This week we are previewing oral arguments scheduled for next week at the Federal Circuit in three cases that attracted amicus briefs. Today we highlight Secretary of Defense v. Raytheon Co., a government contract case in which the Secretary of Defense appeals a decision of the Armed Services Board of Contract Appeals. This appeal relates to Raytheon’s compliance with Federal Acquisition Regulations regarding whether lobbying costs and acquisition and divesture costs may be passed on to the government.
In its opening brief, the Secretary argues that “Raytheon did not comply with the FAR” because “Raytheon relied on corporate polices that do not conform to the plain language of the controlling regulations.” According to the Secretary, “[t]he inadequacy of Raytheon’s records pervades this entire case.” The Secretary’s brief argues that “Raytheon charged the Government millions of dollars for salaries of individuals hired to undertake activities that are expressly unallowable under the FAR, without a single record establishing that any of those individuals engaged in any allowable activity for any identifiable period of time.” Moreover, the Secretary contends, “[e]qually unacceptable are the specific corporate policies under which Raytheon instructed the lobbyists and [acquisition and divesture] team to not even report the entirety of the time they spent engaged in the unallowable activities that they were hired to perform.”
In its response brief, Raytheon argues “the Board neither erred nor clearly erred” in its ruling that “the Government failed to prove that Raytheon sought reimbursement for any unallowable costs.” Raytheon asserts that “time spent on lobbying activities” were “accurately recorded” while “unallowable costs associated with those lobbying activities” were “identified and excluded.” Raytheon claims that in order to “navigate the FAR’s complex regulatory framework” it “adopted a bright line policy under which unallowable organizational costs begin when Raytheon decides to move forward with a specific acquisition or divestiture.” According to Raytheon, the Board “correctly held that this policy ‘represents a reasonable reading of’ the applicable FAR cost principles.”
In its reply brief, the Secretary argues the correct standard of review is de novo for questions of law and substantial evidence for questions of fact, not clear error as asserted by Raytheon. On the merits, the Secretary argues that “Raytheon attempts to support the allowability of its claimed costs with records of how much time the employees reported working on the activities that Raytheon itself considers to be expressly unallowable—i.e., lobbying and the A&D activities occurring after its bright-line policy thresholds.” But, says the Secretary, “records of unallowable time are not records of allowable time or activities.” More generally, the Secretary reasserts is argument that Raytheon’s records were “inadequate,” and that “costs without adequate documentation are never allowable.”
The National Association of Manufacturers and Aerospace Industries Association filed an amicus brief supporting Raytheon and affirming the Board’s ruling. In its brief, it argues that the Secretary’s “position that corporate policies and training are noncompliant unless they repeat, verbatim, FAR provisions would represent an unwarranted” change for industry practices. The brief contends that “government contractors need to be able explain to their personnel the FAR and how different cost principles interact with one another.” Further, it asserts, failure “to develop uniform policies and relying on individual, non-trained personnel to interpret the FAR could result in overbilling the Government and legal exposure for contractors.”
This case is set to be argued on Tuesday, November 1. We will report on developments.