Cost Reduction Removed Contractor's Pension Surplus Liability

A contractor's motion for summary judgment on the government's claim for surplus pension assets arising from closed segments was granted by the Court of Federal Claims because the government received cost reductions that exceeded the contractor's payment obligations under Cost Accounting Standard 413-50. CAS 413 addresses the treatment of pension asset surplus or deficit that is attributable to the government's pension cost payments under cost-reimbursement contracts following a contractor's closing of a business segment. In contesting the summary judgment motion, the government argued that absent an express agreement from the government, the segment seller cannot satisfy its CAS 413 payment obligation through a pension cost reduction from the segment buyer. According to the government, if there is no express agreement on a cost reduction, then it is entitled to receive both cash from the seller and a cost reduction from the buyer that equals or exceeds that same amount. In support of this contention, the government relied on the Credits provision at FAR 31.201-5 and other FAR sections, including the Allowable Cost and Payment clause, FAR 52.216-7, and language in the Taxes section, FAR 31.205-41(d).

No Windfall

The government's reading of the Credits provision, however, was too narrow. This regulation does not require double payment where the seller's segment closing payment obligation is satisfied by the cost reduction the government received under its contracts with the buyer due to the pension asset surplus transferred by the segment seller. Also, the Allowable Cost and Payment clause is implemented through the Credits provision and therefore the segment seller can meet its payment obligation either through a cash payment or a cost reduction, and unlike the Taxes provision, the Credits regulation does not allow the government to "direct" or dictate how payment is to be made. Moreover, under the CAS authorizing legislation, 41 USC 422(h)(3), the government may not recover a windfall in collecting its CAS 413 share. The contractor's failure to present evidence showing the government recognized through an advance agreement or novation that the contractor's CAS 413 payment obligation could be satisfied by reduced pension cost payments to the segment buyers was not material to granting summary judgment. Where the undisputed evidence demonstrates the government received the value of the contractor's CAS 413 segment closing obligation through a cost reduction from the successor contractors, the existence of such an agreement is immaterial. The contractor, therefore, had no remaining liability to the government from the segment closings. (DIRECTV Group, Inc. v. U.S., FedCl, 53 CCF 79,195)




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