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DFARS Final Rule Authorizes ACO to Negotiate and Settle Direct Costs Questioned in Incurred Cost Audits

Client Alert | 1 min read | 04.05.23

On March 22, 2023, the Department of Defense (DoD) issued a final rule amending the Defense Federal Acquisition Regulation Supplement (DFARS) to allow a procuring contracting officer (PCO) to delegate the authority to the contract administration office (CAO) to negotiate and settle direct costs questioned in an indirect cost rate proposal audit.  After the delegation, the PCO must provide the CAO access to all supporting documentation related to questioned direct costs within 30 days.  After settling the questioned direct costs, the CAO shares the settlement results with the procuring contracting office, which then makes any necessary adjustments to affected contracts.  The delegation authority does not apply to classified contracts.

This final rule seemingly continues a trend to expand the scope of indirect cost rate proposal audits to include direct costs.  By granting the CAO the authority to negotiate and settle direct costs, this rule increases the number of Government personnel authorized to examine a contractor’s direct costs, and de facto alters the purpose of the indirect cost rate proposal audit. 

Some commentators have suggested that this may lead to confusion about when a Government claim for direct costs begins to accrue under the Contract Disputes Act’s six-year statute of limitations.  As in Sparton DeLeon Springs, LLC, ASBCA No. 60416, the Government may be time-barred from questioning a contractor’s previously billed direct costs if the contractor can demonstrate that the Government was on notice that it had a claim for those costs, but waited more than six years after accrual to assert its claim, such as through the indirect cost rate proposal audit process.  Determining when a Government’s claim has accrued depends on the nature of the claim—whether for indirect or direct costs—and the relevant facts.  The final rule does not enlarge or otherwise change the statute of limitations period with respect to any direct cost claims that may be asserted as a result of an indirect cost rate audit.  

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Client Alert | 4 min read | 08.07.25

File First, Facts Later? Eleventh Circuit Says That Discovery Can Inform False Claims Act Allegations in Amended Complaints

On July 25, 2025, the Eleventh Circuit Court of Appeals issued its decision in United States ex. rel. Sedona Partners LLC v. Able Moving & Storage Inc. et al., holding that a district court cannot ignore new factual allegations included in an amended complaint filed by a False Claims Act qui tam relator based on the fact that those additional facts were learned in discovery, even while a motion to dismiss for failure to comply with the heightened pleading standard under Federal Rule of Civil Procedure 9(b) is pending.  Under Rule 9(b), allegations of fraud typically must include factual support showing the who, what, where, why, and how of the fraud to survive a defendant’s motion to dismiss.  And while that standard has not changed, Sedona gives room for a relator to file first and seek out discovery in order to amend an otherwise deficient complaint and survive a motion to dismiss, at least in the Eleventh Circuit.  Importantly, however, the Eleventh Circuit clarified that a district court retains the discretion to dismiss a relator’s complaint before or after discovery has begun, meaning that district courts are not required to permit discovery at the pleading stage.  Nevertheless, the Sedona decision is an about-face from precedent in the Eleventh Circuit, and many other circuits, where, historically, facts learned during discovery could not be used to circumvent Rule 9(b) by bolstering a relator’s factual allegations while a motion to dismiss was pending.  While the long-term effects of the decision remain to be seen, in the short term the decision may encourage relators to engage in early discovery in hopes of learning facts that they can use to survive otherwise meritorious motions to dismiss....

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