Too Late: Government’s Failure to Timely Audit Did Not Extend the Contractor’s Document Retention Obligations

In Doubleshot, Inc., ASBCA No. 61691 (July 19, 2022), the Armed Services Board of Contract Appeals (“ASBCA”) granted the contractor’s motion for partial summary judgment, denying the Government’s claim for unallowable costs to the extent that it was based on missing or unsigned employee time cards.  The ASBCA held that the contractor was not required to maintain time card records to support the allowability of labor charges beyond the retention period specified in the contractor’s cost-plus-fixed-fee contracts (including applicable time extensions). 

The contracts incorporated both the Audit and Records – Negotiation clause (FAR 52.215-2) and the Allowable Cost and Payment clause (FAR 52.216-7), which grant the Government the right to examine the contractor’s records reflecting all claimed costs and reduce payments for amounts that are unallowable.  Following the contractor’s delayed submission of two final indirect cost rate proposals, the Defense Contract Audit Agency (“DCAA”) did not begin auditing the proposals until eight months after the contractual obligation to maintain records had expired.  DCAA then questioned the contractor’s labor costs for which there was no time card support, even though the contractor was able to demonstrate that it paid its employees.  The Government’s claim and the contractor’s appeal followed. 

The ASBCA held that the contractor was not obligated to keep time card records beyond the FAR-mandated retention periods set in the contracts.  Therefore, the Government could not disallow the costs on the basis that the time cards were unavailable.  In so holding, the ASBCA rejected the Government’s argument that applying the FAR criteria was unfair, noting that the records retention period is a product of Government regulations and part of a FAR clause incorporated by the contracting officer.  The ASBCA also denied the portion of the Government’s claim that relied on unsigned time cards, noting that the FAR’s documentation requirement does not require signed time cards in order to support cost allowability.   

In sum, the ASBCA will not de facto extend document retention requirements by permitting a Government claim for unallowable costs on the basis of insufficient supporting documentation.  By contrast, the CBCA recently indicated, in dicta in Mission Support Alliance, CBCA 6477, that if presented with similar facts and arguments, it may hold differently.