Summary Judgment Denied on Accounting Practice Change

The government's summary judgment motion on a claim by a ship repair contractor for unrecovered dry dock certification costs was denied by the Armed Services Board of Contract Appeals because the record was insufficient to determine whether an accounting change sought by the contractor was justified. The contractor appealed a contracting officer's denial of its claim under a cost-reimbursement contract for advance planning to perform repairs and alterations to auxiliary oiler explosive class ships. The base contract included government options for dry dock work, and the contractor was required to maintain a dry dock in certified status and have it ready and available for both scheduled and unscheduled repairs should the government exercise its options. The contractor incurred costs to achieve and maintain government certification of the dry dock, and it sought to account for the certification expenses as direct costs to the base contract, which was a change from its prior practice of allocating these type of costs as indirect.

In its motion, the government argued the contractor's claim under the base contract failed because the genesis of the claim was the government's decision not to exercise dry dock options on a number of ships, which was fully within its discretion. According to the government, the contractor had previously charged its dry dock costs as indirect, but now sought an inconsistent and retroactive change after contract award. The contractor countered that the appeal concerned not the government's failure to exercise the options but rather the government's promise under the base contract to reimburse the contractor for its costs of maintaining the dry dock in a state of readiness. The contractor contended it had sought the accounting change at issue from the government before entering into the base contract and that pending the establishment of an equitable method to charge the certifications costs as they were incurred, it "provisionally" allocated them as indirect costs based on dry dock usage, which was its standard accounting practice under prior contracts. Although the base contract did not mention recovery of dry dock certification costs as direct costs, the contract's Allowable Cost and Payment clause incorporated the cost principles of Subpart 31.2 of the Federal Acquisition Regulation, which generally require a consistent accounting for direct costs as they relate to a particular final cost objective or an appropriate allocation of costs to an indirect cost pool when there are two or more cost objectives. Given these considerations, the record required development to determine whether the accounting change sought by the contractor was warranted, prospective, allowable, and unreasonably denied, as it asserted, or was unjustified and impermissibly inconsistent and retroactive, as the government argued. (Todd Pacific Shipyards Corp., ASBCA, ¶92,325)

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