D-STAR Engineering Corp.

ARMED SERVICES BOARD OF CONTRACT APPEALS

Appeals of - )

)

D-STAR Engineering Corp. ) ASBCA Nos. 62075, 62780

)

Under Contract No. FA8650-12-C-7243 )

APPEARANCE FOR THE APPELLANT: Mr. S. Paul Dev

President

APPEARANCES FOR THE GOVERNMENT: Samuel W. Morris, Esq.

DCMA Chief Trial Attorney

Adrianne L. Goins, Esq.

Trial Attorney

Defense Contract Management Agency

OPINION BY ADMINISTRATIVE JUDGE HERZFELD

The Defense Contract Management Agency (DCMA) terminated a contract

with D-STAR Engineering, Inc. (D-STAR), for convenience. In auditing D-STAR’s

termination settlement proposal, the government determined that it had overpaid

D-STAR and issued a contracting officer’s final decision with a debt demand to

D-STAR. D-STAR appeals the government’s debt demand claim. Also, D-STAR

appeals a subsequent contracting officer’s final decision that denied recovery of

additional costs D-STAR incurred separate from the termination settlement proposal.

The parties submitted these appeals for decision without a hearing under Rule 11 – a

trial on the record. For the reasons discussed below, we sustain DCMA’s debt demand

claim, award the government $282,926 (plus any interest due), and deny D-STAR’s

appeal of this government claim. We sustain D-STAR’s claim in ASBCA No. 62780

in the amount of $16,272.16, plus Contract Disputes Act (CDA) interest. Otherwise,

D-STAR’s claims are denied in these appeals.

FINDINGS OF FACT

I. The Partial Stop-Work Order, the Termination for Convenience, and

Termination Settlement Proposal

On July 16, 2012, the United States Air Force awarded D-STAR a cost-plus-

fixed-fee research and development contract for $4,806,502 to build a fuel-to-power

generation system for an unmanned vehicle (R4, tab 1 at 1-2, 42; see id. at 6, 13

(incorporating by reference Federal Acquisition Regulation (FAR) 52.216-7,

ALLOWABLE COST & PAYMENT (JUN 2011), and FAR 52.246-8, INSPECTION

OF RESEARCH AND DEVELOPMENT – COST-REIMBURSEMENT (MAY

2001)). 1 DCMA administered the contract (R4, tab 1 at 1).

On July 1, 2013, DCMA’s contracting officer issued a partial stop-work order,

instructing D-STAR to stop all work except (1) “progress reports and an integrated

final report for phase 1 effort” and (2) the “deliverables, schedules[,] and requirements

of financial and technical data, plans[,] and reports required for this effort from the

contractor . . . identified in the Contract Data Requirements List” (R4, tab 1 at 7

(contract incorporating by reference Stop-Work Order clause, FAR 52.242-15 (AUG

1989) – Alt. I (APR 1984)), tab 3). The partial stop-work order reminded D-STAR

that it needed to “take all reasonable steps to minimize the incurrence of costs

allocable to the work covered by the order during the period of work stoppage” (R4,

tab 3).

On September 26, 2013, D-STAR submitted its “Draft Final Report” to DCMA

consistent with the contract (R4, tab 1 at 7 (stating that the “draft final report” was due

on September 26, 2013), tab 46; app. supp. R4, tab 22). On September 30, 2013,

D-STAR reminded DCMA that the 90-day stop-work order had expired, requested an

equitable adjustment, and planned to resume work (app. supp. R4, tab 23 at 1-2). For

the next four weeks, DCMA attempted to convince D-STAR to execute a modification

extending the stop-work order, but D-STAR attempted to negotiate continuing work to

finalize the report (id. at 3-13). On October 29, 2013, DCMA’s contracting officer

informed D-STAR that the agency decided not to extend the stop-work order but

instead intended to terminate the contract for convenience (id. at 14). In response, D-

STAR asserted that DCMA could not terminate the contract but had to continue to

negotiate under the Stop-Work Order clause (id. at 15).

On November 1, 2013, DCMA’s contracting officer issued a contract

modification terminating the contract for convenience (R4, tabs 4-5; see also R4, tab 1

1

DCMA numbered the Rule 4 file as “G-00000[page number],” but in our citations we

have eliminated the pre-fix and zeroes and use only the page number for

brevity.

2

at 14 (contract incorporating by reference the Termination (Cost-Reimbursement)

clause, FAR 52.249-6 (MAY 2004))). D-STAR acknowledged receipt of the

termination notice but rejected the “legality” of the agency’s termination, again

asserting that the agency had to continue negotiating an extension to the stop-work

order (app. supp. R4, tab 23 at 17). DCMA responded that the Termination (Cost-

Reimbursement) clause allowed the agency to unilaterally terminate the contract for

convenience (R4, tab 47 at 2339). Regardless, on November 5, 2013, DCMA’s

contracting officer provided D-STAR with documents, including forms, instructions,

and relevant Federal Acquisition Regulation (FAR) provisions, to assist D-STAR in

preparing its termination settlement proposal (app. supp. R4, tab 24 at 1-3). DCMA

also requested an estimate of “the total dollar amount of [D-STAR’s] proposal at your

earliest opportunity” (id. at 3). On December 2, 2013, D-STAR estimated its

termination costs as $912,858 (app. supp. R4, tab 3 at 2). In response, DCMA’s

contracting officer encouraged D-STAR’s representative to “take a moment to read

FAR Part 49 and Part 31.205-42 Termination costs” in preparing the termination

settlement proposal (app. supp. R4, tab 24 at 15).

For the next several months, D-STAR queried DCMA regarding how to prepare

its termination settlement proposal and DCMA’s termination contracting officer

responded with some guidance (app. supp. R4, tabs 24, 26). On June 2, 2014,

D-STAR submitted a “Draft” termination settlement proposal for $601,336 but noted it

had “zero prior experience related to Termination of Contracts” and wanted to discuss

the proposal with DCMA (R4, tab 6 at 56-57, 63). By the end of June, D-STAR

representatives spoke with the DCMA’s contracting officer by teleconference to

discuss the termination settlement proposal, resulting in the contracting officer again

forwarding the FAR provision regarding termination costs (FAR 31.205-42) to

D-STAR (app. supp. R4, tab 24 at 26-28). 2

On October 30, 2014, D-STAR submitted a signed termination settlement

proposal (on Standard Form 1437), which requested a net payment of $674,819.64

(which derived from subtracting DCMA’s net payments on the contract,

$3,552,726.51, from the net costs incurred by D-STAR, $4,227,546.15).

2

In August 2014, the Air Force Office of Special Investigations and Defense Criminal

Investigative Service began a criminal investigation of D-STAR (R4, tabs 47-

51, 55). In March 2015, the investigators subpoenaed D-STAR’s records from

the terminated contract (app. supp. R4, tab 8). In September 2017, the U.S.

Attorney’s office declined to prosecute and, in October 2017, the investigators

informed D-STAR and DCMA that the Air Force had closed the criminal

investigation, allowing negotiation of the termination settlement proposal (R4,

tabs 74-75).

3

On July 30, 2015, D-STAR submitted a revised termination settlement proposal

(again on Standard Form 1437), which decreased its net payment request from

$674,819.64, to $437,057.40 (R4, tab 8 at 75). In revising and re-calculating the

termination settlement proposal, D-STAR reduced its net costs from $4.2 million to

$4,033,783.92, and credited additional payments from DCMA by $44,000.01

(recognizing that DCMA had paid D-STAR $3.596 million rather than $3.552 million)

(R4, tab 8 at 75).

II. DCAA’s Audit

On August 21, 2015, the Defense Contract Audit Agency (DCAA) began

auditing D-STAR’s July 2015 termination settlement proposal (R4, tabs 57-58). 3 On

November 13, 2015, DCAA informed DCMA’s contracting officer that D-STAR’s

July 2015 termination settlement proposal was “inadequate and noncompliant” with

the FAR and “should be returned for corrective action prior to our proceeding with the

requested audit” (R4, tab 9 at 78).

In response, D-STAR retabulated its costs “to meet DCAA needs” for an audit

and submitted a revised termination settlement proposal on November 21, 2015 (R4,

tab 10, tab 59 at 2418). The November 2015 proposal now sought a net payment of

$442,783.01 (subtracting its net payments of $3.596 million from net costs of $4.039

million) (R4, tab 10 at 80). DCAA now concurred that D-STAR had provided

sufficient information to conduct the audit (R4, tab 62 at 2422). In May 2016, DCAA

began communicating with D-STAR regarding its audit of the November 2015

proposal (app. supp. R4, tab 37 at 4-6).

On September 23, 2016, DCAA provided D-STAR with draft audit findings,

which questioned $928,133 of D-STAR’s costs and tentatively concluded that D-

STAR owed the government $485,351 (app. supp. R4, tab 41 at 8-9). On September

30, 2016, D-STAR responded, questioned DCAA’s preliminary findings, and

attempted to explain why D-STAR had acted appropriately in calculating its costs

(app. supp. R4, tab 13).

DCAA provided its final audit report to D-STAR on January 5, 2017 (app.

supp. R4, tab 43 at 1; R4, tab 11). The final audit report questioned $925,624 of

D-STAR’s net proposed settlement costs of $4.039 million, resulting in DCAA only

crediting $3,113,886 in net settlement costs (R4, tab 11 at 90). After subtracting the

prior payments of $3.596 million from DCAA’s assessment of net settlement costs

(again, $3,113,886), DCAA concluded that D-STAR owed the government $482,841

3

DCMA’s contracting officer had previously requested DCAA to audit D-STAR’s

October 2014 termination settlement proposal (R4, tab 52 at 2361-62).

4

(id. at 86-87, 90). DCAA questioned five types of costs on the contract: (1) direct

labor costs; (2) indirect factory expenses; (3) general and administrative (G&A)

expenses; (4) fee; and (5) settlement expenses (id. at 86-87).

First, DCAA questioned $86,922 of D-STAR’s proposed direct labor costs of

$504,793 associated with its termination based on allowability under FAR 31.201-

2(a), and under the Stop-Work Order clause (R4, tab 11 at 86, 93). DCAA evaluated

D-STAR’s accounting records and found that D-STAR’s proposal allocated $71,942 in

labor costs as incurred prior to the stop work order, but these costs were actually

incurred after the stop-work order (id. at 93). Also, DCAA asked DCMA to evaluate

the reasonableness of D-STAR’s proposed $21,444 in direct labor costs from the

stop-work order to the termination for convenience and DCMA concluded that

“$6,464.17 and 117.2 hours is fair an[d] allocable” for these costs (id. at 93, 105).

DCMA reviewed each time entry for each employee between the partial stop-work

order through termination, denying hours as (1) excessive, (2) unauthorized design

work after the partial stop-work order, (3) failing to include work descriptions,

(4) work on unchanged monthly reports, and (5) allegedly preparing an incomplete

draft report (R4, tab 26 at 1453-57, tab 45).

Second, DCAA questioned $131,383 of D-STAR’s proposed $623,183 in

indirect factory expenses from the termination settlement proposal (R4, tab 11 at 94).

D-STAR based its termination costs on its indirect cost proposal for calendar year

2013, which claimed an engineering overhead rate of 124.18% (from a pool of

$691,817 and base of $557,095) (R4, tab 23 at 1404). DCAA disallowed $38,366 in

D-STAR’s engineering overhead pool per FAR 31.205-26(d), Material Costs, and

FAR 45.402 (Title of Contractor-Acquired Property) (R4, tab 11 at 86). DCAA

reviewed invoices from D-STAR to the government for these materials, D-STAR’s

accounting records that showed the government had paid for these materials, and

concluded that the government had already paid D-STAR “in full for this inventory,

therefore it is Government property and the contractor had no right to transfer this cost

from the Inventory (asset) account to the Supply (Overhead Pool) account” (R4, tab 11

at 86, tab 18 at 1064 (D-STAR accounting records regarding materials), tab 29

at 1525, 1530 (D-STAR vouchers/invoices)). DCAA also asserted travel costs should

have been removed from this same overhead pool (R4, tab 11 at 86, 96-97). Based on

the adjustments to the overhead pool (and using D-STAR’s proposed base), DCAA

concluded that the engineering overhead rate should have been lowered by 9.2% from

124.18% to 114.98% and, when applied to the direct labor costs, resulted in DCMA

questioning $131,383 (id. at 97).

Third, DCAA questioned $133,485 of D-STAR’s proposed $795,538 in G&A

expenses in its termination settlement proposal (id. at 90). D-STAR again based its

termination costs on its indirect cost proposal for calendar year 2013, which claimed a

5

G&A rate of 36.94% (R4, tab 23 at 1404). DCAA questioned $36,237 in D-STAR’s

amortized long-range planning costs for attending exhibitions and trade shows in 2011

regarding two projects because (1) the contractor’s journalized costs, timesheets, and

travel reports did not support $4,944 of the costs, and (2) D-STAR improperly added

$31,293 burden costs (overhead and G&A) “on top of [long-range planning] G&A

expenses” (R4, tab 11 at 94-97, tabs 15-17, tab 22 at 1401-03). DCAA also

questioned $9,600 in independent research and development (IR&D) and bid and

proposal (B&P) costs because D-STAR applied the incorrect engineering overhead

rate (as discussed above) to these costs (R4, tab 11 at 95-97, tab 23 at 1406, 1412).

DCAA again questioned travel costs as applied in the G&A context (R4, tab 11 at 86,

96). DCAA questioned 3.72% of the proposed expense rate, lowered the rate to

33.21%, and applied it to the direct material, direct labor, indirect factory expense, and

other costs to arrive at the questioned costs of $133,485 (R4, tab 11 at 86, 97; gov’t br.

at 47).

Fourth, DCAA questioned $65,985 of D-STAR’s proposed $319,392 in fee

(R4, tab 11 at 86, 98-99). D-STAR’s termination settlement proposal based its fee

calculation on an accelerated double-declining balance method, 4 justifying it by

asserting that “work done early during the R&D contract is technically more

challenging than work later during the contract, and is hence deserving of a greater

rate of fee” (R4, tab 10 at 81, tab 11 at 98, tab 25 at 1426, 1450-51). D-STAR’s

proposed fee equated the amount it would normally have received after a 78.5%

completion of the contract (although D-STAR also noted that the straight-line method

would result in 70.3% based on its proposed costs as a percentage of the estimated cost

of the contract) (see R4, tab 12 at 150). DCMA provided DCAA with its technical

assessment that D-STAR had only completed 59% of the contract based on reviewing

D-STAR’s “documents, files, time sheets and vouchers” to assess the amount of

incurred costs (R4, tab 11 at 104). DCMA calculated its percentage of completion

based on the ratio of incurred costs to the total estimated cost in the contract (id.).

DCAA asserted that it could not use the double-declining balance method because “the

contract stipulates a flat 9.25 percent fee rate based on the costs incurred” (R4, tab 1

at 3 (“As determined by the contracting officer, [the fee] shall be paid as it accrues, in

regular installments based upon the percentage of completion of work”), tab 10 at 81,

tab 11 at 98-99). Using the straight-line method, DCAA concluded that the allowable

fee should only be $253,407 (9.25% x $2,739,536 in unquestioned total costs)

4

“Under this method, the cost or other basis of the property is deducted at a higher

depreciation amount in the earlier periods and a lower amount in the later

periods.” DCAA, SELECTED AREA OF COST GUIDEBOOK: FAR 31.205 COST

PRINCIPLES ¶ 19-2.2 at 19-4. The Generally Accepted Accounting Principles

permit the use of the declining balance method (including a double-declining

balance method). See FEDERAL ACCOUNTING STANDARDS BOARD, Standard

360-10-35-7.

6

resulting in receiving 62.3% of the original fee (R4, tab 11 at 99). By keeping the

straight-line method, DCAA’s calculation of a 62.3% completion rate effectively

relied only on the ratio of costs incurred to the total estimated cost to determine the

percentage of completion for the fee ($2,739,536/4,399,544 = 62.3%).

Fifth, DCAA questioned $507,849 of D-STAR’s proposed settlement costs of

$627,654 (R4, tab 11 at 86, 99). DCAA requested that DCMA assess the

reasonableness of D-STAR’s proposed 2,810.7 direct labor hours amounting to

$182,408.85 5 in settlement costs (R4, tab 11 at 100, 105-06, tab 25 at 1444, tab 35

at 1642). DCMA reviewed D-STAR’s timesheets and vouchers and recommended

(1) finding only 317.95 hours reasonable, of D-STAR’s proposed 1,187.7 hours for

entering 129 inventory items into DCMA’s Plant Clearance Automated Reutilization

Screening System, (2) disallowing other time entries without descriptions, and

(3) disallowing repetitive costs as excessive and unreasonable (R4, tab 11 at 105-06,

tab 35 at 1643-50). DCMA concluded that only “$44,276.31 [representing] 681.35

labor hours is fair and allocable . . . for settlement expenses” (R4, tab 11 at 106).

DCAA accepted DCMA’s analysis of the direct labor (id. at 99-100). DCAA accepted

D-STAR’s proposal of $28,830 in other direct costs (id. at 100). Then, DCAA

assessed and lowered D-STAR’s proposed burden (both engineering overhead and

G&A) to be added to the direct costs, limiting the rates to payroll taxes, fringe

benefits, occupancy costs, and immediate supervision costs per Termination cost

principle – FAR 31.205-42(g)(1)(iii) (R4, tab 11 at 100, tab 23 at 1410, tab 33 at 1621-

23, 1633-35). DCAA recommended allowing only $119,805 in settlement expenses

(R4, tab 11 at 100).

III. D-STAR’s Response to the Audit

On February 13, 2017, D-STAR responded to the DCAA audit report (R4,

tab 12).

First, as to the direct labor costs that DCAA questioned as unallowable,

D-STAR requested that DCAA identify “which hours of which person during which

week are being ‘questioned’” and give D-STAR the opportunity to provide additional

information to justify the hours as allowable (id. at 119, 156). Generally, D-STAR

asserted its costs were justified during this period to (1) research the FAR regarding

the partial stop-work order, (2) support a visit from the government technical team

regarding scheduling issues, (3) discuss and email with government officials regarding

the project and potential new scope, (4) support discussions to move the project to the

Defense Advanced Research Projects Agency, (5) support a technical interchange

meeting by teleconference, (6) consolidate and collate all technical data, (7) respond to

a request for proposal to revise the scope of work of the project, (8) provide interim

5

D-STAR calculated these costs to be $181,524.72, but DCMA’s calculation found

$182,408.85 in proposed labor costs (R4, tab 11 at 105).

7

monthly reports to the government, and (9) prepare the report required by the scope of

work not halted by the stop-work order (id. at 157).

Second, as to the questioned costs regarding indirect factory expenses, D-STAR

disagreed (id. at 118, 134-35). As to the disallowance of $38,366 in material included

in the engineering overhead account, D-STAR stated it appropriately included the

materials in the company’s inventory as overhead because D-STAR had given the

government a credit for these materials to offset a cost overrun on another contract that

D-STAR “waived” (id. at 134-37). D-STAR acknowledged that it “did not ‘dot all the

i’s” by obtaining approval from the government’s contracting officer on that other

contract but asserted that a “check was not needed . . . because the government owed a

net amount to” D-STAR (id. at 134-35). As to the travel expenses, D-STAR stated

these were proper because they related to the company’s president travelling between

his home office in Virginia and the company’s office in Connecticut (id. at 138).

D-STAR also noted that the government had approved and paid similar travel

expenses in prior years (id. at 138-48).

Third, as to the questioned G&A costs, D-STAR reiterated that its travel costs

were valid (id. at 138-48). As to the long-range planning costs regarding two projects

that were amortized over three years, D-STAR acknowledged that they could have

been “fully expensed in the year they were incurred” but D-STAR determined that

these long-range planning costs should be treated as “long term” costs amortized over

three years (id. at 149). “Accordingly, rather than being expensed immediately, these

costs were treated as prepaid expenses with benefits expected to accrue over a three-

year period” and “expensed over a three-year period” (id.). D-STAR pointed to

“standard accounting practices” (without citation) that allegedly justified adding

overhead and G&A burden to costs that were already burdened with G&A expenses

(id.). Additionally, D-STAR requested additional details so it could “find supporting

documentation” for its costs (id.).

Fourth, as to the questioned use of its fee, D-STAR asserted that its double-

declining balance method of computing the fee was fair and reasonable (id. at 150-51).

D-STAR justified the use of the accelerated fee recovery because (1) D-STAR

incurred costs by making “significant financial investments for the project, such as

hiring personnel, upgrading facilities” that it never fully realized because of an

inadequate “period of amortization and recovery of costs and fees,” (2) the termination

reduced direct costs to the company, thereby increasing overhead and G&A rates

across other contracts, (3) the termination resulted in the company laying off

employees and effectively shutting down, (4) D-STAR had to incur wind down

expenses, and (5) the accelerated fee would cost less than D-STAR’s time value of

money, which it believed it should recover based on the government’s delay in

resolving the termination settlement proposal (id. at 151).

8

Fifth, as to the questioned settlement costs, D-STAR requested that DCMA

“provide more details” regarding the basis for disallowing the settlement costs (id.

at 120, 169). D-STAR asserted that its direct labor settlement costs were justified

because this time was used to (1) understand the FAR’s termination procedures, (2)

communicate with the termination contracting officer seeking guidance,

(3) unsuccessfully search for suitable attorneys and consultants, (4) prepare and revise

D-STAR’s settlement estimate and four iterations of D-STAR’s termination settlement

proposal, (5) work with the government to secure International Traffic in Arms

regulated data and project-related hardware, (6) dispose of government hardware, and

(7) respond to the government’s audit of the proposal (id. at 170-73).

IV. The Parties’ Claims and DCMA’s Contracting Officer Decisions

On February 12, 2018, DCMA issued a debt determination and demand letter to

D-STAR, reiterating the conclusion of DCAA’s audit report that D-STAR owed the

government a debt of $482,481 (R4, tab 13 at 175 (citing the provisions of FAR

Part 32.6 regarding debt collection)).

On February 27, 2018, D-STAR sent DCMA’s contracting officer three

communications: (1) a letter disputing the debt determination (app. supp. R4, tab 20);

(2) a request to defer collection of the debt (app. supp. R4, tab 19); and (3) a certified

claim requesting a final decision from the contracting officer (R4, tab 14).

D-STAR’s certified claim sought (1) $442,783 from the November 2015

termination settlement proposal, (2) $70,367 for D-STAR’s costs incurred responding

to government audits and providing information supporting its termination settlement

proposal, which it supported with time records that included the time worked, hourly

rate, and descriptions of the work performed, (3) interest running from December

2015, and (4) $175,000 “in recognition of the harm done” to D-STAR by

“inappropriate actions and inaction by the government” (id. at 177-82).

After receiving no final decision, D-STAR filed a notice of appeal with this

Board on January 21, 2019 (ASBCA No. 61947).

On March 18, 2019, DCMA’s termination contracting officer issued a final

decision, denying D-STAR’s claim for $442,783 in termination settlement proposal

costs and concluding that D-STAR was “indebted to the Government in the amount of

$326,583” – reducing the amount of the government’s original debt demand of

$482,841 (R4, tab 37 at 1667, 1669). DCMA stated that the “notification rescinds and

replaces the previous demand for payment” (R4, tab 37 at 1669). Like the DCAA

audit report, DCMA’s contracting officer catalogued the difference between the costs

detailed in D-STAR’s termination settlement proposal and the government’s position

on those costs:

9

Cost Element D-STAR Proposal Difference Government

Position

Direct Material $193,135 $0 $193,135

Direct Labor 504,793 62,437 442,356

Indirect Factor Expense 623,183 104,344 518,839

Other Costs 974,677 0 974,677

Subtotal $2,295,788 $166,781 $2,129,007

G&A Expense 795,538 64,863 730,675

Total Costs $3,091,326 $231,644 $2,859,682

Fee 319,392 54,779 264,520

Settlement Expenses 627,654 482,849 144,805

Settlement with Subcontractors 1,350 0 1,350

Gross Proposed Settlement $4,029,722 $769,272 $3,270,144

Disposal & Other Credits (213) 0 (213)

Net Proposed Settlement $4,039,510 $769,272 $3,270,144

Prior Payments to Contractor 3,596,727 0 3,596,727

Net Payment Requested $442,783 $769,272 ($326,583)

(R4, tab 37 at 1667) Notably, the contracting officer had reduced the questioned costs

from $925,624 in the DCAA report to $769,272 in the final decision, reducing the

amount of questioned costs in each of the categories (compare R4, tab 11 at 90, with

tab 37 at 1667).

As to direct labor costs, the contracting officer allowed $30,949.17 for labor

after the stop-work order (increased from the $6,464.17 in the DCAA report and

original debt demand), adding “$24,485, half of the proposed labor associated with the

report to reimburse the contractor for efforts performed to compile the data for the

incomplete report” (R4, tab 37 at 1668). However, as noted in the chart above,

DCMA still only allowed $442,356 in direct labor costs, which was still $62,437 lower

than what D-STAR had proposed (id.).

As to indirect factory expenses, the contracting officer decreased the indirect

rate for the engineering overhead pool from 124.18% in D-STAR’s indirect cost

proposal to 117.29%, but not as low as the 114.98% suggested by DCAA’s audit

(compare R4, tab 11 at 95 (DCAA report including 114.98%), with tab 23 at 1404

(124.18% in indirect cost proposal), and tab 37 at 1668 (final decision including

117.29% rate)). Based on the allowed overhead rate, the contracting officer appears to

have agreed with D-STAR’s position that its travel expenses were properly part of the

indirect cost pool (and those costs are no longer at issue on appeal). However, the

10

contracting officer agreed with DCAA that D-STAR had improperly included $38,366

in materials the government had already paid for as part of the engineering overhead

pool (and that cost is still at issue on appeal), resulting in disallowing $104,344 of

indirect factory expenses (R4, tab 37 at 1667). 6 The voucher from another contract

that allegedly credited $38,366 back to the government did not have any amounts

owed by the government to D-STAR and, thus, nothing to permit D-STAR’s alleged

credit (R4, tab 77 at 2910-13). Notably, D-STAR attempted to offset the $38,366 in

materials against D-STAR’s allegedly incurred costs “in Excess of Ceiling” for that

other contract (id. at 2910). Yet, that contract included a Limitation of Cost provision

that did not obligate the government “to reimburse the Contractor for costs incurred in

excess of . . . the estimated cost specified in the schedule” (FAR 52.232-20(d)(1)

(incorporated by reference in referenced contract at R4, tab 40 at 1833).

As to G&A expenses, the contracting officer decreased D-STAR’s proposed

rate of 36.94% in its indirect cost proposal to 34.32% (which is higher than DCAA’s

proposed rate of 33.21%) (compare R4, tab 11 at 97 (DCAA report), with tab 23

at 1404 (D-STAR indirect cost proposal), and with tab 37 at 1668 (final decision)).

The contracting officer only cited the long-range planning costs and IR&D and B&P

costs as the basis for reducing the base but, again, included the travel costs in the cost

base (R4, tab 37 at 1688, tab 39 at 1814). Removing these costs from the G&A pool,

resulted in a 34.32% G&A rate (R4, tab 37 at 1688, tab 39 at 1814). The contracting

officer applied the 34.32% G&A rate to the allowable contract costs from the

termination settlement proposal (direct costs, direct labor, indirect factory expense,

and other costs of $2,129,007) and resulted in allowing $730,675 and questioning

$64,863 in G&A costs (R4, tab 37 at 1667-68, tab 39 at 1814).

As to the fee, the contracting officer agreed with DCAA that D-STAR could not

use the double-declining balance method of computing the fee (R4, tab 37 at 1668;

tab 39 at 1814). Instead, the contracting officer applied the straight-line method of

computing the 9.5% fee, resulting in allowing $264,520 of the $319,392 D-STAR

sought for the fee (which allowance was higher than what DCAA had calculated,

because the contracting officer had allowed other costs, as noted above) (R4, tab 37

at 1668, tab 39 at 1814). Using the straight-line method again resulted in determining

6

By subtracting the $38,366 from the engineering overhead pool, the new engineering

overhead pool was $653,451, which the contracting officer divided by the

engineering base ($557,095) to arrive at the new indirect rate of 117.29% (R4,

tab 11 at 95 (discussing the calculation method and the $557,095 engineering

base), tab 37 at 1668). The contracting officer then multiplied the 117.29%

indirect rate with the direct labor costs it found allowable ($442,356) to arrive

at allowable indirect factory expenses of $518,839 (R4, tab 37 at 1668). The

contracting officer subtracted the amount D-STAR proposed ($623,183) from

what she found allowable ($518,839) to arrive at the disallowance of $104,344.

11

the percentage of completion for fee purposes by solely looking at the ratio of incurred

costs to total estimated costs ($264,520/406,958 = 65% = $2,859,682/4,399,544) (R4,

tab 1 at 3 (figures for fixed fee and total estimated cost in contract), tab 37 at 1667-68

(figures for incurred costs and resulting fee allowed).

As to the settlement expenses, the contracting officer disallowed $482,849 of

the proposed settlement expenses and allowed $144,805 (R4, tab 37 at 1669, tab 39

at 1814). In particular, DCMA agreed with DCAA, concluding that (1) “$44,276.31

representing 681.35 labor hours is fair and allocable for settlement labor,” (2) DCAA’s

calculations regarding G&A and engineering overhead were proper, and (3) D-STAR

should be allowed its other direct costs as proposed (R4, tab 37 at 1669, tab 39

at 1814). Departing from DCAA, the contracting officer “allowed $25,000 to capture

any additional costs incurred from audit issuance date to present,” which accounted for

the increased allowance of $144,805 in her decision (from the $119,805 recommended

by DCAA) (R4, tab 11 at 100, tab 37 at 1669, tab 39 at 1814).

On May 16, 2019, D-STAR timely appealed the contracting officer’s March

2019 final decision to this Board (ASBCA No. 62075). In addition to the four costs D-

STAR sought in its February 2018 claim that the contracting officer denied,

D-STAR’s complaint also sought $10,000 in clean-up costs, gave a credit for $4,800 in

B&P costs, and sought an additional “penalty” of $94,645 related to government’s

February 2018 debt demand (June 2019 compl. at 49-51). The Board consolidated the

new appeal with ASBCA No. 61947. DCMA moved to dismiss ASBCA No. 61947

and, during a status conference, highlighted the claimed costs in ASBCA No. 62075

that were not previously submitted to the contracting officer. After the Board

conferred with the parties, the Board permitted D-STAR to submit a new claim to the

contracting officer seeking the costs raised for the first time on appeal.

On August 17, 2020, D-STAR submitted its new certified claim for $917,360,

incorporating its prior claimed costs with the new ones it had not previously submitted

to the contracting officer for decision (R4, tab 38). In particular, D-STAR sought

(1) $437,057 for costs and fee accrued till the July 2015 termination settlement

proposal, (2) $5,726 for costs incurred to support the first audit that was included in

the termination settlement proposal, (3) $70,567 for D-STAR’s costs incurred

responding to government audits and providing information supporting its termination

settlement proposal from submission of the proposal through its February 2018

certified claim, (4) $13,090 in clean-up costs, including $10,000 promised by “verbal

contract” after a former employee had cleaned up “the mess created by the disposition

of inventory of the terminated contract, such as by disassembly, shipping, etc.,” and

G&A for these costs, (5) a $6,283 credit to the government for B&P costs,

(6) $119,828 in “Estimated costs incurred” by D-STAR after it filed its February 2018

certified claim, (7) $83,342 in interest for the above claims from the time it submitted

its July 2015 draft termination settlement proposal through August 2020, and (8) a

12

$194,033 “[p]enalty at the standard of 6% per annum, for the Government’s

unreasonable delays and inappropriate actions that have caused considerable harm”

(id. at 1672, 1685). As to the clean-up costs, D-STAR presented no supporting proof

of its incurred costs but stated that its president estimated that these services were

worth $10,000 (id. at 1685). The former employee neither recorded the time it took to

complete the clean-up services nor submitted a bill for these services after completing

them (id.).

On November 16, 2020, DCMA denied D-STAR’s August 2020 certified claim

and again concluded that D-STAR “is indebted to the government in the amount of

$326,583” (R4, tab 39 at 1812). DCMA’s contracting officer repeated verbatim her

assessment of D-STAR’s termination settlement proposal from her March 2019 final

decision (id. at 1813-14). The contracting officer also addressed the costs not relating

to the termination settlement proposal. First, the contracting officer denied D-STAR’s

request for additional settlement costs because she concluded that she already

reviewed and rejected these costs in her March 2019 final decision (id. at 1814).

Second, the contracting officer denied D-STAR’s request for clean-up costs because it

was based on a “verbal agreement” with a former D-STAR employee and there was

not adequate support for the claimed costs (id.). Third, the contracting officer rejected

D-STAR’s proposed credit for $6,283 and stood by her assessment of G&A costs from

her March 2019 final decision (id. at 1815). Fourth, the contracting officer denied

D-STAR’s request for $119,828 in estimated costs incurred between submitting its

February 2018 certified claim and its August 2019 claim, because these costs were

permitted by neither the contract’s termination provision nor the cost principle that

disallows costs for prosecution of claims against the Federal government (id. at 1815

(citing FAR 52.249-6 and FAR 31.205-47(f)(1))). Fifth, the contracting officer denied

D-STAR’s request for CDA interest on its claim because any “amount due [was] yet to

be determined” and that should be left to the Board (R4, tab 39 at 1815). Sixth, the

contracting officer denied D-STAR’s $194,033 request for penalty costs because “they

are unsupported and not provided for under FAR Part 49 or FAR 52.249-6” (R4,

tab 39 at 1815). Thus, the contracting officer again concluded that D-STAR owed the

government $326,583 (id.).

On December 18, 2020, D-STAR moved to withdraw its appeal in ASBCA

No. 61947, which we dismissed with prejudice on January 13, 2021. D-STAR Eng’g

Corp., ASBCA No. 61947, 2021 WL 753666 (Jan. 13, 2021).

On January 10, 2021, D-STAR timely appealed the November 2020 contracting

officer’s final decision to this Board, which we docketed as ASBCA No. 62780 and

consolidated with ASBCA No. 62075. On February 16, 2021, D-STAR filed its

complaint in this new appeal – ASBCA No. 62780 – seeking the same costs from its

August 2020 certified claim totaling $917,360 (Feb. 2021 compl. at 12).

13

In April 2021, DCMA moved to partially dismiss D-STAR’s complaint

regarding its claim seeking a $194,033 penalty for the government’s alleged

“unreasonable delays and inappropriate actions that . . . caused considerable harm” to

D-STAR. D-STAR Eng’g Corp., ASBCA Nos. 62075, 62780, 21-1 BCA ¶ 37,943

at 184,290. We granted the motion in October 2021, since the “penalty” effectively

sought punitive damages, and dismissed the portion of D-STAR’s complaint regarding

those costs. Id. at 184,291. 7 D-STAR’s remaining costs and the government debt

demand remain to be determined in this decision.

DECISION

I. Standard of Review

Board Rule 11 allows the parties to waive a hearing and submit their appeal on

the record. Board Rule 11(a); Consorzio Stabile GMG S.C.A.R.L., ASBCA

No. 62753, 23-1 BCA ¶ 38,347 at 186,213. Under Board Rule 11, we may weigh the

evidence, including resolving any disputed facts in making our findings of fact and

rendering a decision. Consorzio, 23-1 BCA ¶ 38,347 at 186,213. We conduct a de

novo review without deference to the contracting officer’s final decisions. Dep’t of

Transp. v. Eagle Peak Rock & Paving, Inc., 69 F.4th 1367, 1374-76 (Fed. Cir. 2023);

41 U.S.C. § 7103(e); ASBCA Rule 10(c), (d).

DCMA’s debt demand for repayment from D-STAR constitutes a government

claim. Eyak Servs., LLC, ASBCA No. 58556, 14-1 BCA ¶ 35,570 at 174,327 (noting

that a debt claim “to recover amounts paid to a contractor that the contractor was not

entitled to receive” constitutes a government claim per FAR Part 32.6); see also

Creative Mgmt. Servs., LLC v. United States, 989 F.3d 955, 962-63 (Fed. Cir. 2021)

(stating that debt demand offsetting termination settlement proposal costs constituted a

government claim), overruled, in part, on other grounds, ECC Int’l Constructors, LLC

v. Sec’y of Army, 79 F.4th 1364, 1372-73 (Fed. Cir. 2023). Generally, as the

proponent of the claim, DCMA bears the burden of proof by a preponderance of the

evidence. Consorzio, 23-1 BCA ¶ 38,347 at 186,213. However, as to the question of

determining cost reasonableness under the FAR’s cost principles, the contractor retains

the burden of proof even for a government claim. Northrop Grumman Corp., ASBCA

No. 62165, 23-1 BCA ¶ 38,394 at 186,557 (contractor challenging government claim

still had burden of proof regarding cost reasonableness); FAR 31.201-3(a) (“No

presumption of reasonableness shall be attached to the incurrence of costs by a

7

The government’s motion also sought to dismiss other requests for compensation on

the basis that they had not been submitted to the contracting officer. We

deferred deciding this portion of the motion until we considered the merits.

D-STAR, 21-1 BCA ¶ 37,943 at 184,291. Due to the posture of this case and

our decision below, we need not return to the deferred portion of the motion

today.

14

contractor. If an initial review of the facts results in a challenge of a specific cost by

the contracting officer or the contracting officer’s representative, the burden of proof

shall be upon the contractor to establish that such cost is reasonable.”).

D-STAR is the proponent of the claim for additional costs sought in the

August 17, 2020 certified claim and, thus, bears the burden of proof for those costs.

FlightSafety Int’l, Inc., ASBCA No. 62659, 23-1 BCA ¶ 38,245 at 185,709, aff’d, 130

F.4th 926 (Fed. Cir. 2025).

II. DCMA’s Debt Demand for Payment

DCMA demands D-STAR pay a debt of $337,463, asserting that the

government overpaid D-STAR for the following five types of costs on the contract:

(1) direct labor costs; (2) indirect factory expenses; (3) G&A expenses; (4) fee; and

(5) settlement expenses (gov’t br. at 5-7). The contract includes the Allowable Costs

and Payment clause and the Termination (Cost-Reimbursement) clause, each of which

subjects recovery of costs to the cost principles in FAR Part 31.2. FAR 52.216-7(a)(1)

(incorporated by reference at R4, tab 1 at 13); see also FAR 52.249-6(i) (incorporated

by reference at R4, tab 1 at 14). FAR Part 31.2’s cost principles permit recovery of

“allowable” costs that comply “with all of the following requirements:

(1) Reasonableness. (2) Allocability. (3) [Cost Accounting Standards or generally

accepted accounting principles]. (4) Terms of the contract. (5) Any limitations set forth

in this subpart.” Geren v. Tecom, Inc., 566 F.3d 1037, 1040 (Fed. Cir. 2009) (quoting

FAR 31.201-2(a)); Fluor Intercontinental, Inc., ASBCA Nos. 62550, 62672, 22-1

BCA ¶ 38,105 at 185,097.

Given the context of a termination for convenience, a termination settlement

“must balance strict application of the cost principles with assuring fairness to the

contractor terminated for convenience.” Fluor, 22-1 BCA ¶ 38,105 at 185,098; see

also Nicon, Inc. v. United States, 331 F.3d 878, 885 (Fed. Cir. 2003) (noting that cost

principles are “subject to general principles of section 49.201(a)”). “Cost and

accounting data may provide guides, but are not rigid measures, for ascertaining fair

compensation.” FAR 49.201(c); see also Fluor, 22-1 BCA ¶ 38,105 at 185,098. “The

use of business judgment, as distinguished from strict accounting principles, is the

heart of a settlement.” FAR 49.201(a); see also Codex Corp. v. United States, 226 Ct.

Cl. 693, 698 (1981) (reconciling “the strict standard of allowable costs … and the

fairness concept … is a matter primarily within the discretion of the Board of Contract

Appeals”).

A. DCMA Properly Disallowed Some of D-STAR’s Direct Labor Costs

DCMA’s contracting officer properly disallowed $62,437 in direct labor costs

and only allowed $30,949 for work after the partial stop-work order (R4, tab 37

at 1668, tab 39 at 1813). DCMA asserts that the disallowed costs were unreasonable

15

(gov’t br. at 21-25). D-STAR disagrees (app. br. at 2.23-.24; app. reply br. at 4; R4,

tab 38 at 1745-46). We agree with DCMA.

“Cost reasonableness is a ‘question of fact.’” Kellogg Brown & Root Servs.,

Inc. v. United States, 728 F.3d 1348, 1360 (Fed. Cir. 2013) (quoting Gen. Dynamics

Corp. v. United States, 410 F.2d 404, 409 (Ct. Cl. 1969)). D-STAR complains that it

is unclear what standard DCAA and DCMA used to assess the reasonableness of costs

(app. br. at 2.23). But, DCAA used the definition in the FAR: “A cost is reasonable

if, in its nature and amount, it does not exceed that which would be incurred by a

prudent person in the conduct of competitive business.” FAR 31.201-3(a). The FAR

includes a non-exclusive list of “considerations and circumstances” in assessing

reasonableness:

(1) Whether it is the type of cost generally recognized as

ordinary and necessary for the conduct of the contractor's

business or the contract performance;

(2) Generally accepted sound business practices, arm’s

length bargaining, and Federal and State laws and

regulations;

(3) The contractor’s responsibilities to the Government,

other customers, the owners of the business, employees, and

the public at large; and

(4) Any significant deviations from the contractor’s

established practices.

FAR 31.201-3(b); Kellogg, 728 F.3d at 1359 (recognizing that the language is

nonexclusive).

Here, DCMA specifically identified the challenged costs by reviewing

timesheets and providing a brief explanation why it found each time entry

unreasonable because they were (1) excessive, (2) unauthorized design work after the

partial stop-work order, (3) entries without work descriptions, (4) work on unchanged

monthly reports, or (5) allegedly resulted in an incomplete draft report (R4, tab 26

at 1453-57, tab 45). DCAA found reasonable only $6,464.17 of these $93,386 in costs

(R4, tab 11 at 86, 93). DCMA’s contracting officer added an additional $24,485 for

half of the labor associated with D-STAR’s submission of the draft final report (R4,

tab 37 at 1668, tab 39 at 1813). Thus, DCMA found only $30,949 of the costs

reasonable (R4, tab 37 at 1668, tab 39 at 1813).

D-STAR has not offered proof to support why the challenged costs are

reasonable. As noted above, despite this being a government claim, contracts subject

to FAR Part 31.2 place the burden of proof regarding cost reasonableness on the

contractor once the contracting officer has “challenged specific costs.” Northrop, 23-1

16

BCA ¶ 38,394 at 186,557; FAR 31.201-3(a). After D-STAR reviewed DCAA’s audit

report, it requested a copy of the “detailed spreadsheet referred to in the DCMA

Report to DCAA” because it would allow D-STAR to justify those costs and rebut the

government’s determinations (R4, tab 12 at 119, 156). DCMA provided that detailed

spreadsheet as part of the records in this appeal (R4, tab 26), despite D-STAR’s

assertion in its brief that the agency had not “provided any evidence” regarding the

disallowed costs (app. br. at 2.24). Notwithstanding having the government’s files

explaining the challenged costs, D-STAR has repeated the same generalized

justifications for why the costs were reasonable without addressing any of the issues

the government raised in the spreadsheets such as missing work descriptions for time

entries or why certain costs were not excessive (R4, tab 12 at 157, tab 38 at 1745; app.

br. at 2.23-24; app. reply br. at 4). D-STAR has failed to respond to the specific

challenges by time entry.

Ultimately, D-STAR has not proved that its disallowed direct labor costs were

reasonable. Thus, we conclude that the evidence supports DCMA’s disallowance of

$62,437 of D-STAR’s proposed $504,739 in direct labor costs, resulting in $442,356

allowable direct labor costs from the termination settlement proposal.

B. DCMA Has Proved that Some of D-STAR’s Indirect Factory Expenses

Were Unallowable

DCMA has proved that $104,344 in indirect factory expenses from D-STAR’s

termination settlement proposal were unallowable (R4, tab 37 at 1667, tab 39

at 1813-14). DCMA found that D-STAR improperly included materials in its

engineering overhead pool (R4, tab 11 at 86). D-STAR contends that it should be paid

the full amount sought in its termination settlement proposal because it properly

included the materials in its overhead pool (app. br. at 2.25). We disagree.

As we found above, DCMA and DCAA traced $38,366 of materials that the

government paid D-STAR on a prior contract (a direct cost), but that D-STAR

included in its engineering overhead pool in calculating its termination settlement

proposal for this contract (R4, tab 11 at 86, tab 18 at 1064 (D-STAR accounting

records regarding materials), tab 29 at 1525, 1530 (D-STAR vouchers/invoices)).

D-STAR could not include these directly purchased materials as part of its unused

inventory and, thus, in its overhead pool: “When materials are purchased specifically

for and are identifiable solely with performance under a contract, the actual purchase

cost of those materials should be charged to the contract.” FAR 31.205-26(d). And,

“the Government acquires title to all property to which the contractor is entitled to

reimbursement” on a cost type contract. FAR 45.402(b). D-STAR received

reimbursement, so these materials constituted government acquired property (R4, tab

18 at 1064 (D-STAR accounting records regarding materials), tab 29 at 1525, 1530

(D-STAR vouchers/invoices)).

17

D-STAR contends that it purchased back these materials, so it could properly

treat these materials as inventory and part of the engineering overhead pool (app. reply

br. at 5-6; R4, tab 12 at 134-37). D-STAR argues that it gave the government a credit

for these materials to offset a cost overrun that it incurred performing that prior

contract (R4, tab 12 at 134-37). D-STAR points to a voucher that purported to offset

the $38,366 in materials against costs incurred “in Excess of Ceiling” of that prior

contract (R4, tab 77 at 2910, tab 12 at 136-37). Instead of seeking recovery of the cost

overrun, D-STAR asserts it “waived” those allegedly incurred costs exceeding the

ceiling (R4, tab 12 at 134). D-STAR admits it never issued a check or other type of

payment to the government for these materials (id.).

D-STAR could not properly offset the $38,366 in materials against the costs the

contractor incurred in excess of the ceiling price. As found above, that prior contract

included a Limitation of Cost provision that did not obligate the government “to

reimburse the Contractor for costs incurred in excess of . . . the estimated cost

specified in the schedule[.]” FAR 52.232-20(d)(1) (incorporated by reference in prior

contract at R4, tab 40 at 1833). “The limitation of the government’s liability to the

estimated cost stated in the contract (unless additional costs are authorized) protects

the government from having to pay more than it had anticipated and set aside for the

contract if the contractor’s costs of performance exceed the estimate.” Advanced

Materials, Inc. v. Perry, 108 F.3d 307, 310 (Fed. Cir. 1997). Because D-STAR was

not owed the cost overrun based on the Limitation of Cost clause, there was no money

the government owed D-STAR to offset its alleged credit for $38,366 in material costs

(R4, tab 77 at 2910-13). D-STAR has failed to rebut the government’s evidence

showing no credit ever occurred. Thus, DCMA properly removed the materials

amount from the engineering overhead pool. 8

As found above, once $38,366 is removed from the overhead pool, the proper

overhead cost rate is 117.29% (R4, tab 11 at 95, tab 37 at 1668, tab 39 at 1813-14). 9

8

D-STAR neither contends nor has pointed to any evidence that it should have been

excused from application of the Limitation of Cost provision and we have not

found any basis in the record. See Int’l Sci. & Tech. Institute, Inc. v. United

States, 53 Fed. Cl. 798, 806 (2002) (discussing circumstances that may excuse a

contractor from compliance with and application of a Limitation of Cost

provision), aff’d, 95 F. App’x 358 (Fed. Cir. 2004); see also Parsons-UXB J.V.,

ASBCA No. 56481, 13 BCA ¶ 35,378 at 173,595 (same).

9

D-STAR notes that its indirect cost proposals were accepted for calendar years 2011

and 2012 as a defense of its calculations for calendar year 2013 (app. supp. R4,

tab 35; app. reply at A.4). However, DCAA had questioned the overhead pool

and rate for calendar year 2013 as part of its audit, and the record includes no

indication the government ever accepted D-STAR’s 2013 indirect cost proposal

18

As we found above, DCMA properly applied that rate to the allowed direct labor costs

($442,356), resulting in disallowance of $104,344 in indirect factory expenses of the

$623,183 D-STAR proposed in its termination settlement proposal (R4, tab 37

at 1667). Thus, DCMA has proved that these costs were properly found unallowable

and that $518,839 were allowable indirect factory expenses from D-STAR’s

termination settlement proposal.

C. DCMA Has Proved that D-STAR’s G&A Expenses that it Challenged

were Unallowable

DCMA asserts that it acted properly by finding $61,243 in G&A expenses from

D-STAR’s termination settlement proposal unallowable (gov’t br. at 31-35). D-STAR

asserts that DCMA’s conclusions are “not substantiated by any facts,” triple-count

subtracted costs, and that these G&A expenses should have been allowed (app. br.

at 2.25; app. reply br. at 7-8). DCMA has proved that these costs should be

disallowed.

DCMA has shown that D-STAR improperly included $36,237 in long-range

planning costs in its G&A expenses to calculate its G&A rate for calendar year 2013

because the costs were (1) unsupported or (2) included burden on G&A expenses (R4,

tab 11 at 86, 96-97). DCMA has also shown that D-STAR improperly included

$7,194 in its IR&D and B&P costs (gov’t br. at 34).

First, a contractor must show its “costs were allowable by ‘accounting for costs

appropriately and . . . maintaining records, including supporting documentation.”

Strategic Tech. Institute, Inc. v. Sec’y of Defense, 91 F.4th 1140, 1142 (Fed. Cir. 2024)

(quoting FAR 31.201-2(d)). “The contracting officer may disallow all or part of a

claimed cost that is inadequately supported.” FAR 31.201-2(d); see also Int’l Dev.

Solutions, LLC v. Sec’y of State, 105 F.4th 1375, 1377 (Fed. Cir. 2024). DCAA

reviewed D-STAR’s records, questioned the allowability of $4,944 in long-range

planning costs because the agency could find no supporting documentation for the

costs, and DCMA’s contracting officer disallowed the costs based on DCAA’s

recommendation (R4, tab 11 at 94-97, tabs 15-17, tab 37 at 1688, tab 39 at 1814).

D-STAR has provided no records supporting that it incurred these costs and, thus,

DCMA has proved that these costs were properly disallowed.

Second, a contractor may not add burden (overhead and G&A) to costs it has

already characterized as indirect G&A expenses. “G&A costs are indirect expenses

that are not identifiable with any particular cost objective but that are necessary to the

(R4, tab 11 at 94). Moreover, DCAA’s failure to challenge a claimed cost one

year, without more, does not preclude it from challenging it in later years.

Tech. Sys., Inc., ASBCA No. 59577, 17-1 BCA ¶ 36,631 at 178,387-88.

19

overall operation of the business.” Advanced Materials, Inc. v. United States, 54 Fed.

Cl. 207, 212 (2002); FAR 2.101 (defining a G&A expense as “any management,

financial, and other expense which is incurred by or allocated to a business unit and

which is for the general management and administration of the business unit as a

whole”). Here, D-STAR incurred indirect overhead and G&A expenses on its long-

range planning costs (R4, tab 22 at 1402-03). D-STAR then inappropriately added

burden to these indirect costs (R4, tab 11 at 97, tab 30 at 1589). D-STAR could not

add burden to these indirect costs as if they were direct costs. Cf. FAR 31.202(a);

FAR 31.203(b). While D-STAR complains that the government has failed to explain

its calculations, DCMA relies on record evidence to explain and support the

disallowance (R4, tab 11 at 97, tab 30 at 1589). DCAA properly recalculated the

proper amounts and DCMA disallowed that amount of double-counted burden:

$31,293 (R4, tab 11 at 97, tab 30 at 1589, tab 37 at 1668, tab 39 at 1814).

Third, DCMA has shown that it properly recalculated the IR&D and B&P costs

based on applying the corrected engineering overhead rate, as discussed above (gov’t

br. at 34-35). D-STAR applied its proposed 124.18% engineering overhead rate to its

IR&D and B&P direct labor costs in its 2013 indirect cost proposal (R4, tab 23

at 1406, 1412). As found above, however, the engineering overhead rate for calendar

year 2013 should have been 117.29% (R4, tab 37 at 1668, tab 39 at 1813-14, tab 11

at 95). Applying the proper engineering overhead rate of 117.29% to the IR&D and

B&P costs (R4, tab 23 at 1406), D-STAR overstated its IR&D and B&P costs by

$7,194 (gov’t br. at 34). 10

DCMA has also shown that it properly removed the disallowed long-range

planning and IR&D and B&P costs from the D-STAR’s proposed G&A pool

($693,173 – 43,431 = $649,742), divided it by the total cost input base as modified by

these changes to D-STAR’s proposed total cost input base ($1,883,653), which results

in a 34.49% G&A rate (gov’t br. at 34-35; R4, tab 23 at 1404 (specifying D-STAR’s

proposed G&A pool and base). DCMA has also shown that applying this 34.49%

G&A rate to the allowable contract costs from the termination settlement proposal

(direct costs, direct labor, indirect factory expense, and other costs totaling

$2,129,007), results in allowing $734,295, and disallowing $61,243, in G&A costs

(R4, tab 37 at 1667 (listing allowable costs; gov’t br. at 35). Thus, DCMA has proved

that it properly disallowed $61,243 in D-STAR’s proposed $795,538 in G&A costs

and, thus, we find allowable $734,295 in G&A costs.

10

DCMA’s contracting officer disallowed $9,600 in her final decisions (R4, tab 37

at 1668, tab 39 at 1814). However, the contracting officer accidentally included

travel costs that she had allowed as part of her calculation (gov’t br. at 34).

When the travel costs are removed, the correct calculation is $7,194 (id.).

20

D. DCMA Should not Have Disallowed $54,779 for the Fee

DCMA asserts that it properly applied a straight-line method for calculating the

percentage of contract completion using the ratio of incurred costs to the total

estimated costs, resulting in disallowing $54,779 of D-STAR’s fee (gov’t br. at 36-37).

D-STAR asserts that the contracting officer should have allowed the company to use a

double-declining method for calculating the fee, resulting in accelerated recovery

because of the unrecovered start-up costs of performing this research and development

contract (app. br. at 2.26; app. reply at 9; R4, tab 38 at 1758-59). The law supports

D-STAR’s position, not DCMA’s.

Generally, the termination contracting officer “shall determine the adjusted fee

to be paid, if any, in the manner provided by the contract.” FAR 49.305-1(a).

“Contract interpretation begins with the language of the written agreement.” NOAA

Md., LLC v. Adm’r of Gen. Servs. Admin., 997 F.3d 1159, 1165 (Fed. Cir. 2021)

(quoting NVT Techs., Inc. v. United States, 370 F.3d 1153, 1159 (Fed. Cir. 2004));

Konecranes Nuclear Equip. & Servs., LLC, ASBCA Nos. 62797, 62827, 24-1 BCA

¶ 38,586 at 187,555. If unambiguous, the plain meaning of a contract controls.

Boeing Co. v. Sec’y of Air Force, 983 F.3d 1321, 1326 (Fed. Cir. 2020); Hercules, Inc.

v. United States, 292 F.3d 1378, 1380-81 (Fed. Cir. 2002) (“In contract interpretation,

the plain and unambiguous meaning of a written agreement controls.” (internal citation

omitted)).

Here, the contract states: “As determined by the contracting officer, [the fee]

shall be paid as it accrues, in regular installments based upon the percentage of

completion of work” (R4, tab 1 at 3). The contract also states: “If the contract is

terminated for the convenience of the Government, the settlement shall include a

percentage of the fee equal to the percentage of completion of work contemplated

under the contract . . . less previous payments for fee.” FAR 52.249-6(h)(4)(i)

(incorporated by reference in contract, R4, tab 1 at 14). From the government’s

perspective, accelerating payment of the fee as D-STAR proposed, would contradict

the contract’s requirement that fee payment “be paid as it accrues,” which suggests a

straight-line requirement and using a 9.25% fee throughout contract performance

(gov’t br. at 36-37). However, the government’s reliance on only a straight-line

method results in concluding that the “percentage of completion of work” should be

calculated as the ratio of costs incurred to the estimated costs of performing the

contract. Indeed, every time that DCAA or DCMA calculated the percentage of

completion it relied on this ratio (R4, tab 11 at 98-99, 104 (DCAA audit report and

DCMA technical analysis), tab 37 at 1667-68 (contracting officer’s final decision)).

The government’s narrow reading of the term “percentage of completion of

work” contradicts the FAR, which states: “The ratio of costs incurred to the total

estimated cost of performing the contract or the terminated portion is only one factor

21

in computing the percentage of completion.” FAR 49.305-1(b); see also Sys. Dev.

Corp., ASBCA No. 16947, 73-1 BCA ¶ 9788 at 45,738 (“The fixed fee relates to the

degree of completion of the work not to the incurred costs.”). Here, as found above,

the government used this ratio as the only factor in computing the percentage

completion of work in assessing the termination settlement proposal.

The FAR requires a broader measure in assessing the “percentage of

completion of work,” particularly given the FAR’s requirement that a termination for

convenience should ensure “fair compensation” and not just rigidly rely on cost and

accounting data. FAR 49.201(c); see also Fluor, 22-1 BCA ¶ 38,105 at 185,098. In

computing the “percentage completion of work” in a terminated contract, the FAR

states:

[F]actors such as the extent and difficulty of the work

performed by the contractor (e.g., planning, scheduling,

technical study, engineering work production and

supervision, placing and supervising subcontracts, and

work performed by the contractor in (1) stopping

performance, (2) settling terminated subcontracts, and (3)

disposing of inventory) shall be compared with the total

work required by the contract or by the terminated portion.

FAR 49.305-1(a); (app. br. at 2.26; R4, tab 38 at 1758-59). The government

discounted this broader standard and, thus, misconstrued the term “percentage of

completion of work.” Cf. Lockheed Martin Corp. v. England, 424 F.3d 1199, 1205

(Fed. Cir. 2005) (discussing another part of FAR 49.305-1 and concluding that “we are

not persuaded that the provision should be interpreted in a way that contradicts its

plain meaning”). D-STAR has shown that the early termination prevented the

contractor from fully recovering the financial investments it anticipated recovering

over the full contract (R4, tab 12 at 150-51). These unrecovered costs should have

been factored into calculation of the “percentage of completion of work” in calculating

the fee.

Ultimately, the government has failed to prove that the fee it awarded

constituted fair compensation as part of the termination settlement 11 and, because the

11

We have applied a de novo standard of review to the fee determination, because the

contracting officer’s determination of the percentage of completed work for a

fixed fee is different than an award deciding official’s determination of an

award fee or award term, which is reviewed for abuse of discretion. Burnside-

Ott Aviation Training Ctr v. Dalton, 107 F.3d 854, 859-60 (Fed. Cir. 1997);

CI2, Inc., ASBCA No. 56257, 11-2 BCA ¶ 34,823 at 171,354. However, even

22

burden of proof in this appeal falls on the government, we rule for D-STAR on the fee

issue. See Eyak Servs., LLC, 14-1 BCA ¶ 35,570 at 174,328 (“Because these appeals

are from government claims, the government bears the burden of proof.”); see also

Emerson Elec. Co., ASBCA No. 15591, 72-1 BCA ¶ 9440 at 43,836 (denying the

government’s reduction of a fee in a termination for convenience case because the

government had failed to meet its burden of proof).

E. DCMA Properly Disallowed Some of D-STAR’s Settlement Costs

DCMA asserts that it appropriately disallowed $482,849 in settlement expenses

and found only $144,805 as reasonable and allowable (gov’t br. at 37-48). D-STAR

asserts that it provided sufficient information to justify its costs and that the

government “has not provided any reasons, or even supporting calculations, to arrive”

at its disallowance of these costs (app. br. at 2.26-2.32; app. reply br. at 9-14). DCMA

properly disallowed these costs.

The contract’s Termination (Cost-Reimbursement) clause and the incorporated

cost principles – particularly, the termination cost principle – permit recovery of

settlement expenses. FAR 52.249-6(h) (incorporated by reference in the contract, R4,

tab 1 at 14); FAR 31.205-42(g). Again, because DCMA has challenged the specific

settlement costs as unreasonable, FAR Part 31.2 places the burden of proof regarding

cost reasonableness on the contractor once the contracting officer has identified the

challenged costs. Northrop, 23-1 BCA ¶ 38,394 at 186,557; FAR 31.201-3(a).

DCMA challenged the direct labor included as part of the settlement costs and lowered

the burden rate applied to those costs based on the FAR’s termination cost principle

(R4, tab 11 at 99-100, 106, tab 37 at 1669, tab 39 at 1814).

First, DCMA concluded that only $44,276.31, representing 681.35 direct labor

hours, was fair and reasonable for the settlement costs (R4, tab 11 at 106, tab 37

at 1669, tab 39 at 1814). D-STAR complains that DCMA has made “only generic

assertions about ‘excessive’ and ‘unreasonable’ [costs], and has not challenged any

specific labor hours” (app. reply at 10 (emphasis in original)). To the contrary,

DCMA has provided detailed records of its review of D-STAR’s time sheets and

records, going line-by-line explaining why the specific time entries it challenged were

unreasonable (R4, tab 35 at 1643-50). For example, D-STAR sought to recover costs

of spending 1,187.7 hours for entering 129 inventory items into DCMA’s Plant

Clearance Automated Reutilization Screening System, which amounts to

approximately 9.2 hours for every entry into the database (R4, tab 11 at 105-06, tab 37

at 1669, tab 39 at 1814). Yet, the record supports DCMA’s position that D-STAR

needed significantly less time to complete this post-termination activity and DCMA

if we applied that more deferential abuse of discretion standard, we would still

hold that the government failed to meet its burden of proof.

23

correctly lowered the number of allowable hours to 317.95 hours (app. supp. R4,

tab 31 at 14; R4, tab 35 at 1647).

Notwithstanding DCMA providing the underlying documentation supporting its

reasonableness determination in the Rule 4 file in this appeal, D-STAR still has not

rebutted the government’s position (R4, tab 38 at 1746-49). Even as D-STAR

incorrectly complains that DCMA has not been specific enough, D-STAR only relies

on general statements of why it should receive these costs without connecting those

statements to why each disallowed hour should be found reasonable (R4, tab 12

at 170-73; app. reply br. at 11). For example, in response to DCMA’s

unreasonableness determination regarding D-STAR’s entry of inventory items into the

government’s database, D-STAR asserts that some of these hours could be justified by

other activities, such as (1) understanding the FAR’s termination procedures,

(2) communicating with the termination contracting officer seeking guidance,

(3) unsuccessfully searching for suitable attorneys and consultants, (4) preparing and

revising D-STAR’s settlement estimate and four iterations of D-STAR’s termination

settlement proposal, (5) working with the government to secure International Traffic in

Arms regulated data and project-related hardware, (6) disposing of government

hardware, and (7) responding to the government’s audit of the proposal (app. br.

at 2.28-2.30; R4, tab 12 at 170-73). However, as DCMA points out, D-STAR included

separate time entries for these other activities, DCMA separately evaluated these costs

for reasonableness and allowability, and found 363.4 hours reasonable for these

activities (gov’t br. at 42; R4, tab 35 at 1644-46, tab 37 at 1669). In any event, D-

STAR has failed to rebut DCMA’s reasonableness determinations.

Second, the government assessed and lowered D-STAR’s proposed burden

(both engineering overhead and G&A), resulting in only allowing $32,364 in overhead

costs and $14,835 in G&A costs (R4, tab 37 at 1669, tab 39 at 1814). On appeal,

DCMA argues that it erred in allowing any of the $14,835 in G&A costs (gov’t br.

at 47). D-STAR proposed including its full burden for its settlement costs (R4, tab 11

at 100). However, while the FAR allows recovery of “[i]ndirect costs related to salary

and wages incurred as settlement expenses . . .; normally, such indirect costs shall be

limited to payroll taxes, fringe benefits, occupancy costs, and immediate supervision

costs.” FAR 31.205-42(g)(1)(iii); Alfair Dev. Co., ASBCA Nos. 53119, 53120, 05-2

BCA ¶ 32,990 at 163,516. The government recognized this limitation in applying

engineering overhead to the settlement direct labor costs but argues it mistakenly

applied the full G&A rates (without similarly limiting it) to the settlement costs (R4,

tab 11 at 100, tab 23 at 1410, tab 33 at 1621-23, 1633-35).

D-STAR asserts that the government bears the responsibility for D-STAR’s

failure to segregate these costs because the termination contracting officer did not

provide the “detailed briefing” allegedly required by FAR 49.105 (app. br. at 1.3, 2.2-

2.4; app. reply br. at 14). The FAR advises that the termination contracting officer

24

“should promptly hold a conference with the contractor” and discuss a list of topics

relevant to the termination but does not require a “detailed briefing.” FAR 49.105(c).

Here, DCMA’s termination contracting officer discharged this duty to D-STAR,

providing guidance and the specific regulations regarding how to prepare the

termination settlement proposal, answering questions from D-STAR about specific

termination settlement issues, and discussing the draft termination settlement proposal

with D-STAR by telephone (app. supp. R4, tabs 24, 26). Indeed, DCMA specifically

provided the full provision of FAR 31.205-42, including the section limiting G&A, to

D-STAR and directed the contractor to review it in preparing the termination

settlement proposal (app. supp. R4, tab 24 at 1-2, 6-7). D-STAR cannot shift

responsibility to DCMA for failing to follow the guidance provided. 12

D-STAR also asserts that it should have been able to charge its fully burdened

rates to the settlement costs because the termination cost principle only “normally”

applies and that implies the FAR “allows alternate methods of accumulating costs if . .

. fair and reasonable” (app. reply br. at 9). However, we have disallowed contractor

recovery of G&A settlement costs where the contractor “did not segregate non-

allowable G&A costs from those allowable under” FAR 31.205-42(g)(1)(iii). Alfair

Dev., 05-2 BCA ¶ 32,990 at 163,516; see also Info. Sys. & Networks Corps., ASBCA

No. 42659, 00-1 BCA ¶ 30,665 at 151,425 (“[W]e are unable to sustain their

allowance because of the limitations of FAR 31.205-42(g)[(1)](iii).”). Here, D-STAR

did not segregate non-allowable indirect costs in applying G&A to its settlement costs.

D-STAR has offered no rationale for departing from the normal limitations on

recovering G&A for settlement costs. Thus, we deny recovery for the G&A costs and

limit engineering overhead to the rate that follows the limitations of FAR 31.205-

42(g)(1)(iii). In total, the allowable settlement costs are $129,970.

12

D-STAR also asserts more generally that the government did not act swiftly to

consummate a settlement when presented with the termination settlement

proposal (app. br. at 2.11). The FAR mandates that the termination contracting

officer “shall [p]romptly negotiate settlement with the contractor and enter into

a settlement agreement[.]” FAR 49.105(a)(3). However, “[i]f the [termination

contracting officer] suspects fraud or other criminal conduct related to the

settlement of a terminated contract, the [termination contracting officer] shall

discontinue negotiations and report the facts under agency procedures.”

FAR 49.106. Here, the government delayed negotiation of a settlement with D-

STAR because it was investigating some of the costs at issue for fraud (R4, tabs

47-50-51, 55, see supra note 2). “[T]he same body of law which directs a

[contracting officer] to settle a [termination settlement proposal] also prohibits

negotiation under circumstances involving fraud.” Medina Constr., Ltd. v.

United States, 43 Fed. Cl. 537, 549 (1999).

25

Based on the assessment of the various costs on appeal, we arrive at the final

calculation of damages based on the allowable costs from D-STAR’s termination

settlement proposal (including the undisputed and disputed costs):

Cost Element Board

Decision

Direct Material $193,135

Direct Labor 442,356

Indirect Factor Expense 518,839

Other Costs 974,677

Subtotal $2,129,007

G&A Expense 734,295

Total Costs $2,863,302

Fee 319,392

Settlement Expenses 129,970

Settlement with Subcontractors 1,350

Gross Proposed Settlement $3,314,014

Disposal & Other Credits (213)

Net Proposed Settlement $3,313,801

Prior Payments to Contractor 3,596,727

Net Payment Requested ($282,926)

Taken together, we sustain the DCMA’s debt demand claim in the amount of

$282,926, plus any interest due under the Interest clause, FAR 52.232-17 (OCT 2010)

(incorporated in the contract by reference at R4, tab 1 at 14). See Fru-Con Constr.

Corp., ASBCA No. 55197, 07-2 BCA ¶ 33,697 at 166,820. DCMA shall also provide

an equitable interest credit because the amount due has been reduced on appeal.

FAR 32.608-2(a)(1) (“An equitable interest credit shall be applied under the following

circumstances: When the amount of debt initially determined is subsequently reduced;

e.g., through a successful appeal.”); FAR 52.232-17(g) (“The interest charge made

under this clause may be reduced under the procedures prescribed in 32.608-2 of the

Federal Acquisition Regulation in effect on the date of this contract.”). Correlatively,

we deny D-STAR’s claim relating to its termination settlement proposal. Thus, we

partially deny D-STAR’s appeal in ASBCA No. 62075 (and ASBCA No. 62780, to the

extent D-STAR seeks these same costs in that appeal and challenge the debt demand),

and partially grant D-STAR’s appeal to the extent we have reduced DCMA’s debt

demand from $337,463 to $282,926.

III. D-STAR’s Claim for Additional Costs

D-STAR seeks additional costs beyond those from its termination settlement

proposal, including (1) $70,567 for D-STAR’s costs incurred responding to

government audits and providing information supporting its termination settlement

26

proposal from submission of the proposal through its February 2018 certified claim,

(2) $13,090 in clean-up costs, (3) $119,828 in “Estimated costs incurred” by D-STAR

after it filed its February 2018 certified claim, (4) $83,342 in interest for the above

claims from the time it submitted its July 2015 draft termination settlement proposal

through August 2020, and (5) the $194,033 “[p]enalty, at the standard of 6% per

annum, for [the] Government’s unreasonable delays and inappropriate actions that

have caused considerable harm” (R4, tab 38 at 1672). As noted above, we previously

dismissed D-STAR’s request for a penalty, so that portion of the claim is no longer at

issue in these appeals. D-STAR Eng’g, 21-1 BCA ¶ 37,943 at 184,291. We now turn

to D-STAR’s other costs. 13 As noted above, D-STAR bears the burden of proof as the

proponent of this claim. FlightSafety, 23-1 BCA ¶ 38,245 at 185,709.

A. Settlement Costs Incurred from Termination Settlement Proposal

Certified Claim

As noted above, a contractor can recover its settlement costs in negotiating the

termination settlement proposal per the Termination (Cost-Reimbursement) clause of

the contract. FAR 52.249-6(h)(3)(i) (incorporated by reference in the contract, R4,

tab 1 at 14) (allowing the “reasonable costs of settlement of the work terminated,

including . . . [a]ccounting, legal, clerical, and other expenses reasonably necessary for

the preparation of termination settlement proposals and supporting data”); FAR

31.205-42(g)(1)(i) (same).

D-STAR seeks $70,567 for its costs incurred between submitting its

termination settlement proposal and submitting its February 2018 certified claim (app.

br. at 2.15; R4, tab 38 at 1681-84). D-STAR included time entries with descriptions of

daily labor hours worked, rate for each hour, and an added G&A cost to those direct

labor costs (R4, tab 14 at 184-86, tab 38 at 1682-84). DCMA asserts that these

additional settlement expenses are not recoverable because (1) D-STAR’s time records

do not substantiate the requested costs, (2) even if recoverable, some of the costs relate

to unrecoverable costs for preparing D-STAR’s certified claim, (3) the contracting

officer already allowed $25,000 of additional settlement expenses that should cover

these costs, and (4) the G&A costs added to the direct labor are limited by the

termination cost principle, FAR 31.205-42(g)(1)(iii) (gov’t br. at 49-54).

First, DCMA asserts that D-STAR has not substantiated these costs because

D-STAR’s records insufficiently demonstrate it incurred these costs (gov’t br.

13

The contracting officer’s final decision rejected D-STAR’s offered credit of $6,283,

standing by its own calculation of G&A costs (R4, tab 39 at 1815). On appeal,

DCMA has not sought to use this credit to prove its claim or reduce D-STAR’s

claim. Thus, DCMA has abandoned this issue. Mindseeker, Inc., ASBCA

No. 63197, 24-1 BCA ¶ 38,666 at 187,964.

27

at 50-51). DCMA points to the FAR’s requirement that a contractor provide

“supporting documentation, adequate to demonstrate that costs claimed have been

incurred.” FAR 31.201-2(d); see also Strategic Tech., 91 F.4th at 1142; Int’l Dev.

Solutions, 105 F.4th at 1377. DCMA asserts that D-STAR’s time entries are not

sufficient, pointing to Bannum, Inc. v. United States, 151 Fed. Cl. 755, 765-66 (2021).

There, the court found a spreadsheet with the estimated number of hours by task taken

from the firm’s general ledger was insufficient to support termination costs. Id. Here,

however, D-STAR has provided time entries, accompanied by descriptions of what

tasks were performed, the date a task was performed, and the hourly-rate for D-

STAR’s president and former employees acting as consultants as part of its certified

claim (R4, tab 14 at 184-86, tab 38 at 1682-84). Moreover, DCAA assessed these

same employees and consultants in its audit of records regarding the settlement costs

in its termination settlement proposal (discussed above) (R4, tab 35 at 1651-62). We

have approved similar detail of direct labor as sufficient to meet a contractor’s burden

of proof that it incurred direct labor costs. Optical E.T.C., Inc., ASBCA No. 53350,

04-1 BCA ¶ 32,608 at 161,380-81, 161,385 (“find[ing] that the claimed costs are

supported” based on date of performance, description of services, and amount,

resulting in awarding costs to the extent they related to settlement expenses and not

claim preparation); see also Mediax Interactive Tech., Inc., ASBCA No. 43961, 99-1

BCA ¶ 30,318 at 149,925, 149,930-31 (allowing direct labor costs based on similar

types of records). Indeed, sometimes less detail. Derian, Inc., ASBCA No. 62957,

23-1 BCA ¶ 38,425 at 186,753 (permitting recovery where the contractor could only

provide monthly timecards without describing “the type of work performed or any

proof of payment”). Thus, D-STAR has provided sufficient documentation to prove it

incurred these costs.

Second, even if D-STAR incurred these costs, DCMA still asserts that D-STAR

may not recover costs relating to its time preparing its certified claim, which it argues

are not related to the negotiation of its termination settlement proposal (gov’t br. at 52-

53). The FAR makes unallowable any costs incurred for “the prosecution of claims or

appeals against the Federal Government.” FAR 31.205-47(f)(1). To determine

whether a cost is an allowable administrative cost of pursuing settlement or an

unallowable cost of pursuing a claim we objectively look at costs to see “if a

contractor’s underlying purpose for incurring a cost is to promote the prosecution of a

CDA claim against the Government[.]” Tip Top Constr., Inc. v. Donahoe, 695 F.3d

1276, 1283-84 (Fed. Cir. 2012) (quoting Bill Strong Enters., Inc. v. Shannon, 49 F.3d

1541, 1549-50 (Fed. Cir. 1995), overruled, in part, on other grounds, Reflectone, Inc.

v. Dalton, 60 F.3d 1572 (Fed. Cir. 1995) (en banc)); see also Derian, 23-1 BCA

¶ 38,425 at 186,754. Here, DCMA challenges D-STAR’s incurred costs for time

between receiving the agency’s debt demand letter (February 12, 2018) and submitting

its first certified claim (February 27, 2018). D-STAR’s time entries for these hours

state: “Research FARS, history of actions;” or prepare D-STAR’s “position” in

response to the debt demand that resulted in its first certified claim (R4, tab 14 at 186;

28

tab 38 at 1684). These actions directly relate to D-STAR’s preparation of its certified

claim and we deem these costs unallowable ($12,637.02) from February 13, 2018,

through February 27, 2018. Alfair Dev., 05-2 BCA ¶ 32,990 at 163,517 (disallowing

costs “for the purpose of developing claims”).

Third, DCMA asserts that any award of these additional settlement costs should

be reduced by $25,000 because the contracting officer already credited that amount to

D-STAR in calculating the debt demand in the final decisions (gov’t br. at 53-54). In

her decisions, the contracting officer “allowed $25,000 to capture any additional costs

incurred from audit issuance [December 19, 2016] date to present [March 18, 2019]”

(R4, tab 37 at 1669, tab 39 at 1814). That period overlaps, in part, with the period for

which D-STAR seeks these additional settlement costs – November 2015 through

February 2018 (R4, tab 14 at 184-86, tab 38 at 1682-84). Thus, we agree that D-

STAR’s recovery for these additional settlement costs should be reduced by $25,000. 14

Fourth, DCMA asserts that D-STAR may not recover the G&A ($16,657.82)

for these additional settlement costs because the FAR cost principles limit the types of

indirect costs that can be recovered as part of termination settlement costs and D-

STAR again failed to segregate those costs in its claim (gov’t br. at 54). For the same

reasons discussed above, D-STAR may not recover these costs because it failed to

remove the unallowable costs from its calculation. FAR 31.205-42(g)(1)(iii); Alfair

Dev., 05-2 BCA ¶ 32,990 at 163,516; see also Info. Sys. & Networks, 00-1 BCA

¶ 30,665 at 151,425.

Ultimately, we determine that D-STAR may recover $16,272.16 in additional

settlement costs. We derived this amount by subtracting $25,000 already credited by

the government in its debt demand claim, $16,657.82 of unallowable G&A, and

$12,637.02 of unallowable costs in preparing the certified claim, from the $70,567 that

D-STAR’s claim seeks in additional settlement costs.

B. Clean-up Costs

D-STAR seeks $13,090 in clean-up costs based on an alleged “verbal contract”

for $10,000 promised to a former employee for cleaning up “the mess created by the

disposition of inventory of the terminated contract, such as by disassembly, shipping,

etc.,” and G&A for these costs (R4, tab 38 at 1685; app. br. at 2.32-.33). DCMA

asserts that D-STAR has failed to provide evidence of the existence of a contract for

14

DCMA asserts that the $25,000 allowed by the contracting officer was “generous”

(gov’t br. at 53-54). As noted above, far from being generous, D-STAR’s

records prove it incurred more settlement costs than what the contracting officer

allowed.

29

these services and, even if there was a contract, has failed to provide evidence and

proof of damages (gov’t br. at 58-59). We agree with DCMA.

D-STAR has alleged, but has not provided any evidence that it had a “verbal

contract” to perform these services. This subcontract either is an oral express

subcontract or implied-in-fact subcontract. Regardless, “[t]he elements of an implied-

in-fact contract are the same as those of an oral express contract.” Night Vision Corp.

v. United States, 469 F.3d 1369, 1375 (Fed. Cir. 2006). An implied-in-fact or oral

express subcontract between two private parties requires proof of (1) unambiguous

offer and acceptance, (2) mutuality of intent to contract, and (3) consideration.

Fairholme Funds, Inc. v. United States, 26 F.4th 1274, 1293-94 (Fed. Cir. 2022);

Balimoy Mfg. Co. of Venice, Inc., ASBCA No. 48899, 97-1 BCA ¶ 28,803 at 143,671.

D-STAR bears the burden of proving that it entered a subcontract for these clean-up

services. Balimoy Mfg., 97-1 BCA ¶ 28,803 at 143,671.

There was no consideration for D-STAR’s promise and, thus, no binding

contractual agreement was formed between the parties. D-STAR’s president promised

the former employee that he would pay him after the former employee performed

these clean-up activities (R4, tab 38 at 1685; app. br. at 2.32-.33). The former

employee’s clean-up work constituted past consideration and could not serve as the

basis for a new contractual obligation based on the promise to pay $10,000 after-the-

fact. “[P]ast consideration is no consideration.” Bogley’s Estate v. United States, 514

F.2d 1027, 1033 (Ct. Cl. 1975); Gen. Bronze Corp. v. United States, 338 F.2d 117, 185

(Ct. Cl. 1964) (“[S]omething which has been given before the promise was made and,

therefore, without reference to it, cannot, properly speaking, be legal consideration.”

(quoting 1 WILLISTON ON CONTRACTS § 142 (3d ed. 1957)); Sager v. Basham, 401

S.E.2d 676, 677 (Va. 1991) (“When . . . a service has been rendered before a promise

was made, the prior service is not a sufficient consideration to support the promise.”).

Moreover, even if a subcontract was formed, D-STAR has failed to prove its

damages. D-STAR’s president estimated that these services were worth $10,000, but

the former employee neither recorded the time it took to complete the clean-up

services nor submitted a bill for these services after completing them (R4, tab 38

at 1685; app. br. at 2.32-.33). D-STAR’s brief states that it provided the government

with the former employee’s email and phone number so DCMA could verify the

promised amount (app. reply br. at 20). Yet, that is not proof or evidence. D-STAR

has failed to meet its burden of proof that it incurred these costs.

C. D-STAR May Not Recover its Costs Incurred Related to ASBCA Appeals

D-STAR seeks $119,828 in costs incurred between submitting its February

2018 claim and submitting its revised August 2020 claim (R4, tab 38 at 1687-97; app.

30

br. at 2.33; app. reply br. at 19-20). DCMA asserts that these costs were all incurred in

pursuing appeals to the Board or otherwise pursuing its August 2020 revised certified

claim (R4, tab 39 at 1815; gov’t br. at 55-57).

As noted above, the FAR’s cost principles disallow recovery of costs incurred

to litigate claims against the government. FAR 31.205-47(f)(1). A contractor may not

recover “if a contractor’s underlying purpose for incurring a cost is to promote the

prosecution of a CDA claim against the Government[.]” Tip Top Constr., 695 F.3d

at 1283-84 (Fed. Cir. 2012) (quoting Bill Strong, 49 F.3d at 1549-50); see also Derian,

23-1 BCA ¶ 38,425 at 186,754. Here, D-STAR’s costs relate to emails sent to the

“TCO / Government / ASBCA” (R4, tab 38 at 1687). D-STAR provides the screen

shots of subject-matter lines of the emails and a list of the attached documents to those

emails (R4, tab 38 at 1688-95). Virtually all the email subject-matter lines and the

titles of the attached documents explicitly reference ASBCA Nos. 61947 and 62075

(id.).

Contrary to D-STAR’s assertions, these costs are unrecoverable litigation costs,

not recoverable settlement costs related to settling the claims under FAR 31.205-

42(g)(1) (app. reply br. at 19). D-STAR incurred these costs after it filed two appeals

with the Board and there is no indication these costs related to settlement. “Once

appellant filed its appeal before us, appellant was involved in an administrative

adjudicative proceeding” and any costs pursuing the appeals were unallowable under

FAR 31.205-47(f). Qualex Int’l, ASBCA No. 41962, 93-1 BCA 25,517 at 127,090.

Thus, we deny D-STAR’s request for these costs.

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CONCLUSION

For the reasons discussed above, we largely sustain DCMA’s debt demand

claim in ASBCA No. 62075 and award the government $282,926, plus any interest

due under FAR 52.232-17 and FAR 32.608-2(a)(1). We also partially sustain

D-STAR’s claim in ASBCA No. 62780 and award appellant $16,272.16, plus CDA

interest running from when DCMA received D-STAR’s February 27, 2018 certified

claim when it first sought these costs. D-STAR’s claims are otherwise denied in

ASBCA Nos. 62075 and 62780.

Dated: April 28, 2025

DANIEL S. HERZFELD

Administrative Judge

Armed Services Board

of Contract Appeals

I concur I concur

OWEN C. WILSON J. REID PROUTY

Administrative Judge Administrative Judge

Acting Chairman Vice Chairman

Armed Services Board Armed Services Board

of Contract Appeals of Contract Appeals

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I certify that the foregoing is a true copy of the Opinion and Decision of the

Armed Services Board of Contract Appeals in ASBCA Nos. 62075, 62780, Appeals of

D-STAR Engineering Corp., rendered in conformance with the Board’s Charter.

Dated: April 28, 2025

PAULLA K. GATES-LEWIS

Recorder, Armed Services

Board of Contract Appeals

33