DENIES-IN-PART the
      government's motion. The court holds that the plaintiff is barred from bringing any
      contract claims that do not comport with the CDA and GRANTS the government's
      motion with regard to the plaintiff's claims that might fall outside of the CDA. The court
      therefore DENIES the plaintiff's motion as it pertains to this jurisdictional issue. The
      court DENIES the government's motion as it pertains to its funding arguments, its
      arguments regarding release of claims, and its arguments under the Limitation of Cost
      and Limitation of Funds clauses. The plaintiff is not barred under any of these provisions
      from recovering any segment-closing adjustment that it might be owed pursuant to a
      segment-closing under CAS 413. The plaintiff's motion for summary judgment with
      regard to these issues is GRANTED. However, as discussed above, GM will be required
      to pay any deficit not otherwise paid into the Allison segment pension funds into those
      funds. The government's motion is GRANTED with regard to the plaintiff's right to
      profit as part of the segment-closing adjustment. The plaintiff is entitled to a settling-up
      pursuant to CAS 413; it is not entitled to a profit on its CAS 413 adjustment. The
      plaintiff's motion for summary judgment with regard to profit is therefore DENIED. IT
      IS SO ORDERED."
   C) DCMA / DCAA Joint Guidance Implementing The Teledyne Decision On CAS
      413.50(c)(12) Segment Closing Adjustments, July 23, 2004. ―Summary - The U.S. Court
      of Federal Claims decision in Teledyne, Inc. v. United States, 50 Fed. Cl. 155 (2001)
      (Teledyne), which was affirmed by the U.S. Court of Appeals for the Federal Circuit,
      required certain exclusions when calculating the Government‘s share of the CAS 413
      segment closing adjustment. Specifically, the portion of a closed segment‘s pension
      surplus or deficit that is attributable to pension costs that were allocated to contracts that
      predate CAS 413, as well as the portion that is attributable to pension costs allocated to
      firm-fixed price (FFP) contracts entered into under the original CAS 413 must be
      excluded from the calculation of the Government‘s share of the CAS 413 segment
      closing adjustment. When there is a segment closing surplus, the portion of the surplus
      attributable to employee contributions made from the date of the inception of the pension
      plan until the date upon which the contract first had to follow CAS 413, as amended
      March 30, 1995 (revised CAS 413), must also be excluded. The required exclusions are
      made by adjusting the numerator and the denominator of the fraction that is applied to the
      segment closing surplus or deficit to determine the Government‘s share.‖




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ABA Section of Public Contract Law
Accounting, Cost & Pricing Committee



II. Recent Decisions With Significant Findings Relating To Cost Or Pricing Issues
   A) Lockheed Martin Corp. v. Gordon R. England, Secretary of the Navy, ASBCA Nos.
      53032, 54046, September 21, 2005. Lockheed Martin Corp. appeals from a decision of
      the Armed Services Board of Contract Appeals (―ASBCA‖) with regard to the recovery
      of fee after a termination for convenience. Judge Prost, with Judges Rader and Dyk,
      interpreted the FAR to intend completely opposite results for fixed price and cost type
      subcontractors operating under virtually identical circumstances. The Court found
      persuasive the government‘s "plain meaning argument [used] to justify treating the two
      types of contracts differently.‖
      ―B. Arguments - Lockheed accepts that FAR 49.305 governs the controversy in this
      case. This regulation provides that ‗[t]he contractor‘s adjusted fee shall not include an
      allowance for fee for subcontract effort included in subcontractors‘ settlement proposals.‘
      48 C.F.R. § 49.305-1(a). Lockheed frames this appeal as a dispute over what it means for
      an item to be ‗included in‘ a subcontractor settlement proposal. In Lockheed‘s view, an
      item is ‗included in‘ the proposal if it either has been or could have been invoiced.
      Because the SDRLs in question could have been invoiced, Lockheed contends, they
      should not be considered part of the settlement proposals, and Lockheed should be able to
      recover fee on behalf of itself and its subcontractors.
      To support its claim to fee for the SDRLs, Lockheed argues that FAR Parts 15 and 16
      evidence an overall intention to treat cost-type and fixed-price contracts the same for
      recovery of fee or profit. Lockheed emphasizes that nothing in the FAR guidelines
      advises the government or contractors to consider the impact of a termination for
      convenience on the contractor‘s performance or contractual risk. By contrast, the
      guidelines do encourage the use of cost-type contracts when performance is quite risky
      (e.g., when costs are unpredictable) for the contractor, and fixed-price contracts when the
      risk level is low. Lockheed calls it ‗incongruous‘ for a cost-type contractor, which has a
      cost-type contract precisely in order to shift risk to the government, to face more risk than
      a fixed-price contractor in a termination for convenience. . . .
      The government disputes Lockheed‘s contention that the overall risk allocation scheme
      of Parts 15 and 16 requires cost-type and fixed-price contracts to be treated the same in a
      termination for convenience. The government presents a plain meaning argument to
      justify treating the two types of contracts differently. . . .‖




                                            Page 50
ABA Section of Public Contract Law
Accounting, Cost & Pricing Committee



   B) Richlin Security Services Co., v. United States Department of Justice, No. WRO-06-90,
      WRO-03-91, June 30, 2005.
      ―E. Paralegal Expenses - Richlin seeks paralegal expenses for 523.80 hours performed in
      pursuit of the underlying appeals for a total of $45,785.10. Mr. Ginsburg's billing rates
      for paralegal work were $50.00 per hour, 80.00 per hour, $95 per hour and $135.00 per
      hour at various times during the 7 years of his representation of Richlin. We are uncertain
      how Richlin calculated the sum claimed for paralegal expenses because it did not provide
      us with that computation. It appears that it used an average billing rate to calculate the
      paralegal expenses. . . . The EAJA does not address the basis on which an award for
      paralegal expenses is to be made. While some boards of contract appeals have allowed
      recovery of paralegal expenses at the rate billed to the client, we have found that,
      pursuant to EAJA, paralegal expenses are recoverable at the cost to the firm rather than at
      the billed rate. . . .‖
III. Regulatory Developments
   A) Potential Comments – Interim Rule – DFARS: Foreign Taxation on US Assistance, 70
      Fed. Reg. 57191 on September 30, 2005. The Department of Defense (―DOD‖) has
      issued an interim rule amending the Defense Federal Acquisition Regulation Supplement
      (―DFARS‖) to implement a statutory prohibition on foreign taxation under contracts
      funded by U.S. assistance programs. Draft comments should be completed by
      November 15, 2005.
   B) Potential Comments -- Proposed rule -- FAR: Payments Under Time-and-Materials
      (―T&M‖) and Labor-Hour (―LH‖) Contracts, 70 Fed. Reg. 56314 on September 26,
      2005. ―A public meeting will be held on Tuesday, October 18, 2005, from 9:00 a.m. to
      4:00 p.m. EST, in the GS Building Auditorium, 1800 F Street NW, Washington, DC
      20405, to facilitate an open dialogue between the Government and parties interested in
      the implementation of section 8002(d), FAR Case 2003–027, Additional Contract Types.
      Because they are so closely related, the public meeting will also cover this FAR proposed
      rule 2004–015, Payment Under Time-and-Materials and Labor-Hour Contracts.
      Interested parties are encouraged to attend and engage in discussions regarding these
      proposed rules. . . . A. Background - The amendments made under this case are
      intended to be applicable only to non-commercial item contracts. Policies applicable
      to commercial item T&M or LH contracts are being addressed separately under
      FAR case 2003–027. The proposed amendments to FAR 16.307, 16.601, 32.111, and
      the FAR clause at 52.232–7 are intended to amend the underlying policies and increase
      the clarity of the affected FAR language. . . .‖ Draft comments should be completed
      by November 11, 2005.




                                           Page 51
ABA Section of Public Contract Law
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   C) Potential Comments − Proposed Rule − DFARS: Types of Contracts, 70 Fed. Reg.
      54694, September 16, 2005. DOD is proposing to amend the DFARS to update text on
      the selection and use of contract types. The proposed DFARS changes are: streamline
      text on the use of economic price adjustment clauses; increase, from 3 to 5 years, the
      standard maximum ordering period under basic ordering agreements; delete obsolete text
      on the use of cost-plus-fixed-fee contracts for environmental restoration; delete
      unnecessary text on design stability and use of incentive provisions; and delete
      procedures for selecting contract type and for use of special economic price adjustment
      clauses, incentive contracts, and basic ordering agreements. Draft comments should be
      completed by November 1, 2005.
   D) Potential Comments − Proposed Rule − DFARS: Special Contracting Methods, 70
      Fed. Reg. 54695, September 16, 2005. DOD is proposing to amend the DFARS to
      update text on the use of special contracting methods. The proposed DFARS changes
      are; to clarify text on the use of option clauses for industrial capability production
      planning; delete unnecessary text on determinations for interagency acquisitions under
      the Economy Act; delete restrictive requirements relating to the use of master agreements
      for vessel repair; delete obsolete procedures for acquisition of bakery and dairy products;
      lower the level for approval of profit on undefinitized contract actions for which
      substantial performance has been completed; and delete guidance on the use of
      options; and procedures for preparation of master agreements and job orders, for breakout
      and acquisition of spare parts, and for acquisition of work over and above contract
      requirements. Draft comments should be completed by November 1, 2005.
   E) Potential Comments − CASB Staff Discussion Paper: Exemption for Contracts
      Entirely Executed and Performed Outside the United States, 70 Fed. Reg. 53977,
      September 13, 2005. ―Purpose - 48 CFR 9903.201–1(b) provides a list of categories of
      contracts and subcontracts that are exempt from all CAS requirements (CAS
      exemptions). Paragraph (14) of this provision provides an exemption for ‗Contracts and
      subcontracts to be executed and performed entirely outside the United States, its
      territories, and possessions.‘ The purpose of this SDP is to explore whether this
      exemption should be revised or eliminated.‖
      ―Key Questions for Consideration - The CAS Board is soliciting comments on this
      issue from interested parties. In particular, the Board is interested in comments related to
      the following issues:

      1. Any statute that would require the CAS Board to retain this exemption. If any such
         statute exists, provide the specific statute and language that contain this requirement.




                                            Page 52
ABA Section of Public Contract Law
Accounting, Cost & Pricing Committee

      2. How this exemption does or does not promote the CAS Board‘s primary objective of
         achieving ‗(1) an increased degree of uniformity in cost accounting practices among
         Government contractors in like circumstances, and (2) consistency in cost accounting
         practices in like circumstances by individual government contractor over periods of
         time.‘

      3. The significance of the location of contract execution to CAS applicability.

      4. The significance of the location of contract performance to CAS applicability.

      5. The advantages and disadvantages of exempting contracts and subcontracts from
         CAS that are executed and performed entirely outside the U.S.

      6. Contracting situations in which the exemption has historically been utilized.‖

   F) Final Rule – DOD/NASA/GSA: Accounting for Unallowable Costs, 70 Fed. Reg.
      57463, September 30, 2005 (effective October 31, 2005). The final rule adds language
      which provides specific criteria on the use of statistical sampling as a method to
      identify unallowable costs, including the applicability of penalties for failure to exclude
      certain projected unallowable costs. The final rule also revises the language regarding
      advance agreements by adding statistical sampling methods as an example for which
      advance agreements between the contracting officers and contractors may be appropriate.
   G) Final Rule - DOD/NASA/GSA: Training and Education Cost Principle, 70 Fed. Reg.
      57470, September 30, 2005 (effective October 31, 2005). This final rule amends the
      FAR by revising the ``training and education costs'' contract cost principle at FAR
      31.205-44. The amendment streamlines the cost principle and increases clarity by
      eliminating restrictive and confusing language, and by restructuring the rule to list only
      specifically unallowable costs. The final rule eliminates several specific limitations on the
      allowability of costs associated with the various categories of education, eliminates the
      disparate treatment of full-time and part-time undergraduate education costs, and limits
      allowable costs to training and education related to the field in which the employee is
      working or may reasonably be expected to work. The rule makes job-related training and
      education costs generally allowable, except for six public policy exceptions that are
      retained from the current cost principle. Except for the six expressly unallowable cost
      exceptions, the reasonableness of specific contractor training and education costs is
      assessed by reference to the FAR section entitled ―Determining reasonableness‖ (i.e.,
      31.201-3).




                                            Page 53
ABA Section of Public Contract Law
Accounting, Cost & Pricing Committee



   H) Final Rule – DOD/NASA/GSA: Relocation Costs, 70 Fed. Reg. 57467, September 30,
      2005 (effective October 30, 2005). The final rule amends the FAR by revising the
      relocation cost principle to permit contractors the option of being reimbursed on a lump-
      sum basis for three types of employee relocation costs: costs of finding a new home;
      costs of travel to the new location; and costs of temporary lodging. These three types of
      costs are in addition to the miscellaneous relocation costs for which lump-sum
      reimbursements are already permitted.
   I) OMB - David Safavian, head of the Office of Federal Procurement Policy, resigned on
      September 16, 2005. Mr. Safavian is charged with making false statements to a General
      Services Administration ethics officer and the GSA inspector general's office. Mr.
      Safavian was chair of the CAS Board. Our own Robert Burton, associate administrator
      of OFPP, will head the OFPP on an interim basis. Good luck Rob!


IV. American Bar Association Section of Public Contract Law: 2005 Fall Meeting in
    Sedona, Arizona – November 10 - 12, 2005
   A) How Effective Is Your Compliance Program: A Closer Look at High-Risk Areas
   B) Section Council Meeting
   C) Register at http://www.abanet.org/contract/admin/programs/fall2005pro.html
The next meeting of the Accounting Cost and Pricing committee will be held on Tuesday,
November 8, 2005 at the offices of Navigant Consulting, 1801 K Street, NW, Suite 600.
Note that the ABA Public Contract session web site contains an extensive repository of
information relating to Federal, State and Local procurement issues. See
http://www.abanet.org/contract/home.html for the ABA Section of Public Contract Law main
page. The Accounting Cost and Pricing Committee web site is located at
http://www.abanet.org/dch/committee.cfm?com=PC401500. Our committee web site includes
meeting agendas from 1996 to present. Also note that the Regulatory Coordinating committee
web site contains Prior Section Comments organized by topic (See
http://www.abanet.org/dch/committee.cfm?com=PC407500).




                                           Page 54

				
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