The Contract Disputes Act (CDA) requires the federal government and its contractors to assert claims against the other party within six years of claim accrual, after which the claim is barred. However, the CDA does not define when the claim begins to accrue, which may sometimes complicate the statute of limitation calculation for contractors, especially when defending government’s claims. To determine when government claims begin to accrue, contractors must look to the Federal Acquisition Regulation (FAR), the terms of the underlying contract, and the facts and circumstances surrounding the particular contract. Since multiple factors are implicated in determining the accrual date, it may not always be evident whether the government’s claim is timely. Such lack of clarity may be particularly applicable in government claims concerning allowability of contractor costs in cost-reimbursable settings. Specifically, it may be challenging to determine the date of accrual of government’s cost claims in situations where payments are made in advance based on provisional billing rates and the contractor later fails to adequately demonstrate the allowability of billed costs in its final cost rate proposals.

In Strategic Tech. Inst., Inc. v. Sec’y of Def., a case decided in January 2024, the Federal Circuit faced such an issue in determining the date of accrual for a claim by the Defense Contract Management Agency (DCMA) under a cost-reimbursable contract involving provisional billing rates. The Navy had awarded the five-year contract in 2008 to acquire aircraft engineering and support services for the Naval Surface Warfare Center. The contract incorporated Federal Acquisition Regulation (FAR) 52.216-7 “Allowable Cost and Payment,” and FAR 52.242-4 “Certification of Final Indirect Costs.” The Navy agreed to pay the contractor’s monthly invoices using provisional billing rates until the contractor established its final annual indirect rates. In turn, the contractor was required to submit a duly certified “adequate final indirect cost rate proposal” within the 6-month period immediately following the expiration of each fiscal year to demonstrate the allowability of the billed costs.

However, despite this arrangement, the contractor failed to submit its indirect cost rate proposals for fiscal years 2008 and 2009. In 2014, the Defense Contract Audit Agency (DCAA) noticed the contractor’s failure to submit the cost rate proposals, and the government subsequently sent requests for the missing proposals. The contractor submitted the missing indirect cost rates proposals in September 2014. Following the contractor’s submissions, the DCAA issued two audit reports, questioning certain direct and indirect costs incurred by the contractor in 2008 and 2009. In November 2018, the DCMA issued a final decision unilaterally establishing rates and demanding payment of $1,107,788, including penalties and interest. The contractor appealed the DCMA’s final decision at the Armed Services Board of Contract Appeals (ASBCA No. 61911), arguing that the six-year statute of limitations barred the DCMA claim. The Board sustained the government’s claim, rejecting the contractor’s statute of limitations argument, determining that the government did not receive the 2008 and 2009 indirect cost rate proposals until July 2014. The Board also decided that the government did not know and had no reason to know of its claim against the contractor until after it received the contractor’s final certified indirect cost rate proposal in September 2014. The contractor appealed the Board’s final decision at the Federal Circuit.

The Federal Circuit began its analysis by explaining that pursuant to FAR § 33.201, a government claim accrues when all events that fix the alleged liability of the contractor are known or should have been known. Additionally, while monetary damages need not have been incurred, some injury must have already occurred for the liability to attach. Within this framework, the Federal Circuit decided that the event that fixed the contractor’s liability in this case was the contractor’s submission of its final indirect cost rate proposals in 2014, not its initial failure to submit the proposals in 2008 and 2009. The Court explained that in a flexibly priced contract like the one at issue here, the contractor’s liability for allowability of incurred costs is not fixed when the contractor first receives an overpayment by spending less than the anticipated final rate. In fact, such overpayments are expressly contemplated under the terms of the contract, which require the government to make payments based on provisional billing rates and the contractor to remit any overpayments if the actual incurred costs are less than the final rate. Instead, the date on which the contractor’s liability is fixed is determined on a case-by-case basis, depending on the terms of the underlying contract and the facts of the procurement.

Here, the contractor submitted its final 2008-09 cost rate proposals in 2014, and the government subsequently conducted an audit. The government then brought the claim at issue, demanding payment of unallowable costs in 2018. Therefore, the event that fixed the contractor’s liability regarding the government’s unallowable costs claim was the submission of the contractor’s final indirect cost rate proposals in September 2014. Without the contractor’s final indirect cost rate proposals, the government could not have deemed the 2008-09 costs as unallowable. Therefore, the government could not and did not know the basis of its claim until the 2014 submission, which fixed the contractor’s liability. Since the government filed its claim challenging the allowability of the contractor’s costs in 2018, well within six years of the contractor’s submission of its final certified cost rate proposals in 2014, the government’s claim was timely.

When challenging the timeliness of government claims, contractors should be mindful that the government has the same six-year CDA deadline to bring its claims against the contractor as the contractors have for asserting their claims against the government. When the claim’s accrual date is unclear in cost-reimbursable settings, contractors should look to the applicable FAR provisions, the terms of the contract, and the facts surrounding the claim to determine the date of accrual. Notably, the government’s breach of contract claims for the contractor’s failure to submit cost rate proposals in a timely manner begin to accrue when the contractor is first late in submitting its final cost rate proposals. However, as demonstrated in this case, such breach of contract claims for failure to timely submit cost rate proposals are necessarily different from claims challenging the allowability of contractor’s costs. Such allowability of cost claims do not typically begin to accrue until after the contractor submits its final cost rate proposals. Additionally, by failing to timely submit their final incurred cost rate proposals, contractors may lose their ability to challenge the government’s cost determinations. Therefore, contractors should submit such proposals in a timely manner or as soon as practicable so their ability to challenge the merits of the government’s allowability of cost claims is preserved.

This Federal Contract Claims Insight is provided as a general summary of the applicable law in the practice area and does not constitute legal advice. Contractors wishing to learn more are encouraged to consult the TILLIT LAW PLLC Client Portal or Contact Us to determine how the law would apply in a specific situation.