"Here before. Many times. And without resolution." – Board’s Dismissal of Contractor’s Appeals as Moot Precludes Analysis of Costs Repeatedly Disallowed on the Same Grounds

In L3 Technologies, Inc., ASBCA Nos. 61811, et al. (Mar. 1, 2021), the Armed Services Board of Contract Appeals (Board) granted the Government’s motion to dismiss the appeal, over the contractor’s objection, following the Contracting Officer’s (CO) unequivocal withdrawal of its cost disallowance claims. The contractor argued that its case was not moot despite the withdrawal of the CO’s final decision (COFD) asserting the claims because an exception to the mootness doctrine applied: the claims were “capable of repetition, yet evading review.” The claims followed a “repetitive cycle of DCAA Audits challenging costs, DCMA COFDs demanding repayment of the challenged costs, L3’s ASBCA appeals and DCMA’s dismissal without reaching merits.” The majority of the Board rejected the contractor’s argument. But in a 23-page dissent, Judge Clarke (who wrote the original decision) explained why the exception should have been applied here, noting that the majority decision “subjects L3 (and other contractors) to the unfortunate chain of events discussed [in the decision] until DCAA and DCMA resolve whatever their differences are.”

The appeals at issue were the latest in a long string of appeals of similar Government claims stretching back to 2006, all of which relied on DCAA audits that challenged many of the same types of costs for the same reasons and were based (at least in part) on DCAA’s purported use of “statistical sampling,” and all of which were eventually withdrawn by the CO. As recounted by the dissent, from 2006 through 2018, DCAA conducted audits challenging the costs, DCMA issued COFDs implementing the DCAA audits and demanding repayment of the challenged costs, L3 appealed the COFDs to the Board, and DCMA would either withdraw the COFDs or the parties would settle for a nuisance amount resulting in dismissal of the appeals with prejudice. 

Following discovery and the exchange of expert reports regarding DCAA’s application of purported “statistical sampling techniques” to extrapolate the results “across the board for that cost,”—techniques that L3 challenged as fundamentally flawed—DCAA made changes to its sampling program, aspects of which DCAA stated did not reflect a justifiable methodology. The CO subsequently issued a letter unequivocally withdrawing the COFDs for the subject appeals and representing that “the Government does not intend to reassert the costs at issue in those disputes.” The Government’s motion to dismiss the appeals as moot followed, and L3 opposed the motion on the basis that issues presented remain live. Specifically, L3 argued, there is a “continuing dispute over the correct interpretation of various FAR sections related to L3’s questioned costs and DCAA’s use of purported ‘statistical’ sampling to extrapolate questioned costs—which remain live despite the withdrawal of the COFDs.” L3 argued that the dispute was not moot because DCAA’s audit technique was both common and inaccurate, and had already caused the contractor to incur years of non-reimbursable litigation costs arising out of previous audits. Moreover, DCAA’s continued use of a flawed sampling methodology would result in similar Government claims without relief.

Although the majority was unpersuaded and granted the Government’s motion, the dissent concluded from his review of the caselaw, including the Board’s decision in Combat Support Associates, ASBCA No. 58945, 16-1 BCA ¶ 36288, that there is “no impediment to the Board’s reliance on the mootness exception in the right circumstances. If there was ever the ‘right circumstance,’ this is it.” As such, the dissenting judge would have allowed the moot case to continue, giving both parties the chance to present their positions to the Board on the merits. Unfortunately for L3 and other contractors seemingly caught between DCAA and DCMA, we’ll have to wait for the next “right circumstance.”