A
contractor's segment
closing claims were
not barred,
according to the
Court of Federal
Claims, because
novation agreements
did not waive or
transfer the
contractor's Cost
Accounting Standard
413 adjustment
claims. The dispute
involved the
contractor's sale of
certain business
segments and the
retention of assets
and liabilities
associated with the
defined benefit
pension plans of
those segments. CAS
413-50(c)(12)
requires contractors
to calculate an
adjustment of
previously-determined
pension costs for
each segment's
defined benefit
pension plan or
plans. To determine
a segment closing
adjustment, the
contractor must
calculate the
difference between
the actuarial
liability for the
segment and the
market value of the
assets allocated to
the segment. The
difference between
the plan's assets
and liabilities
indicates the amount
by which the plan is
over- or
under-funded. If the
difference is
positive, the
government may be
entitled to a share
of the surplus from
the contractor, and
if the difference is
negative, the
contractor may be
entitled to a share
of the deficit from
the government. The
government argued
novation agreements
it entered into with
the contractor and
two segment buyers
barred the
contractor's
adjustment claims.
Pursuant to FAR
42.1204 (i), the
novation agreements
stated the
contractor waived "any
claim and rights
against the [g]overnment
that [the
contractor] now has
or may have in the
future in connection
with the
contracts."
Consistent
and Overwhelming
Evidence
The
court, however,
found "consistent
and
overwhelming"
evidence established
that none of the
government or
contractor employees
involved in
processing and
signing the novation
agreements or
negotiating the CAS
413 segment
closing adjustment
understood that the FAR
42.1204 (i)
waiver language
barred the
contractor's claims.
Instead, government
and contractor
employees understood
the contractor did
not transfer its
pension obligations
associated with the
closed segments to
the segment buyers,
and the buyers would
not assume the
contractor's
preexisting pension
obligations to the
segment employees.
The government
further argued the
contractor's failure
to submit a
certified claim
before it signed the
novation agreements
barred its claims.
However, the
agreements' waiver
language did not
extend to the CAS
413 claims.
Specifically, the FAR
42.1204 novation
agreement is
designed for use
when "all
the [contractor]'s
assets are
transferred,"
and the waiver is
intended to protect
the government from
multiple claims that
might arise "in
connection
with"
the specific
contracts that are
transferred from the
seller to the buyer.
By contrast, segment
closing claims
settle up retained
pension liabilities
and are not
contract-specific.
Moreover, in Gates
v. Raytheon Co.
( 53
CCF ¶79,168),
the Court of Appeals
for the Federal
Circuit recognized
that a segment
closing adjustment
is never
contract-specific
and therefore
requires an
adjustment
calculation to be
made without regard
to individual
contracts. ( Raytheon
Co. v. U.S.,
FedCl, 56 CCF ¶79,850)
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