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Circumstantial Evidence of Cost Reasonableness Rejected

A claim for costs to provide dining facility services was denied in part by the Court of Federal Claims because the contractor did not prove the amount claimed was reasonable. The contractor sought approximately $41 million in unpaid costs plus fee for 6 months of services provided in 2004 at Camp Anaconda, Iraq, under an umbrella contract for logistics support services. The Defense Contract Auditing Agency had suspended payment after finding the contractor's subcontract costs to be unreasonable. The subcontractor was not required to provide cost data because the subcontract was a fixed-price contract and dining-facility services were a commercial acquisition. To meet its burden of establishing cost reasonableness under FAR 31.201-3, the contractor presented "circumstantial evidence" regarding its negotiations with the subcontractor, the government's global settlement for services provided prior to the six-month period at issue, and the DCAA's "scattershot" audits.

Three-Legged Stool

However, the negotiation results were not evidence of cost reasonableness, because the contractor's representative was uninformed and wrongly regarded the subcontractor's original prices as reasonable, failed to use withheld subcontract payments as leverage, and accepted at face value the subcontractor's contention it was owed $42 million for dining facility structures. The global settlement also did not demonstrate cost reasonableness, because it was based on an overall reasonableness determination that did not examine cost reasonableness on a site-by-site level, and the purpose of the settlement was to "clear[] the slate" in acknowledgment of the contractor's contribution in the early stages of the war. Finally, evidence regarding the DCAA's "erratic" audit process merely demonstrated the difficulty of quantifying the contractor's costs, not that the costs were reasonable. Despite rejecting the contractor's "three-legged stool approach," the court found the subcontractor's competitive bid submitted at the start of the six-month period was an "anchor point" that supported the reasonableness of the contractor's negotiated monthly rate that did not include facilities amortization. Using the monthly rate, the court found the contractor was entitled to approximately $11.5 million plus overhead, general and administrative expense, cost of facilities, and base fee. (Kellogg Brown & Root Services, Inc. v. U.S., FedCl, 56 CCF 79,809)




(The news featured above is a selection from the news covered in the Government Contracts Report Letter, which is published weekly and distributed to subscribers of the Government Contracts Reporter. )


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