Horn & Associates, Inc. v. United States

In the United States Court of Federal Claims

No. 8-415C

Filed: May 25, 2017

* * * * * * * * * * * * * * * *

HORN & ASSOCIATES, INC., *

*

Plaintiff, *

v. * Contract; Breach; Good Faith and

* Fair Dealing; Bad Faith; Recovery

UNITED STATES, * Audit; NASA; Trial.

*

Defendant. *

*

* * * * * * * * * * * * * * * *

Robert H. Brunson, Nelson Mullins Riley & Scarborough LLP, Charleston, S.C.,

for the plaintiff. With him was Patrick C. Wooten, Nelson Mullins Riley & Scarborough

LLP, Charleston, S.C.

Anna Bondurant Eley, Trial Attorney, Commercial Litigation Branch, Civil

Division, United States Department of Justice, Washington, D.C., for the defendant. With

her were Kenneth Woodrow, Trial Attorney, Zachary Sullivan, Trial Attorney, Robert

E. Kirschman, Jr., Director, Commercial Litigation Branch and Chad A. Readler, Acting

Assistant Attorney General, Civil Division, Department of Justice.

OPINION

HORN, J.

FINDINGS OF FACT

Plaintiff, Horn & Associates, Inc. (Horn & Associates), is a recovery audit firm which

performed a recovery audit for the National Aeronautics and Space Administration

(NASA). Recovery audit firms, like Horn & Associates, identify payment errors and

provide assistance in the recovery of erroneous payments from the suppliers or

contractors which received the erroneous payments.

Horn & Associates was founded in February 2003 with the intention of performing

recovery auditing work for federal, state and local government entities, in addition to

recovery auditing work for the private sector.1 The principals of Horn & Associates were

1As indicated in the complaint, Horn & Associates was incorporated as a “veteran-owned

small business, organized and existing under the laws of Utah, with its principal place of

business in Salt Lake City, Utah.”

Tom Horn, Larry Farrar, and Michael Lowery.2 Tom Horn was the President of Horn &

Associates. At the time of the NASA recovery audit, Mr. Lowery was the Chief Executive

Officer of Horn & Associates and was responsible for marketing and finding clients,3 and

Mr. Farrar served as Vice President of Marketing and Operations for Horn & Associates.

At trial, Mr. Farrar testified, as of the time of trial, that “[w]e’ve done some county, cities,

states, some other federal agencies as well as NASA. Probably 10 or 12 audits at this

point.” Among the federal agency recovery audits preformed, Horn & Associates worked

for the United States Department of Transportation, the United States Department of

Homeland Security, the United States Patent and Trademark Office, and the United

States Census Bureau.4

Horn & Associates’ focus on recovery audits for the federal government stemmed

from the passage of Section 831 of the Defense Authorization Act for Fiscal Year 2002.

See Defense Authorization Act for Fiscal Year 2002, Pub. L. 107-107, 115 Stat. 1012

(2001). As indicated in plaintiff’s November 20, 2007 certified claim, described below:

Congress recognized the need for such recovery audits by passing Section

831 of the Defense Authorization Act for Fiscal Year 2002. This section

added a new subchapter to the U.S. Code (31 U.S.C. §§ 3561-3567) that

requires federal agencies that enter into contracts exceeding $500,000,000

2 Tom Horn testified that he started his first accounting firm in 1980. Mr. Farrar testified

he worked for private companies for twenty years, most recently as Vice

President/Controller for Montgomery Ward until 1993 when he joined the largest recovery

audit firm in the country. Another Horn & Associates employee, Jennifer Harris, testified

that Mr. Lowery was involved in auditing for over thirty years, and he “was an incredibly

innovative pioneer in the accounts payable recovery business.”

3 The court noted during the trial that Mr. Lowery was unable to testify at trial for medical

reasons, and, with the court’s permission, the parties designated his earlier taken

deposition as his testimony.

4 Horn & Associates also employed a number of auditors as subcontractors during

contract performance. Typically, the subcontractors, had agreements with plaintiff that

stated: “During the term of this agreement Contractor shall earn a commission equal to

40% of revenue generated by claims identified by Contractor and collected for the client

by H&A [Horn & Associates]. The commission is calculated as 40% of actual net revenues

received from the client for the life of the audit.” By the terms of its contract with NASA,

Horn & Associates was entitled to a contingency fee of 13.5% for any recovery by NASA

that plaintiff identified. Specifically, the contract provided:

The amount of the Contingency Fee for this order is 13.5%. Payments to

the contractor for services under this order will be based on a Contingency

Fee Basis after NASA has recovered and received funds for the basic

requirements as set forth in the Statement of Work (SOW). There will be no

out-of-pocket expenses, costs or other financial obligations or liabilities

incurred by NASA, other than the fees identified in this order.

2

in a fiscal year to carry out a “cost-effective program for identifying any

errors made in paying the contractors and for recovering any amounts

erroneously paid to the contractors.” Thus, recovery audits became

mandated for certain federal agencies like NASA.[5]

The joint stipulations of fact submitted to the court state: “[o]n January 16, 2003, the White

House Office of Management and Budget issued Memorandum M-03-07, titled,

“Programs to Identify and Recover Erroneous Payments to Contractors.” (internal citation

omitted) (OMB Memorandum M-03-07). OMB Memorandum M-03-07 indicated the

Memorandum was “intended to assist agencies to successfully implement recovery

auditing and recovery.” OMB Memorandum M-03-07 also stated that “[a]ll classes of

contracts and contract payments should be considered for recovery audits.” As also jointly

stipulated to by the parties, OMB Memorandum M-03-07 indicated that “[a]gency heads

may exclude classes of contracts and contract payments from recovery audit activities if

the agency head determines that recovery audits are inappropriate or are not a cost-

effective method for identifying and recovering erroneous payments.”

The General Services Administration (GSA) had awarded Contract No. GS-23F-

0258N (the GSA Contract) to Horn & Associates on June 12, 2003. The GSA Contract

was a blanket purchase agreement, pursuant to which various executive agencies could

solicit offers to contract for recovery auditing services. To comply with the Defense

Authorization Act of 2002 and the Improper Payment Information Act of 2002,6 NASA

issued Request for Quote NNH04068239Q (the RFQ) for Audit Recovery Services, and

the Contracting Officer issued the RFQ to four companies, including Horn & Associates.

As indicated in the Contracting Officer’s cover letter to the four companies:

National Aeronautics and Space Administration (NASA) is requesting offers

under Request for Quote (RFQ) NNH04068239Q for Audit Recovery

services described in the attached Statement of Work (SOW). NASA

intends to acquire these services by competing this requirement among

several sources on the GSA Federal Supply Schedule Contract, Schedule

Number 520 SIN 9, entitled “Financial and Business Solutions (FABS).”

Your company is being solicited since it appears on the GSA FABS

Schedule’s list of eligible contractors.

5 As further indicated by Tom Horn at trial:

We were beginning to do research and we discovered that in 2002 the

Defense Authorization Act was -- there was a piece in there, Section 831

on recovery auditing that was passed that mandated recovery auditing on

the federal government, and also that there was an Improper Payments

Information Act that was passed as well that mandated some testing on

improper payments at government agencies.

6As noted in its post-trial briefing, defendant states that “[p]ursuant to an Act of Congress,

NASA hired Horn and Associates to conduct a recovery audit to return to the Government

hundreds of millions of dollars overpaid to vendors.” (internal reference omitted).

3

A Statement of Work was attached to the RFQ, which stated: “The contractor shall

perform recovery-auditing services at all 10 NASA Centers for the period beginning

October 1, 1997 through September 30, 2003.” The Statement of Work attached to the

RFQ indicated that: “The audits will be conducted on payments made from all fixed price

contracts.”

NASA received two proposals in response to the RFQ, one from Horn & Associates

and one from Connolly Consulting, Inc. (Connolly Consulting). In the Memorandum for

the Record, for the “Award of Contract NNH05CC28D to Horn and Associates, Inc.,” Janet

Langweil 7 stated that:

It was determined by both the Office of Chief Counsel and the Contracting

Officer that the proposal received from Connolly Consulting was considered

to be non-compliant with the requirements of the RFQ. Connolly Consulting

did not provide a contingency fee with a fixed percentage [of recovery], but

instead proposed an estimated contingency fee range conditioned upon

additional information.

As a result, Horn & Associates was the only responsive offeror. In its proposal, Horn &

Associates stated that, in its opinion, NASA needed “a 100% look at the Department’s

data to gain the full benefit of the recovery audit” and that Horn & Associates “would like

to have access to all contracts, agreements and documents that would reflect pricing,

terms, allowances, rebate programs, etc.”8

On December 23, 2004, NASA awarded the Order for Supplies or Services, Order

No. NNH05CC28D (the contract) to Horn & Associates for the furnishing of “Recovery

Audits,” pursuant to the GSA Contract. The contract indicated that it was “subject to all

the terms and conditions of the contractor’s GSA Schedule Contract GS-23F-0258N and

as amended by the clauses contained herein.” Included as an attachment to the contract

was a Statement of Work. The contract’s Statement of Work indicated: “The contractor

shall perform a primary audit recovery on all contract payments for the period beginning

October 1, 1997 through September 30, 2003, identifying overpayments and/or

underpayments.”9 The contract also included a unilateral option for NASA which stated:

7The Contracting Officer who sent the issued for the Memorandum for the Record was

Janet Langweil. Dean Patterson replaced Ms. Langweil as the contracting officer during

performance of the contract in July 2006.

8The Contracting Officer noticed a discrepancy in the option periods, specifically option

year one, in Horn & Associates’ proposal, and requested that Horn & Associates

acknowledge the option years as stated in the RFQ. By email, Horn & Associates

acknowledged, and agreed to, the option years as stated in the RFQ.

9 As noted above, and explained further below, the Statement of Work attached to the

RFQ differed from the contract and stated: “The audit will be conducted on payments from

all fixed price contracts.” (emphasis added).

4

(a) The Government may extend the term of this contract by written

notice to the Contractor within 30 days; provided that the Government gives

the Contractor a preliminary written notice of its intent to extend at least 60

days before the contract expires. The preliminary notice does not commit

the Government to an extension.

(b) If the Government exercises this option, the extended contract shall

be considered to include this option clause.

(c) The total duration of this contract, including the exercise of any

options under this clause, shall not exceed 5 years.

The contract further stated, “[t]he Contracting Officer may exercise the option by written

notice to the Contractor within the period specified in the schedule.”

The contract included four option years to extend the term of the audit recovery

period. The original period of performance of the contract was December 23, 2004 (the

date the contract was awarded) to December 22, 2005. Each option year extended the

period of performance by one year and expanded the audit recovery period. For option

year 1, the period of performance would be October 1, 200510 to September 30, 2006,

and the corresponding audit recovery period was 2004-2005. For option year 2, the period

of performance was October 1, 2006 to September 30, 2007, and the corresponding audit

recovery period was 2006, option year 3 contemplated the period of performance would

be October 1, 2007 to September 30, 2008, and the corresponding audit recovery period

would be 2007. Finally, for option year 4, the period of performance would be October 1,

2008 to September 30, 2009, and the corresponding audit recovery period would be 2008.

For all option years, the contingency fee remained 13.5%.

The contract indicated that “the contractor shall perform a primary audit recovery

on all contract payments for the period beginning October 1, 1997 through September 30,

2003,[11] identifying overpayments and/or underpayments,” (emphasis added) but did not

specify the types of contract payments Horn & Associates should review and present for

recovery to NASA. In its certified claim, Horn & Associates indicated that

Horn presented NASA over 400 claims for recovery in 15 different classes

on September 30, 2006. The claims fell into the following classes:

Obligations over paid; Prompt Pay Interest Calculation Errors; Statement

10Despite the original period of performance of the contract ending December 22, 2005,

the first option period began on October 1, 2005. Neither party raised this discrepancy as

an issue at trial, and it does not impact the court’s decision in this opinion.

11 As indicated in the defendant’s responses to plaintiff’s interrogatories and in the parties’

joint stipulations of fact, the total amount of contract payments made by NASA during

fiscal year 2004 was estimated at $10,872,558,720.53, and the total amount of contract

payments made by NASA during fiscal year 2005 was estimated at $10,806,837,873.44.

5

Claims; Payment Errors; Cash Discounts; Regular Duplicate Payments;

Award Fees Overpaid; Interest on Overpayments; Prepayment Discounts;

Pricing Claims; Miscellaneous Charges; Obligation Overpaid; and Tax

Charged in Error.

Payment Centers

Horn & Associates attempted to perform recovery audits at nine of NASA’s

payment centers. The centers were: the Goddard Space Flight Center (Goddard), the

Lyndon B. Johnson Space Center (Johnson), the John F. Kennedy Space Center

(Kennedy), the John C. Stennis Space Center (Stennis), the George C. Marshall Space

Flight Center (Marshall), the John C. Glenn Research Center (Glenn), the Langley

Research Center (Langley), the Hugh L. Dryden Flight Research Center (Dryden), and

the Ames Research Center (Ames) (collectively, the NASA Centers). After award of the

contract, Horn & Associates held planning meetings with the NASA Centers to discuss

the audit.12 During performance of the contract, according to defendant, Horn &

Associates submitted a total of 402 claims to NASA for collection and payment. NASA

approved and paid 40 of them.

Prior to the planning meetings at the NASA Centers, on February 8, 2005, Horn &

Associates participated in a pre-audit planning meeting at NASA headquarters. On March

4, 2005, after the pre-audit planning meeting, an internal NASA memorandum was issued

by Gwendolyn Sykes, NASA’s Chief Financial Officer, to all NASA Centers, which

indicated that Horn & Associates was to audit “payment records of fixed price contracts.”

The contracting officer technical representative at the time, Melvin DenWiddie, issued an

email to all NASA Centers on May 18, 2005, stating the contract for Horn & Associates’

recovery audit was for the audit of “all contract payments.” NASA, therefore, eventually

provided Horn & Associates with payment data for all contracts, not just payment data for

fixed price contracts. As acknowledged by defendant, “[t]he data itself, however, was

admittedly not perfect.”

Mr. DenWiddie testified that “at the various NASA centers, we had what was known

as the Legacy accounting systems. And most of those systems were manual systems

that were not automated and of course, they were not integrated,” and, that, further, each

center had its own accounting system. NASA, therefore, switched to a SAP system. Mr.

DenWiddie, indicated, however, that “[i]t was somewhat of an unfortunate event actually,

because the Legacy systems that we had throughout the centers, at the time of the

implementation of the SAP system, those systems were disconnected and the SAP

system was installed to become the official integrated system of record.” As Mr.

DenWiddie explained when asked what happened to the financial data that had been

12Horn & Associates held planning meetings in April of 2005 at the following NASA

Centers: at Stennis on April 1, 2005, at Kennedy on April 19, 2005, at Glenn on April 20,

2005, at Marshall on April 21, 2005, at Goddard and at NASA Headquarters on April 22,

2005, at Langley on April 26, 2005, at Johnson on April 27, 2005. In May of 2005, Horn

& Associates held planning meetings at Dryden on May 16, 2005, and at Ames on May

17, 2005.

6

associated with the Legacy system after the transition to the SAP system, he indicated

that “information was virtually lost because typically what should normally happen, there

should be a parallel running of the two systems together so that you could make sure that

there was some compliance. In this case, that did not take place so the information from

the Legacy systems just disappeared.” As a result, in its post-trial briefs, defendant now

concedes that, although NASA produced the SAP data to Horn & Associates, that “[t]he

production of NASA’s SAP data was more problematic” than the production of the Legacy

data. The parties, especially, the defendant, were unable to identify the total amount of

contract payments for fiscal years 1998-2003, at issue in the contract, which called for

Horn to “perform a primary audit recovery on all contract payments for the period

beginning October 1, 1997 through September 30, 2003, identifying overpayments and/or

underpayments.” The parties have stipulated that:

NASA’s financial system no longer contains data for contract payments

made by NASA during FY1998 through FY2003, and therefore NASA was

unable to identify the total amount of money it expended on contract

payments during those fiscal years, or during the FY1998-2005 period of

the Horn Recovery Audit, in response to requests for that information from

Horn during discovery. NASA did not reconstruct an estimate of the amount

of total contract payments for FY 1998-2005 in response to discovery

requests seeking this information.

On June 30, 2006, Mr. DenWiddie wrote a letter to Horn & Associates, indicating:

Your work on this project has been very impressive. Because our payment

files were in several locations on multisystems, some in a manual format, I

wondered how you would overcome that challenge and conduct an effective

Agency-wide recovery audit of our payments.

It soon became apparent that your technical capability was centered on your

highly-experienced staff. The extensive financial management and recovery

auditing experience allowed each challenge to be broken into small

components that were easier to resolve. The customizable audit

methodology was beneficial in addressing specific unique needs of each

NASA Center.

During his testimony, Mr. DenWiddie explained,

I wrote this letter because as I’ve testified before [13] during this testimony,

I thought that Horn was doing an outstanding job. I thought that they were

13 Mr. DenWiddie had previously testified during the trial:

The recovery audit was a low priority. It was a low priority because the

overall audit of the overall financial statements was so very important that

the recovery audit activity was something that we had to do because it was

a mandate from the presidential level down through OMB. We had to do it.

7

working under very adverse conditions, namely the accounting systems that

they had to audit, the people who they had to work with who were opposed

to them doing their work, and the fact that they had somehow managed to

do an outstanding job, in my view, I thought that somebody, somebody

needed to say thank you. And I decided that I would be the one and I did.

Mr. DenWiddie testified that the letter was “my last written communication as a

government employee,” as he retired on the same day, June 30, 2005.

On September 8, 2005, the contract was extended for one year through September

30, 2006 by an “Amendment of Solicitation/Modification of Contract,” with all terms

remaining the same, except the period of performance. The description of the Modification

stated in its entirety:

The purpose of this modification exercises Option 1 to conduct Audit

Recovery for the period of 2004-2005 as identified in Item 13 of the basic

order [the option to extend the term of the contract].

1. Clause 7, PERIOD OF PERFORMANCE, shall commence on the

effective date of this contract through September 30, 2006.

2. The total value of this order remains unchanged.

All other terms and conditions remain the same.

(emphasis in original).

Below is an overview of the 402 claims identified and submitted to NASA by Horn

& Associates and illustrative examples of the Horn & Associates’ interactions with NASA

personnel at the NASA Centers.14 As indicated by defendant, NASA recovered payments,

and paid Horn its contingency fee, on 40 of those submissions during the audit period.”

But it was not nearly as important as getting a clean, unqualified opinion on

the overall financial statements.

14 The court notes that the number of claims at the various NASA Centers in this opinion

differs from those in the court’s earlier opinion. See generally Horn & Assocs., Inc. v.

United States, 123 Fed. Cl. 728 (2015). In the earlier opinion the court indicated that

“[u]nfortunately, after discovery, trial, and even post-trial briefing, the parties still do not

agree on the number of claims submitted by plaintiff to NASA. The court uses the

defendant’s numbers for the claims, without, at this time, concluding whether the numbers

submitted by either party is correct. When there is a discrepancy, the court has footnoted

the plaintiff’s numbers of claims.” Id. at 735 n.16. After the court issued its decision, the

court instructed the parties to work together to generate a joint submission reflecting all

of the claims. The parties, although still at odds about the merits of the claims, were able

submit the joint submission, which the court uses as a basis to discuss the number of

claims at each of the NASA Centers.

8

Goddard

According to parties, Horn & Associates identified and submitted to NASA a total

of 223 claims related to the Goddard recovery audit. This was by far highest portion of

the claims identified by Horn & Associates and submitted to NASA.15 Prior to the audit,

Mr. Farrar testified that he believed “Goddard was designated as one of the biggest

centers and certainly one of the bigger opportunities that we had.”16 Despite this, the sole

claim for Goddard approved and processed by NASA was an SGT Inc. claim, for

$1,163.44 dollars.17

Initially, Maggie Baumbach was the primary subcontractor for Horn & Associates

to work at Goddard.18 Ms. Baumbach begin work at Goddard in September 2005. Mr.

Farrar offered testimony that three months after arriving at Goddard, Ms. Baumbach “was

becoming very frustrated because she was having an extremely hard time getting her

claims presented. And at that point, she -- I don’t believe she had any claims processed,

15In its certified claim, Horn & Associates explained the difference in the number of claims

generated by the different NASA locations:

The differences in claim potentials found at each of the above payment

centers can be explained in a couple of ways. It is partially a reflection of

the size of the payment center but more likely the amount of contract

payments administered by the center. But, the more important reason for

this claim's purposes is the fact that it is a reflection of the level of

cooperation, or lack thereof, by that payment center with Horn staff [sic] The

level of cooperation in many instances was so bad (i.e. it was a breach of

the duty of cooperation imposed by the contract on NASA), that Horn had

to reassign some of its audit teams on one or more occasions at some of

the centers to other locales.

16 Mr. Farrar also indicated:

When we did our initial look at the centers and we also discussed them in

our meeting with Melvin [DenWiddie] the first of February, we were trying to

identify which centers were bigger than others, where the biggest

opportunity might have been. So we identified, with Melvin, basically in that

meeting the four centers that were the largest and had the biggest

opportunity would be Goddard, Kennedy, Johnson and Marshall.

17Defendant has indicated to the court that it now believes that 14 claims identified and

submitted by Horn & Associates at Goddard were valid, and another 2 claims were

partially valid. At the time of the audit, however, NASA approved two claims, but only

processed the one claim for SGT Inc. The other claim, a different Aerospace Corp. claim,

was approved for payment, but not processed by NASA.

18Ivan Sherman worked at Goddard with Ms. Baumbach. Mr. Sherman, however, only

worked part-time.

9

and certainly none collected,” and that “nobody would meet with her.”

After eight months of working at Goddard on the recovery audit, Ms. Baumbach

left the Goddard recovery audit, claiming during her testimony at trial that “I couldn’t afford

to continue with no income. I had been months and months at this and we had, nobody

had a claim that was in the channel to be paid, to be collected from the vendor, and so

that was a big factor.” In an email dated April 17, 2006, to Mr. Lowery, Mr. Farrar, and

Jennifer Harris, another Horn & Associates employee, Tom Horn explained that he spoke

with Ms. Baumbach and she indicated that it was “just too hard and doesn’t want to be

the front person. I told her we were staffing the place with more people and that we would

have a good person to handle the communications . . . and give guidance if she wants to

continue to help us, but she pretty much declined.” The email indicated, however, “[t]his

actually may not be all bad as she seems to be willing to help us with the outstanding

items (so she can get paid) and help with a smooth transition to the new guys.” The email

from Tom Horn to Mr. Lowery, Mr. Farrar, and Jennifer Harris continued: “It does not

sound like she has really audited that much at Goddard. She said she did a few contract

reconciliations, looking mainly for dups [duplicate payments] and believes she has only

skimmed the surface. She hasn’t looked at possible interest claims, or for that matter, a

lot of other claim types which may or may not be there.”

Subsequently, in May of 2006, three auditors replaced Ms. Baumbach: Dan

Lizana,19 Steven Smith and Marie Beckey. Mr. Lizana indicated that once he arrived at

Goddard, “the two individuals that I recall and we were introduced to, the points of contact

was [sic] Yvette Blackwell -- she was the Supervisor for the examiners and she was our

point of contact -- and that week we were introduced to Sandra Brown, who was her

superior, who was going to be responsible for denying and accepting the claims.”20 Like

Ms. Baumbach, Mr. Lizana felt frustrated at NASA’s handling of Horn & Associates’

claims. For example, according to Mr. Lizana, one claim “was not outright rejected. But

our explanation was NASA was not interested really in pursuing this claim because this

was a cost type contract and DCAA [Defense Contract Audit Agency] will check it at close-

out.” As indicated in an email from Ms. Brown to Mr. Lizana:

My position remains that until either Procurement and/or DCAA determines

that Swales [& Associates] has violated their contractual agreement with

NASA Goddard, I am at no liberty to act upon your claim. Validation of your

claim has to be supported in conjuction [sic] with the audit/findings of

19 Regarding his position with Horn & Associates, Mr. Lizana testified at trial that he “first

heard about the position through Craigslist.” Mr. Lizana described his philosophy of

recovery auditing as follows: “I think recovering auditing, it's not a quantitative assessment

of your skills, meaning it's not having done it for 30 years, in my opinion, whether you

have a CPA and so forth. I think recovering auditing is about the type of skills that you

have.”

20In between the time of the recovery audit and the testimony at trial, Sandra Brown

changed her name to Sandra Gardin.

10

Procurement and/or DCAA.[21]

Mr. Lizana worked on the Goddard recovery audit until the end of contract performance.

Johnson

According to parties, Horn & Associates identified and submitted to NASA a total

of 121 claims related to the Johnson recovery audit, only 19 of which were approved and

processed by NASA.22 Johnson was the center that generated the second most claims in

Horn & Associates’ recovery audit, and the 121 claims from Johnson are more than were

generated at every other center combined, excluding Goddard.

Tom Hott was an accountant and the primary subcontractor who worked for Horn

& Associates at Johnson. Michael Colby also worked on the Johnson recovery audit. The

Johnson recovery audit was the first recovery audit for Mr. Colby. Mr. Hott’s wife, Beth

Hott, worked off-site supporting the Johnson recovery audit. Tom Hott testified that neither

he nor his wife had ever performed a recovery audit of a federal government agency

before the Johnson recovery audit.

Regarding the Johnson recovery audit, Mr. Hott indicated that, initially, the audit

“went fine. We had access to their records and we had a nice place to work in front of the

vault where the records were kept, and it was easy for us to come up with a program to

start the audit effectively and efficiently.” Mr. Hott, explained, however, “[t]hen when we

began turning in claims, they were, the claims were immediately denied.” Regarding the

process for presenting claims, Mr. Hott testified:

On a regular basis, the first person was Pat Bright. Pat was the supervisor

of the accounts payable department. She reported to June Boeckel who

was, as I understand it, the director of accounting at the time. And June

reported to Marilyn Sampay who was the deputy CFO responsible for the

21The role that the Defense Contract Audit Agency (DCAA) played in the NASA audit by

Horn & Associates was a source of ongoing tension between the parties. Ms. Brown, in

explaining the above quoted email testified:

They [DCAA] are our periodic auditors for these type contracts, cost types.

They perform periodic audits and sometimes not in the contractual

agreement that goes back and they look at where they’ve not adjusted a

rate or use the wrong rate, and all those things. They do that performance

audit that we look to happen that will take care of that 40 million [in the

Swales & Associates claim identified by Mr. Lizana] if in fact that was a valid

adjustment that had not happened.

22 Defendant states, however, that although one of the claims, the West Group Payment

Center claim, was approved and processed, it was not a valid claim because “it is for an

amount of less than $100, and was submitted by Horn in contravention of the plain terms

of Horn’s scope of work in its contract.”

11

conduct of the audit, according to our contract. And then I had a few

occasions with John Beall, the CFO of the Johnson Space Center.

When asked on cross-examination why he did not hire more people to work on the audit

with him, Mr. Hott testified that “[i]t didn’t make a lot of sense to spend a tremendous

amount more money to bring in additional resources. We were already getting screwed

to the hilt.”23

Kennedy

According to parties, Horn & Associates identified and submitted to NASA a total

of eighteen claims related to the Kennedy recovery audit, only two of claims submitted

were collected, and neither claim was approved by NASA. Brock Young was the primary

subcontractor for Horn & Associates to work at Kennedy. Mr. Young had not performed

a federal government agency audit before the Kennedy recovery audit. He indicated that

he would recover forty percent “of what was collected by Horn & Associates” for the

recovery audit claims that he identified.24 Mr. Young took part in the pre-audit meeting at

Kennedy on April 15, 2005, and he testified that Mr. Farrar and Jennifer Harris, from Horn

& Associates attended the meeting along with Sam Lenck, Deputy Chief Financial Officer

for Kennedy and Brenda Brooks, the Kennedy supervisor over accounts payable from

Kennedy.

Mr. Young expressed frustration with the lack of action by NASA with respect to

the claims he submitted to NASA. Mr. Young also was frustrated by the role of Mr. Lenck,

who viewed his role as “to act as the middleman between Mr. Young and the contracting

officer, Ms. Solum.”25 Mr. Young indicated that he first talked to Mr. Lenck and he would

23 Mr. Hott explained his frustration at working on the Johnson recovery audit:

June Boeckel, who was Pat's supervisor, was very reluctant to accept or

approve claims and would create argumentation on the claims that had

nothing to do with the merits of the claims themselves, again causing

unusual time delays, especially when you consider the fact that we would

turn in a claim and it would be weeks or months before we would get the

information back. This caused a severe time problem because we continued

to try to work under one scenario and knowing full well that we would have

to go back and go through all of the claims, all of the contracts again and all

of the payments again.

24As noted above, forty percent was a typical percentage among Horn & Associates’

subcontractors, although Jennifer Harris testified that her agreement with Horn &

Associates called for a fifty percent payout. In May of 2006, Ms. Harris became an

employee of Horn & Associates.

25Ms. Solum was a contracting officer who worked on the contracts awarded at Kennedy,

but was not the contracting officer for the Horn & Associates recovery audit for the

contract.

12

take the documents, “which would be the contract file, the mods [modifications], and the

invoices in question, and we'd go through it in that form. And that's what I'd review with

NASA is all the data with them so they would have everything they needed to look at the

claim.” After that, Mr. Young testified,

I would typically never hear back from them. So what I thought was

happening was Sam was going to approve it and send it where it needed to

be sent, like to the vendor, things of that nature. Later on I found out what

he was really doing was he was facilitating the process, but he was leaving

it up to the contracting officers to approve. So then at that point, I was

assuming they were going to the contracting officers. The thing is I was

never getting anything back, so I don’t know what actually happened.26

Mr. Young continued to work on the Kennedy recovery audit until the end of contract

performance.

Marshall

According to the parties, Horn & Associates identified and submitted to NASA a

total of nineteen claims related to the Marshall Recovery audit, eleven of which were

approved and processed by NASA.27 James “Chip” Edgerton, was the primary

26 Mr. Young also testified:

[W]e called a meeting. In that meeting, we had Leslie Solum, we had

Leslie's boss, we had a legal representative as well there. Steve Chance

was the COTR, that’s the Contract Officer Technical Representative is what

a COTR is, COTR. And then we had myself, Sam Lenck, Brenda Knox, or

Brenda Brooks was there, and I think one or two other people as well. So it

was a pretty big meeting. There’s [sic] roughly 10 people in this meeting.

We went through everything, decided that yes, there's definitely something

there and we were to pursue it.

...

When I left that meeting, what was supposed to take place next was Leslie

Solum should have had it reviewed and sent out a letter to the vendor to try

to collect the money. The agreement was that yes, it looks like something

was there, so what was supposed to happen was she was supposed to

send the information to the vendor saying either explain to us why it is not

valid or remit the money.

Mr. Young testified, however, that “[n]othing happened actually,” and “that was the last

anything ever happened to it.”

27Defendant states, however, that although the SAP Public Services Inc. claim was

approved and processed, the claim was only a partially valid claim. The court also notes

13

subcontractor for Horn & Associates to work at Marshall. He employed two additional

auditors to work with him, John Crochet and Michael Mescher, with whom he had worked

on pervious recovery audits. Consistent with other subcontractors, Mr. Edgerton indicated

that he would recover 40 percent of whatever Horn & Associates was able to recover for

its audit claims that he identified. Mr. Edgerton attended the April 21, 2005 pre-audit

meeting at Marshall with Mr. Mescher, Mr. Farrar, and Jennifer Harris from Horn &

Associates, and John Alexander and Becky Black from Marshall.

Mr. Edgerton indicated that he began the recovery audit in June 2005 with Mr.

Crochet and Mr. Mescher, but after a week, Mr. Crochet did not return because “[t]here

was never enough work for three people,” and Mr. Masker worked for two or three weeks

a month for the rest of 2005, but did not return in 2006 because “[w]e didn’t have enough

complete files to audit.” Mr. Edgerton also indicated that he frequently had to request

documents again and again. Mr. Edgerton left Marshall at the end of May 2006, with the

intention of returning once

it was worked out of how to get the complete files, then we could ramp it

back up, bring in either Mike [Mescher], Jack [Crochet] and myself or bring

in some, if we had other audits going on right then we couldn’t drop those,

so we would find other associates that we could use to bring in to help work

on the audit.

Mr. Edgerton, however, did not return to Marshall. When asked to summarize his

experience at Marshall, Mr. Edgerton indicated that “[t]hey were nice people, but . . . you

know, that they had their work to do and their work came first. And so our files came

second. So it was, you know, it was a -- it wasn’t a combative relationship, it's just that

their jobs came first and ours came second.”

Langley

According to the parties, Horn & Associates identified and submitted to NASA a

total of seven claims related to the Langley recovery audit, and NASA paid plaintiff its

contingency fee for one of the claims. According to James Michael, Deputy Chief

Financial Officer for Finance at Langley, Ken Respess worked on the Langley recovery

audit for Horn & Associates, arriving in October of 2005.28 He worked for approximately

two weeks. Jennifer Harris submitted claims related to Langley as well.29

that one claim at Marshall, which was approved and processed by NASA was for Bulk

Gas Helium.

28According to Mr. Michael, auditors had originally arrived in July 2005, but he could not

remember how many, only testifying that “I think it was about three or four, but I don’t

know exactly how many. It was more than one, less than five, but I don’t remember exactly

how many.”

29In particular, Jennifer Harris had sent out letters for collection with the signature of

Langley’s Deputy Chief Financial Officer Kerry Christian. Four vendors submitted

14

Ames

According to parties, Horn & Associates submitted a total of six claims related to

the Ames recovery audit, but only two of the six claims were approved and processed by

NASA.30 According to John Lee, Deputy Chief in Financial Management Division for

NASA at Ames, Bob Schuler was the only subcontractor for Horn & Associates to work

at Ames. He began working in November 2005, and stayed at Ames for three weeks.

Dryden

According to parties, Horn & Associates identified and submitted to NASA a total

of two claims related to the Dryden recovery audit, two of which were approved and

processed by NASA.31 Valerie Zellmer, NASA’s Chief Financial Officer at Dryden testified

that two auditors, Penny Parker and Jim Cudlip, worked on the Dryden audit. 32 Ms.

Zellmer testified the auditors arrived at the end of July 2005 and “left before Labor Day of

2005.” Ms. Zellmer indicated that she expected the auditors to return after Labor Day, but

neither Ms. Parker nor Mr. Cudlip returned to Dryden.

Glenn

According to parties, Horn & Associates identified and submitted to NASA a total

of six claims related to the Glenn recovery audit, five of which were approved and

processed by NASA According to Vickie Hagerman, Supervisor of NASA Accounting

payments to NASA in response to the letters. Langley did not approve of Ms. Harris’

actions. As Mr. Michael testified at trial, after discovery of Mr. Harris’ actions, “at that point

I know that we expressed our dissatisfaction. I don’t recall in what way we did. I know that

Kerry Christian was very upset at that time that that letter had gone out with his name at

the bottom of it.” Further Langley did not believe the claims were valid, as Mr. Michael

testified that Langley “did not believe they were overpayments at all,” and indicated that

“as the contract is audited and closed out in the end or during the life of the contract, that

we would receive those amounts back or that our final payment would be less because

of that. Mr. Michael also testified that NASA “actually received checks from the vendor.”

NASA did not pay Horn & Associates a contingency fee for three of the vendors, but did

pay a contingency fee for a National Instruments claim.

30The defendant states, however, that although one of the claims, the Physical Sciences

Inc. claim, was approved and processed, it was not a valid claim “because it falls below

the $100 threshold established by Horn's contract.”

31Defendant states that for one of the claims, the Infinity Tech claim, the claim partially

valid, but “Dryden did not collect the discount amount because of its small size, and the

fact that it had occurred so far in the past.”

32Ms. Zellmer also indicated that, “I can remember two. I thought there were three, but I

definitely remember two,” which she identified as Penny Parker and Jim Cudlip.

15

Reports Branch, and the point of contact for the recovery audit at Glenn, Tom Reese was

the subcontractor for Horn & Associates to work at Glenn, and began working in

November 2005, and worked for “about six months, onsite, offsite.” Jennifer Harris

submitted claims related to Glenn as well on behalf of plaintiff.

Stennis

The parties agree that Horn & Associates did not submit any claims regarding its

recovery audit for Stennis. Mr. Edgerton, was the primary subcontractor for Horn &

Associates to work at Marshall, testified that he was expected to handle the recovery audit

at Stennis, but he decided not to go, believing he would encounter the same problems

with NASA that he had at Marshall. Mr. Edgerton testified that he did not go to Stennis

because

[w]e were working at Marshall. We were trying, that was one of the big

centers that had a lot of accounts payable. It had a lot of records. If we

weren’t getting the records from Marshall why would, you know, why take

the time and money to go down to Stennis and have the same problem and

just, you know, create another problem?

End of the Contract

On July 17, 2006, Terry Bowie, Deputy Chief Financial Officer of NASA, indicated

to NASA personnel at Johnson that “I have asked the legal people to look into suspending

the contract until we have settled out on the issues raised by Horn in terms of what the

contract calls for and what they are entiltle [sic] too [sic] for payment.” According to the

parties’ joint stipulations, on July 24, 2006, the NASA Centers were informed that they

were to limit Horn & Associates’ recovery audit to fixed price contracts only. Dean

Patterson, who had become the Contracting Officer in July 2006, 33 informed Horn &

Associates on July 31, 2006, that:

In light of performance concerns that NASA has regarding Contract

NNH05CC28D, you are advised to restrict your current audit recovery

reviews to fixed priced contracts. A meeting will be held, with your

participation, to address performance concerns, contract interpretations

and whether or not it is in the government's best interest to exercise the

option.

On August 15, 2006, Mr. Bowie issued a memorandum to all NASA Centers regarding

the March 4, 2005 internal memorandum from Gwendolyn Sykes, the NASA Chief

Financial Officer and stated:

A previous message regarding the program and contract with Horn and

Associates, Inc[.] (Horn) indicated the company would be working with each

33As indicated above, Janet Langweil was contracting officer for the contract before Dean

Patterson becoming the contracting officer for the contract in July 2006.

16

Center to conduct an examination of payment records of only fixed price

contracts. This limitation is not consistent with language in the NASA-Horn

contract. Therefore, Centers please work with Horn to conduct an

examination of all contracts. This direction is valid until September 30, 2006,

when the current performance period on the Horn contract will expire.

Ten days after Mr. Bowie’s memorandum to the NASA Centers, on August 24,

2006, Contracting Officer Patterson informed Horn & Associates that NASA would not

exercise a second option year on the contract, and, on September 30, 2006, the period

of performance under the contract would end. On August 28, 2006, Contracting Officer

Patterson sent an email to all NASA Centers informing them “that a decision has been

made not to exercise the option under [the contract] and to let the current period of

performance end September 30, 2006. Until that time, the contract permits Horn & Assoc.

to review all contractual documents and associated financial records in the performance

of their audit recovery activities.”

Thereafter, on August 31, 2006, Charles McIntosh, a NASA branch manager and

the assistant to Mr. Bowie sent an email to each of the offices of the deputy chief financial

officers for each of the payment centers and asked them to identify all the claims related

to the Horn & Associates audit. Mr. McIntosh wrote:

As you know, there has been quite a bit of discussion over work that has

been done by Horn & Associates, Inc. regarding recovery audits and claims

that resulted from their work. In order for the agency to collect monies that

they claim are due, a thorough review of the claims in the attached

document, including contract and any other document as necessary to

support or deny the claim.

Please review the attachment and determine:

1) If the claim is a valid claim that represents an amount that can/should be

recovered (note: Horn receives payment on amounts that have actually

been collected)

2) If the amount should be recovered, please establish an accounts

receivable in SAP and request a refund

3) If the amount of the claim is not a valid amount that is deemed

recoverable, please provide information that explains/supports why we do

not consider the amount to be valid

Keep in mind that we normally do not request refunds on the following, (but

not limited to) types of contracts:

(A) Open contracts that are subject to final review at close-out

(B) Contracts with provisional rates that are pending audit by

DCAA

17

(C) Contracts with provisions for advanced payments for

nonprofit organizations that conduct experimental or research

and development work

(D) Contracts which authorize progress payments.

NASA personnel used this A-D framework to decline to process Horn & Associates’

claims after the end of contract performance. For example, on February 8, 2007, NASA

produced a document entitled “Goddard Space Flight Center/Regional Finance Office

Determination of the Validity/Non-validity of Horn Claims.” The document indicated: “We

have reviewed this spreadsheet we received from headquarters OCFO on January 31,

2007 . . . . We used the criteria received below from headquarters OCFO to make our

determinations.” The document indicated, among other criteria:

Generally, NASA will consider claims for contract payment errors under the

following circumstances to be inappropriate:

a. Resulting from cost-type contacts subject to final contract audit that have

not been completed.

b. Resulting from cost-type contacts subject to final contract audit that were

completed and prior to final payment of the contractor's final voucher, all

prior interim payments made under the contract were accounted for and

reconciled.

In an email from June Boeckel, referring to the A-D framework, Ms. Boeckel indicated:

“As you can see from the above clarification, many of the claims you have submitted fall

into this category and we will not be approving them for recovery.”34 At trial, Ms. Boeckel

confirmed that she took the lead in reviewing Horn & Associates’ claims at Johnson, and

that she did not approve claims that fell within the A-D categories.

As indicated above, Horn & Associates identified and submitted a total of 402

claims35 to NASA, and NASA approved and paid 40 claims. In its amended complaint,

Horn & Associates noted that “[i]n spite of the improper impediments raised by NASA,

Horn identified approximately $121 million of claims for various classifications of improper

payments. Each claim was submitted to NASA with supporting documentation proving

the improper payment. Yet to date, only $197,285.47 dollars [sic] of claims have been

processed by the Payment Centers.” Despite having only been compensated in the

amount of $197,285.47, Horn & Associates claims in the amended complaint that “Horn

found the following recovery audit claim potentials at each NASA Payment Center

34 The court notes that Ms. Boeckel’s email was not addressed to plaintiff, but was

language that she drafted for her colleague John Beall to send to Horn & Associates. At

trial, plaintiff’s counsel asked Ms. Boeckel: “And then at the top there's the email back

from you to Mr. Beall. And in that email you’re writing for Mr. Beall a memo for him to

send to Mr. Hott. Is that right?” Ms. Boeckel answered: “Yes.”

35 As reflected above, plaintiff identified and submitted a total of 402 claims.

18

included in the recovery audit process: Ames - $138,536.17; Dryden - $12,443.76; Glen

- $17,318.44; Goddard - $97,799,329.39; Johnson - $20,183,307.33; Kennedy -

$2,915,935.08; Langley - $40,451.99; and Marshall - $272,041.50. The total recovery

audit claim potentials for all Payment Centers were $121,379,363.66.”36

As noted above, the contract ended on September 30, 2006. After the end of the

recovery audit, NASA declined Horn & Associates’ offer of a “formal review” of all claims,

ostensibly to try and demonstrate entitlement to the $121,379,363.66 in potential claims.

NASA, however, did meet with Horn & Associates personnel to discuss the various

remaining claims. In the meeting at the end of January 2007, Mr. Lowery, Mr. Lizana, and

Marie Beckey, another subcontractor, from Horn & Associates, met with Bruce Ward, the

chief assistant in NASA’s Chief Financial Officer’s office, Andrea Davis, a contract

specialist, Jon Wolz,37 the Goddard Deputy Chief Financial Officer, Sandra Brown, and

Contracting Officer Patterson, from NASA in which Horn & Associates presented

information showing it had identified claims with approximately $81 million in improper,

erroneous overpayments, as well as an additional $40 million of interest and penalty

claims. Mr. Lizana indicated, however, that as soon as Horn & Associates began their

presentation of claims, both Mr. Ward and Ms. Davis said “that they could not approve

this [Swales & Associates] claim because it was in the purview of DCAA, and it was a

cost type contract.”38 Mr. Lizana emphasized that for each claim NASA’s “response was

more of the same. It was, okay this is DCAA involved matters, and it’s a cost type contract.

Move on there's nothing to see here, and so forth. And so it was -- Frankly, it was

frustrating.” Mr. Lizana testified that the meeting

got to a point where, at one point in the meeting Mike [Lowery] leaned over

and said, listen, I’ve been in a recovery auditing bill [sic] for a long time.

Every client that I’ve ever worked for, they wanted the money back. They

were helpful and cooperative. Can you tell me why NASA doesn’t want the

money?

On January 31, 2007, Bruce Ward sent an email to a number of NASA personnel, which

stated, in part:

36Plaintiff does not seek a 13.5% contingency fee of the $121,379,363.66 in damages,

but in its post-trial brief, plaintiff identified “$54,730,976 in estimated contingency fees

Horn would have received in the non-breach world.” According to plaintiff, subtracting the

$26,634.00 in contingency fees that Horn & Associates actually received, “results in lost

profits damages of $54,704,343.”

37 Mr. Wolz is incorrectly identified incorrectly as “John Walls” in the trial transcript.

38 In discussing the Swales & Associates claim at issue in the meeting with Mr. Ward and

Ms. Davis, Mr. Lizana testified, “[t]his claim, it's big. It's a big claim . . . it could be 20

million dollars, it could be 15 million dollars, depending on what rate, a formal rate

information we get.”

19

Center CFOs: The contracting officers and I met with representatives of

Horn and Associates (HA) today to discuss the status of the claims for

Improper payments. As a result of this meeting and with legal counsel

concurrence, we agreed to begin a process of meeting at the Centers with

the Contracting Officer, HA and me to review the documents and

justification that the Centers used to deny the claims, for the purpose of

reaching a final determination on the validity or non-validity for each claim.

...

Terry Bowie wanted me to make sure that the respective Center CFO

signed off on the denied Invalid claims before we have the meetings with

HA at the Centers. I have attached the file that we will use for selection and

you can easily see the claim numbers and information for each claim that

will be reviewed. Starting with Goddard, prior to the meeting, the Center

CFO should deliver to me a signed statement that they have reviewed the

claims and determined that they are not valid claims for improper payments.

Probably the easiest way to do this would be to prepare a memorandum

stating your determination of invalidity, with the claim numbers Indicated

thereon.

Horn & Associates’ final meeting with NASA took place on February 9, 2007, again

attended by Mr. Lowery, Ms. Beckey, and Mr. Lizana on behalf of Horn & Associates, and

Mr. Ward, Ms. Davis, Mr. Wolz, Ms. Brown, and Contracting Officer Patterson, on behalf

of NASA. Horn & Associates represented in the certified claim that, “[t]he only thing

accomplished during this meeting was the commitment from NASA that someone from

the CFO’s [Chief Financial Officer’s] Office would supply Horn with a list of all our claims

with comments on whether the claim was approved or denied and why the claim was

being denied. Such a complete report has never been received.”

Subsequently, NASA internally reviewed the Horn & Associates claims that were

presented to NASA. For example, in February 2007, at Johnson, Gwen Obert re-reviewed

the claims submitted by Horn & Associates at Johnson. Ms. Obert subsequently denied

all of the claims that were originally denied during contract performance at Johnson.

Another example of the review is the February 8, 2007, “Goddard Space Flight

Center/Regional Finance Office Determination of the Validity/Non-validity of Horn

Claims.”39 After review, Contracting Officer Patterson sent a March 13, 2007 letter to Horn

& Associates, regarding the agency position with respect to issues between Horn &

Associates and NASA. Contracting Officer Patterson stated, “[w]hile the contract

document (citation to SOW [statement of work]) gave Horn the right to review all contracts,

at this time it is inappropriate to determine if in fact overpayments have taken place on

cost-type contracts that have not been completed.” (emphasis in original). Contracting

Officer Patterson explained, “[t]his is due to the fact that open contracts are still in the

administrative phase of open payment cycles.” Regarding interest on overpayments,

Contracting Officer Patterson indicated:

39 The document was generated one day before the final meeting with Horn & Associates.

20

The $40,619,548.71 identified by Horn as “interest on overpayments” can

not [sic] be accepted as valid claims. This is because they are from open

cost contracts or in accordance with the Federal Acquisition Regulation

32.614, “the responsible official shall apply interest charges to any contract

debt unpaid after 30 days from the issuance of a demand.”

(internal citation omitted). In addition, Contracting Officer Patterson tried to explain that,

“[w]ith further respect to those claims that were identified as overpayments, but the

CFO/DCFO [Chief Financial Officer/Deputy Chief Financial Officer] determined that the

overpayment had been satisfied by a setoff against another invoice in accordance with

FAR 32.611, the Debt Collection and Offset Act and the authority granted by the treasury

to setoff debts due the government, that such payments are not in fact debts due to the

government.”40 Contracting Officer Patterson concluded that:

At this time NASA has determined that $221,310.39 has been approved for

debt collection under the contract. The fee on this amount will be remitted

to Horn once collection has been made. An amount of $7,862.71 has been

remitted to Horn & Associates to date.[41]

Additionally, Contracting Officer Patterson informed Horn & Associates that “[t]his is the

final agency position with respect to of [sic] the issues between the parties. NASA is

committed to an equitable closeout of the subject contract.”

On November 20, 2007, Horn & Associates filed a certified claim with NASA. The

certified claim was addressed to “Dean S. Patterson, Procurement Manager, Janet S.

Langweil, Contracting/Ordering Officer, Carrie Causey, Procurement Manager,

NASA/Headquarters Procurement Office,” and was signed by Tom Horn as president of

Horn & Associates. On January 25, 2008, Contracting Officer Patterson issued a four

page final decision. Contracting Officer Patterson stated that: “This letter is in response

to Horn and Associates, Incorporated, hereafter referred to as Horn, claims for

$279,000,000.00, $14,700,000.00 and $7,028,200.96 for alleged material breach of

NASA Delivery Order NNH05CC28D for Recovery Audit services. The claim is denied in

40 Citingthe contract, Contracting Officer Patterson indicated that NASA would not accept

claims for payments outside the scope of period of performance, or for claims less than

$100.00. Contracting Officer Patterson also indicated that, “[w]ith respect to Prompt

Payment Interest calculation, the cited Prompt Payment Act Provision applies only to

interest on progress payments under construction contracts, when the performance for

which the payment was made is deficient and thus the payment has not been earned.

This provision does not apply by analogy to other contract payment adjustments.”

41At trial, defendant’s expert witness indicated that the amount of claims recovered by

NASA was $208,954.91, and Horn & Associates was paid $28,209.00.

21

its entirety.”42 Contracting Officer Patterson stated that “Horn asserts that it received no

compensation due to a material breach of the order by NASA. To the contrary, Horn

received compensation in accordance with the payment terms of the order that was

awarded on a contingency fee basis.” Contracting Officer Patterson continued:

The ultimate decision as to what constitutes a debt lies not with Horn, but

with the responsible NASA official at each Center in accordance with the

SOW and FAR Part 32. Horn did not comply with the delivery order terms

and audit as stated under the basic years as awarded, 1998-2003 or fiscal

years 1997-2002, and failed to submit the required management report at

the end of the initial basic period to allow NASA to evaluate the progression

of the audit and make any necessary adjustment to the audit project plan

as stated in Task 3 of the order.

Ultimately, prior to trial, NASA identified several claims which had been denied

during or shortly after the recovery audit, but which NASA subsequently concluded were

valid claims that should have been approved for collection, rather than denied. In its post-

trial briefing, defendant acknowledged that there were $992,557.38 in valid overpayments

that NASA had failed to pursue and process on which Horn & Associates was owed a

contingency fee. The court notes, however, that plaintiff takes issue with defendant’s

characterization of “valid,” arguing that:

Nearly all of the recommended debts submitted by Horn to NASA were

valid, meaning that based on the information available to Horn during the

audit, the individual claim should have been pursued. As numerous

witnesses testified, Horn had no incentive (and, because of the contingent

fee nature of the Contract, actually had a disincentive) to spend time

working on and submitting recommended debts that Horn’s auditors knew

to not be valid. Each individual claim submitted by Horn was based on the

information available to the Horn auditors at the time, and Horn believed

each of those individual claims to have been valid.[43]

42Prior to the issuance of the final decision, Mr. Ward, the chief assistant in NASA’s Chief

Financial Officer’s office indicated, on December 19, 2007 that “he believed the Horn

Certified Claim should be investigated as a ‘false claim’ to the Government.”

43 Plaintiff also argues that:

Horn contends that the present collectability of any of the individual claims,

now 7 or 8 years after Horn’s auditors submitted them to the NASA Centers

and lacking the complete documentation that was available during the

period of performance, is irrelevant to the question of whether NASA

materially breached the Contract in 2005-07, and what Horn’s damages

should be as a result of NASA’s breaches. Horn has proved breach by

demonstrating NASA’s gross misconduct during the period of performance

and it has proved damages by establishing what would have happened in

22

After Contracting Officer Patterson issued his final decision, on June 6, 2008, Horn

& Associates timely filed a complaint in this court. Like in the certified claim, Horn &

Associates raised three alternative causes of action, and sought the same amounts:

$279,000,000.00 for breach of contract, $17,599,550.00 for constructive partial

termination for convenience, and $7,028,200.96 for equitable relief. In an opinion issued

by the court prior to trial, the court granted plaintiff’s motion for partial summary judgment

regarding contract interpretation. Plaintiff claimed that the contract’s Statement of Work

directed Horn & Associates to perform a primary audit recovery on all contract payments

between October 1, 1997 through September 30, 2003,44 whereas defendant argued that

“the purchase order was for the auditing of fixed price contracts,” for that same time period

because the RFQ was limited to audits “on payments made from all fixed price contracts.”

(emphasis in original). The court concluded that the Statement of Work attached to the

contract signed by Horn & Associates and the Contracting Officer determined the scope

of the agreement between the parties and required the plaintiff to perform a primary audit

recovery on all contract payments for the time period specified. See Horn & Assocs., Inc.

v. United States, 104 Fed. Cl. 121, 136 (2012).

After the court’s decision, plaintiff filed an amended complaint, albeit without

specific mention of the three claims and their specific dollar amounts. Instead, plaintiff

listed a single cause of action, breach of contract, and in the prayer for relief requested

that “the Court enter judgment for Horn and against NASA on the breach of contract cause

of action and award Horn expectation damages, reliance damages, and/or any other type

of damages which the Court deems appropriate, in an amount to be proven at trial.” In

response, defendant filed an answer to the amended complaint and a counterclaim.

Defendant asserted a counterclaim in this court against plaintiff under the False Claims

Act, 31 U.S.C. § 3729 (2012), as well as an affirmative defense under the Special Plea in

statute, 28 U.S.C. § 2514 (2012) and the anti-fraud provision of the Contract Disputes

Act, 41 U.S.C. § 7103(b)(1) (2012).

In its post-trial briefing the defendant stated:

The Government does not pretend that its own performance in connection

with the recovery audit was perfect. Indeed, for reasons that we

acknowledge fully below, it was not, with the result that, at the conclusion

of the audit, Horn was owed an additional contingency fee based upon

$992,557.38 in valid overpayments that NASA failed to pursue and process.

Horn’s own subsequent conduct, however, has wiped out its entitlement to

the “but for world” if NASA had performed as agreed. The claims files today

are a very extensively proved, but marginally relevant side show.

44 As noted above, although the contract had originally called for Horn & Associates to

conduct the recovery audit for contract payments made during October 1, 1997 through

September 30, 2003, the contract subsequently was modified to cover contract payments

from October 1, 1997 through September 30, 2005.

23

even that amount, and renders it liable to the Government for substantial

damages in fraud.

Following a lengthy trial, and after reviewing of all the information in the record, the

court first addressed defendant’s fraud counterclaims due to the potential forfeiture of

plaintiff’s claims under the Special Plea in Fraud statute, or the potential forfeiture of the

unsupported portions of plaintiff’s claims under the anti-fraud provision of the Contract

Disputes Act, and denied all of defendant’s fraud counterclaims. See generally Horn &

Assocs., Inc. v. United States, 123 Fed. Cl. 728. The court concluded that the defendant

had failed to establish that Horn & Associates intended to deceive the government, which

is required to establish liability under the False Claims Act or to warrant forfeiture under

the Special Plea in Fraud statute or the antifraud provision of the Contract Disputes Act.

See id. at 787-88. This opinion addresses the issue of plaintiff’s allegations of breach of

contract by NASA, and the government’s counter allegations of breach of contract by

Horn & Associates under the contract. The court, therefore, turns to plaintiff’s claims of

breach of contract.

DISCUSSION

Plaintiff states that “[i]n this suit, Horn is pursuing a single cause of action for

breach of contract,” and “NASA committed numerous breaches of its duties under the

contract.” Defendant responds that “Horn breached its contract with NASA,” and claims

that, regarding plaintiff’s allegations, “Horn has not met its burden of proving that the

centers failed to timely review and pay Horn’s claims within a reasonable time.”

Prior to addressing the breach of contract allegations, the court identifies the

relevant contract sections, as well as the legal standards for contract interpretation. To

review, on December 23, 2004, NASA awarded the contract to Horn & Associates for the

furnishing of “Recovery Audits.” The contract indicated that it was “subject to all the terms

and conditions of the contractor’s GSA Schedule Contract GS-23F-0258N and as

amended by the clauses contained herein.” Regarding the data available to plaintiff, the

contract provided, in part: “In the performance of this contract, it is anticipated that the

Contractor may have access to, be furnished, or use the following categories of data

(which may be technical data, computer software, administrative, management

information, or financial, including cost or pricing). . . .” Regarding payment to Horn &

Associates, the contract provided:

The amount of the Contingency Fee for this order is 13.5%. Payments to

the contractor for services under this order will be based on a Contingency

Fee Basis after NASA has recovered and received funds for the basic

requirements as set forth in the Statement of Work (SOW). There will be no

out-of-pocket expenses, costs or other financial obligations or liabilities

incurred by NASA, other than the fees identified in this order.

The contract included four unilateral options for NASA, and the contract stated,

“[t]he Contracting Officer may exercise the option by written notice to the Contractor within

24

the period specified in the schedule.” Each option year extended the period of

performance by one year and expanded the audit recovery period. For option year 1, the

period of performance would be October 1, 2005 to September 30, 2006, and the

corresponding audit recovery period was 2004-2005. For option year 2, the period of

performance was October 1, 2006 to September 30, 2007, and the corresponding audit

recovery period was 2006, option year 3 contemplated the period of performance would

be October 1, 2007 to September 30, 2008, and the corresponding audit recovery period

would be 2007. Finally, for option year 4, the period of performance would be October 1,

2008 to September 30, 2009, and the corresponding audit recovery period would be 2008.

For all option years, the contingency fee remained 13.5%. As indicated above, only the

first option year was executed.

Incorporated into the contract as an attachment to the contract was a Statement

of Work. The Scope of Work for the Statement of Work indicated: “The contractor shall

perform a primary audit recovery on all contract payments for the period beginning

October 1, 1997 through September 30, 2003, identifying overpayments and/or

underpayments.”

Subtask 3.2 of the Statement of Work provided that:

The strategy for identifying lost funds should address all tasks required to

identify lost funds due to overpayment. At a minimum, the strategy should

include: (1) a methodology for identifying documents for auditing; (2) a plan

for acquiring and verifying only the documents and data in the possession

of NASA; (3) a process for obtaining and analyzing financial data required

for the audit; (4) criteria and outline for analyzing discrepancies; (5) review

of payment processing procedures; and (6) outline of the audit process.

Subtask 3.3 of the Statement of Work provided that:

The contractor shall identify all lost funds, discrepancies and improprieties.

The contractor shall calculate the proper amount to be collected. The

Contractor shall provide a list of all recommended debts to the NASA CFO

and the appropriate Center Deputy CFO for Finance. The Center Deputy

CFO shall be responsible for posting approved debts to the accounting

system.

Individual debts must be for amounts of $100 or greater and cannot consist

of more than two unique invoices.

For each debt recommended for collection, the Contractor shall:

1. provide documentation to support that the claim is owed

2. provide the original accounting classification of the improper payment

3. calculate the total amount of the debt. Total amount of the debt should

include:

25

a. Principle (original) amount of the debt

b. Accrued interest for debts greater than days past due.

c. Penalties for debts over 90 days past due.

d. Administrative costs associated with tracking the unpaid debt.

NASA will review and verify all debts. All debts will be posted by NASA

within a reasonable time. Once the NASA has verified the debt and posted

the debt to the accounting system, NASA will provide the contractor a claim

number for tracking purposes. NASA will pay the contractor's fee monthly

based on the amount debts collected.

Attachment B to the Statement of Work stated in chart form the option years, the periods

of review and the percentage of recovery plaintiff would receive:

“Contract interpretation starts with the language of the contract.” SUFI Network

Servs., Inc. v. United States, 785 F.3d 585, 593 (Fed. Cir. 2015); see also Precision Pine

& Timber, Inc. v. United States, 596 F.3d 817, 824 (Fed. Cir. 2010), cert. denied, 562 U.S.

1178 (2011); Bell/Heery v. United States, 739 F.3d 1324, 1331 (Fed. Cir.), reh’g and reh’g

en banc denied (Fed. Cir. 2014); LAI Servs., Inc. v. Gates, 573 F.3d 1306, 1314 (Fed.

Cir.), reh’g denied (Fed. Cir. 2009); Barron Bancshares, Inc. v. United States, 366 F.3d

1360, 1375 (Fed. Cir. 2004); Foley Co. v. United States, 11 F.3d 1032, 1034 (Fed. Cir.

1993); Nw. Title Agency, Inc. v. United States, 126 Fed. Cl. 55, 57-58 (2016) (citing Foley

Co. v. United States, 11 F.3d 1032, 1034 (Fed. Cir. 1993)) (“The starting point for any

contract interpretation is the plain language of the agreement.”); Beard v. United States,

125 Fed. Cl. 148, 158 (2016); Eden Isle Marina, Inc. v. United States, 113 Fed. Cl. 372,

483–84 (2013).

26

“‘“In contract interpretation, the plain and unambiguous meaning of a written

agreement controls.’”” Arko Exec. Servs., Inc. v. United States, 553 F.3d 1375, 1379 (Fed.

Cir. 2009) (quoting Hercules Inc. v. United States, 292 F.3d 1378, 1380–81 (Fed. Cir.),

reh’g and reh’g en banc denied (Fed. Cir. 2002) (quoting Craft Mach. Works, Inc. v. United

States, 926 F.2d 1110, 1113 (Fed. Cir. 1991))). “Terms must be given their plain meaning

if the language of the contract is clear and unambiguous.” SUFI Network Servs., Inc. v.

United States, 785 F.3d 585, 593 (Fed. Cir. 2015) (citing Coast Fed. Bank, FSB v. United

States, 323 F.3d 1035, 1038 (Fed. Cir. 2003)); see also Northwest Title Agency, Inc. v.

United States, 2017 WL 1521598, at *3 (Fed. Cir. Apr. 28, 2017); Canpro Investments

Ltd. v. United States, 130 Fed. Cl. 320, 347 (2017); Beard v. United States, 125 Fed. Cl.

at 158 (“If the contract language is unambiguous, then it must be given its plain and

ordinary meaning . . . .”). The United States Court of Appeals for the Federal Circuit stated

in Massie v. United States:

In interpreting a contract, “[w]e begin with the plain language.” “We give the

words of the agreement their ordinary meaning unless the parties mutually

intended and agreed to an alternative meaning.” In addition, “[w]e must

interpret the contract in a manner that gives meaning to all of its provisions

and makes sense.’”

Massie v. United States, 166 F.3d 1184, 1189 (Fed. Cir. 1999) (quoting McAbee Constr.,

Inc. v. United States, 97 F.3d 1431, 1435, reh’g denied and en banc suggestion declined

(Fed. Cir. 1996); (internal citations omitted)); Jowett, Inc. v. United States, 234 F.3d 1365,

1368 (Fed. Cir. 2000) (quoting McAbee Constr., Inc. v. United States, 97 F.3d at 1435

and Harris v. Dep’t of Veterans Affairs, 142 F.3d 1463, 1467 (Fed. Cir. 1998)); Harris v.

Dep’t of Veterans Affairs, 142 F.3d at 1467; see also Coast Professional, Inc. v. United

States, 828 F.3d 1349, 1354 (Fed. Cir. 2016); Shell Oil Co. v. United States, 751 F.3d

1282, 1305 (Fed. Cir.), reh’g en banc denied (Fed. Cir. 2014) (noting that a contract must

be interpreted in context, giving meaning to the document as a whole) (citing NVT Techs.,

Inc. v. United States, 370 F.3d 1153, 1159 (Fed. Cir. 2004); Metric Constructors, Inc. v.

Nat’l Aeronautics & Space Admin., 169 F.3d 747, 752 (Fed. Cir. 1999)); McHugh v. DLT

Solutions, Inc., 618 F.3d 1375, 1380 (Fed. Cir. 2010); Giove v. Dep’t of Transp., 230 F.3d

1333, 1340–41 (Fed. Cir. 2000) (“In addition, we must interpret the contract in a manner

that gives meaning to all of its provisions and makes sense. Further, business contracts

must be construed with business sense, as they naturally would be understood by

intelligent men of affairs.”) (citations omitted); Gould, Inc. v. United States, 935 F.2d 1271,

1274 (Fed. Cir. 1991) (indicating that a preferable interpretation of a contract is one that

gives meaning to all parts of the contract rather than one that leaves a portion of the

contract “useless, inexplicable, void, or superfluous”). A Judge of the United States Court

of Federal Claims has explained:

“The words of a contract are deemed to have their ordinary meaning

appropriate to the subject matter, unless a special or unusual meaning of a

particular term or usage was intended, and was so understood by the

parties.” Lockheed Martin IR Imaging Sys., Inc. v. West, 108 F.3d 319, 322

(Fed. Cir. 1997). “Under general rules of contract law we are to interpret

provisions of a contract so as to make them consistent.” Abraham v.

27

Rockwell Int'l Corp., 326 F.3d 1242, 1251 (Fed. Cir. 2003). “[A]n agreement

is not to be read in a way that places its provisions in conflict, when it is

reasonable to read the provisions in harmony. . . . [T]he provisions must be

read together in order to implement the substance and purpose of the entire

agreement.” Air–Sea Forwarders, Inc. v. United States, 166 F.3d 1170,

1172 (Fed. Cir. 1999). “A reasonable interpretation must assure that no

contract provision is made inconsistent, superfluous, or redundant.” Medlin

Const. Group, Ltd. v. Harvey, 449 F.3d 1195, 1200 (Fed. Cir. 2006) (internal

quotation marks omitted).

Dynetics, Inc. v. United States, 121 Fed. Cl. 492, 512 (2015); see also Marquardt Co. v.

United States, 101 Fed. Cl. 265, 269 (2011) (“In interpreting contractual language, the

court must give reasonable meaning to all parts of the contract and avoid rendering

portions of the contract meaningless.” (citation omitted)).

The Federal Circuit also has indicated that “‘[t]he contract must be construed to

effectuate its spirit and purpose giving reasonable meaning to all parts of the contract.’”

Arko Exec. Servs., Inc. v. United States, 553 F.3d at 1379 (quoting Hercules Inc. v. United

States, 292 F.3d 1378, 1380–81 (Fed. Cir.), reh’g and reh’g en banc denied (Fed. Cir.

2002)); see also Northwest Title Agency, Inc. v. United States, 2017 WL 1521598, at *3;

LAI Servs., Inc. v. Gates, 573 F.3d at 1314; Gardiner, Kamya & Assocs., P.C. v. Jackson,

467 F.3d 1348, 1353 (Fed. Cir. 2006) (citations omitted); Medlin Constr. Grp., Ltd. v.

Harvey, 449 F.3d 1195, 1200 (Fed. Cir. 2006) (reviewing the contract as a whole to

determine the meaning of relevant provisions); Hunt Constr. Grp., Inc. v. United States,

281 F.3d 1369, 1372 (Fed. Cir. 2002) (“We begin with the plain language when

interpreting a contract . . . . The contract must be considered as a whole and interpreted

to effectuate its spirit and purpose, giving reasonable meaning to all parts.” (citations

omitted)); Beard v. United States, 125 Fed. Cl. at 158 (quoting Pac. Gas & Elec. Co. v.

United States, 536 F.3d 1282, 1288 (Fed. Cir. 2008)) (“In construing the meaning of a

contractual provision, the court does not interpret the disputed term or phrase in isolation,

but “construes contract terms in the context of the entire contract, avoiding any meaning

that renders some part of the contract inoperative.”).

It has been “‘a fundamental precept of common law that the intention of the parties

to a contract controls its interpretation.’” Tri-Star Elecs. Int'l, Inc. v. Preci-Dip Durtal SA,

619 F.3d 1364, 1367 (Fed. Cir. 2010) (quoting Beta Sys., Inc. v. United States, 838 F.2d

1179, 1185 (Fed. Cir. 1988) (quoting Firestone Tire & Rubber Co. v. United States, 195

Ct. Cl. 21, 30, 444 F.2d 547, 551 (1971))); Alvin, Ltd. v. United States Postal Serv., 816

F.2d 1562, 1565 (Fed. Cir. 1987) (“In the case of contracts, the avowed purpose and

primary function of the court is the ascertainment of the intent of the parties.”); see also

Flexfab, LLC v. United States, 424 F.3d 1254, 1262 (Fed. Cir. 2005) (“[I]ntent is

determined by looking to the contract and, if necessary, other objective evidence. In the

absence of clear guidance from the contract language, the requisite intent on the part of

the government can be inferred from the actions of the contracting officer. . . .”); see also

Canpro Investments Ltd. v. United States, 130 Fed. Cl. at 347 (“Contract interpretation

requires determining the intention of the parties.”).

28

As indicated above, the court previously issued a decision on contract

interpretation. In considering the plaintiff’s motion for partial summary judgment on an

issue of contract interpretation, plaintiff claimed that the contract’s Statement of Work

directed Horn & Associates to perform a primary audit recovery on all contract payments

between October 1, 1997 through September 30, 2003, whereas defendant argued that

“the purchase order was for the auditing of fixed price contracts,” for that same time period

because the RFQ was limited to audits “on payments made from all fixed price contracts.”

(emphasis in original). The court determined that “[t]he Statement of Work attached to the

Order signed by Horn and the Contracting Officer determined the scope of the agreement

between the parties and required the plaintiff to perform a primary audit recovery on all

contract payments for the time period specified.” See Horn & Assocs., Inc. v. United

States, 104 Fed. Cl. at 136.45

In this court, Horn & Associates has alleged a breach of its contract by NASA, first

alleging that “NASA committed numerous breaches of its duties under the contract.” More

colorfully, plaintiff contends that NASA “failed to heed its duty to cooperate, deliberately

breached its contract, ignored its duty of good faith, covered its tracks with lies, and left

Horn & Associates for dead. NASA must be held accountable by this Court, if not for its

betrayal of the trust of the American people, then at least to Horn for its proven losses.”

It is well settled that “[t]o recover for breach of contract, a party must allege and

establish: (1) a valid contract between the parties, (2) an obligation or duty arising out of

the contract, (3) a breach of that duty, and (4) damages caused by the breach.” 46 San

Carlos Irr. & Drainage Dist. v. United States, 877 F.2d 957, 959 (Fed. Cir.), reh’g denied

(Fed. Cir. 1989); see also Shell Oil v. United States, 130 Fed. Cl. at 34; Barlow & Haun,

Inc. v. United States, 118 Fed. Cl. 597, 620 (2014); Cooley v. United States, 76 Fed. Cl.

549, 555–56 (2007) (citing San Carlos Irr. & Drainage Dist. v. United States, 877 F.2d at

959).

45 The defendant argues in its post-trial briefs that the court’s decision did not “actually

rule on summary judgment that a breach of the parties’ contract had occurred. As such,

the question of the occurrence of breach, and the materiality of that breach, remains for

the Court to decide based upon the trial record.” The defendant also states that “[f]or

purposes of this post-trial brief only, and, without prejudice to any future right to appeal,

the Government recognizes as law of the case the Court’s March 20, 2012 summary

judgment holding that the parties’ contract ‘determined the scope of the agreement

between the parties and required the plaintiff to perform a primary audit recovery on all

contract payments for the time period specified.’” (quoting Horn & Assocs., Inc. v. United

States, 104 Fed. Cl. at 136).

46 As recently indicated by a Judge of the United States Court of Federal Claims, “[t]o

satisfy this fourth element, the plaintiff also must show that: ‘(1) the damages were

reasonably foreseeable by the breaching party at the time of contracting; (2) the breach

is a substantial causal factor in the damages; and (3) the damages are shown with

reasonable certainty.’” Shell Oil v. United States, 130 Fed. Cl. 8, 34 (2017) (quoting

Indiana Michigan Power Co. v. United States, 422 F.3d 1369, 1373 (Fed. Cir. 2005)).

29

The court first notes that it is uncontested that Horn & Associates had an express

contract with the government. The joint stipulations of facts state, “[o]n December 23,

2004, NASA awarded Order No. NNH05CC28D to Horn for Recovery Audit Services.”

Moreover, plaintiff states that “[i]t is undisputed that a valid contract existed between Horn

and NASA,” and, moreover, in defendant’s post-trial briefs, defendant notes that “[t]he

contract that NASA awarded Horn was an enormous undertaking.”

NASA Headquarters

Horn & Associates first points to the conduct of NASA’s headquarters and argues

that “NASA’s thorough, material breach of the Contract began with the initial apathy and

indifference of NASA Headquarters (‘HQ’)’s senior financial management to the Recovery

Audit. This resulted in a series of structural and operational impediments to Horn’s ability

to complete a successful Recovery Audit,” and claims that “NASA HQ’s failure to

cooperate, as manifested in structural/operational impediments to a successful Recovery

Audit.” Plaintiff, citing to the testimony of the original contracting officer’s technical

representative, Melvin DenWiddie, argues that the “recovery audit was a low priority,” and

argues that “[i]ndeed, the Recovery Audit was such a low priority for NASA senior

management (outside of Mr. DenWiddie), that when Mr. DenWiddie retired at the end of

June 2006, NASA’s remaining senior financial management actively contemplated

suspending the Recovery Audit ‘till we get a handle on what we want the contractor [Horn]

to do.” Plaintiff notes that “[e]ighteen (18) months into the Contract, and more than a year

after Horn auditors had first begun submitting recommended debts to the Centers, the

NASA Deputy CFO did not know what NASA wanted Horn to be doing.”

Plaintiff also points to the data it did, and did not, receive from NASA as evidence

of a breach. The plaintiff argues that “[n]ot only did NASA fail to provide a complete set

of this payment data in a timely manner, but NASA never provided a complete set of this

payment data.” (emphasis in original). The defendant responds that “Horn’s expectations

were also not based upon the terms of the parties’ actual contract; indeed, the contract

contains no requirements whatsoever for the provision of electronic data, let alone

requirements of the type envisioned by Horn,” and that “the contract does not obligate

NASA to provide its electronic data in any particular format, it does not obligate the agency

to filter the data in any particular way for Horn’s benefit, and it does not establish any

timetable by which data will be provided.”47 (emphasis in original).

The court notes, however, as indicated above, the defendant has conceded that

“[t]he data itself, however, was admittedly not perfect.” As explained in the findings of fact,

47The court agrees with defendant that the contract does not explicitly state when NASA

specifically had to provide data to plaintiff, but it did provide that plaintiff was to conduct

the audit and provided that “[i]n the performance of this contract, it is anticipated that the

Contractor may have access to, be furnished, or use the following categories of data . . .”

and the Statement of Work, which was incorporated into the contract as an attachment,

required plaintiff to have a strategy to have “a plan for acquiring and verifying only the

documents and data in the possession of NASA;” as well as “a process for obtaining and

analyzing financial data required for the audit. . . .”

30

NASA had switched accounting systems from a Legacy system to the SAP system, and

in the process, “the information from the Legacy systems just disappeared.” Therefore,

although Horn & Associates received SAP data from NASA, the defendant agency, was

unable to identify the total amount of contract payments for fiscal years 1998-2003, and

the defendant admits “[t]he production of NASA’s SAP data was more problematic” than

the production of the Legacy data.48

The defendant also claims that plaintiff’s desire to have the data within 30 days of

the engagement was “formed solely from Horn’s private sector experience. Horn had

clearly performed no due diligence to gain an understanding of the complexities of

NASA’s electronic payment data prior to contract award and apparently was surprised to

learn about NASA’s massive, and extremely disruptive, transition to SAP in the year 2003,

and its varied legacy data systems throughout the payment centers at the time of the

initial preaudit planning meeting.” Defendant further argues that, nevertheless, “the

evidence at trial demonstrated that NASA did attempt to comply with Horn’s requests,”

and cites to Larry Farrer’s testimony that in a “typical audit,” “when we go in and try to get

the data is anywhere from a 30- to 60-day process.” Defendant claims that “[t]he evidence

of record shows that, in the April and May 2005 timeframe, Horn met with the various

NASA payment centers, and had obtained most of the Legacy data by June.” (internal

citations omitted). Defendant also claims that “[t]he story is fairly similar with respect to

NASA’s SAP data,” and that plaintiff was contacted by Melvin Denwiddie [sic] about

productions of the SAP data in May of 2005, “[a]fter Horn responded in May 2005, NASA

produced its SAP data to Horn in July 2005, i.e., again within the 30 to 60-day window

that the Horn witnesses described as reasonable based upon their experience in the

private sector.”

Plaintiff disagrees with defendant that the data was provided within that window,

and points to the testimony of Jennifer Harris who worked on obtaining and analyzing

NASA’s data. In response to plaintiff’s counsel’s question at trial: “What, if any,

communications had Horn & Associates had with Ms. Kroeger[49] between February and

May [of 2005] with respect to the SAP data?” Ms. Harris testified that “[w]e had not made

any progress.” In response to the question, “then after May 2, [2005] do you recall when

48 As noted above, the parties have stipulated that:

NASA’s financial system no longer contains data for contract payments

made by NASA during FY1998 through FY2003, and therefore NASA was

unable to identify the total amount of money it expended on contract

payments during those fiscal years, or during the FY1998-2005 period of

the Horn Recovery Audit, in response to requests for that information from

Horn during discovery. NASA did not reconstruct an estimate of the amount

of total contract payments for FY 1998-2005 in response to discovery

requests seeking this information.

49Ms. Harris testified that Pam Kroeger was the individual who was responsible for getting

the SAP data for plaintiff.

31

Horn & Associates finally received SAP data?” Ms. Harris responded, “I believe we

received it sometime in June.” Ms. Harris also noted that:

[W]e signed a contract in December of 2004. So, at this point, it was

September of 2005. We were running to the end of our deadline, you know,

and we were still at the point in trying to just gather the data needed to do

the audit. So it was becoming critical. You know, certainly this is something

we would expect to get in the first 30 days of an engagement traditionally.

So it was certainly concerning that we had not received it, you know, nine

months after. We really still didn't feel that comfort level that we'd received

100 percent of the information we needed to do a good job.

In response to the question at trial, “[w]hat was the state of the SAP data when it was

provided to Horn & Associates?” Ms. Harris answered that “it was very clear that it was

incomplete. There was quite a bit of missing information, which led to a lot of concern

because, you know, without that information the data is suspect.”

The court agrees with plaintiff that “[f]irst and foremost, the Contract here, by its

very nature, created a unique interdependence between the good faith performance of

NASA and the ability of Horn or any recovery auditor to succeed.” Plaintiff was dependent

on NASA providing data in the first instance and in a format that was usable to perform

the audit plaintiff was contracted to perform. The court finds compelling plaintiff’s

argument that “[t]he notion that NASA expected Horn, under the Contract, to perform a

recovery audit on tens of billions of dollars in payments over six fiscal years without

electronic data, and to complete that task within one year (or two years after the Contract

was extended), is completely unrealistic.” (emphasis in original).

In addition, plaintiff points to “misinformation” about the scope of the audit. As

noted above, after a February 8, 2005 pre-audit planning meeting at NASA headquarters,

Gwendolyn Sykes, NASA’s Chief Financial Officer, issued an internal NASA

memorandum on March 4, 2005 indicating that Horn & Associates was to audit “payment

records of fixed price contracts.” Despite Mr. DenWiddie’s May 18, 2005 email to the

NASA Centers that the contract for Horn & Associates’ recovery audit was for the audit

of “all contract payments,” plaintiff argues that “Ms. Sykes’ memorandum, and the concept

behind it, continued to reverberate even after the Recovery Audit had ended.” As

discussed below, at Johnson, NASA personnel, at times, limited review of the audit to

fixed price contracts. Horn & Associates’ auditor at Johnson, Tom Hott, testified at trial

that “[a]pparently, June Boeckel discovered, somehow or another, a memo or a

communication of some sort from Gwendolyn Sykes who was the CFO of all of NASA as

I understand. She sent a memo to the Center CFOs indicating that we were to look at

fixed-price contracts.” Plaintiff argues that “Horn was significantly damaged by the Sykes

memorandum because of the confusion it caused before the Recovery Audit had even

begun at the Centers, but also because it continued to plague the entire Recovery Audit

effort.”

32

Plaintiff argues, in addition, that NASA’s headquarters “lack of guidance from

NASA HQ regarding how to process claims and to pay Horn” was a breach of the contract.

Plaintiff notes that:

Although NASA awarded the Contract to Horn in December 2004—and

although Horn auditors were submitting recommended debts to the Centers

in earnest by the summer of 2005— not until the Recovery Audit was almost

over in September 2006 did NASA HQ develop and finalize a protocol by

which the Centers should approve recommended debts, post those debts

to their financial management systems, and then account for recaptured

funds and paying Horn’s contingent fee.

Plaintiff cites to an April 2006 email from John Alexander, the Deputy Chief

Financial Officer at Marshall, to Mr. DenWiddie and Charles McIntosh, which stated, in

part,

we believe that HQ should be responsible for the payments to Horn and

Associates. HQ has this se [sic] up as their contract now and is carrying the

obligation for the agency. It seems logical, therefore, that HQ should make

the disbursements against that contract. If the centers pay their portion, we

will have to set up Horn and Associates as a vendor and then part of the

costs will be on the Center and the rest on HQ. We believe this will be a

more difficult, tedious process than if HQ paid all of the items.

Plaintiff argues this failure to have a system in place “to approve recommended debts,

collect the outstanding funds, and compensate Horn . . . nearly a year after Horn auditors

began submitting recommended debts to the Centers” was a breach of the contract.

Plaintiff also points to the conduct of NASA headquarters at the end of the contract

to prove breach. As indicated above, the Deputy Chief Financial Officer of NASA, Terry

Bowie, indicated to NASA personnel in an July 17, 2006 email that “I have asked the legal

people to look into suspending the contract until we have settled out on the issues raised

by Horn in terms of what the contract calls for and what they are entiltle [sic] too [sic] for

payment.” According to the parties’ joint stipulations, on July 24, 2006, NASA Centers

were informed that they were to limit Horn & Associates’ recovery audit to fixed price

contracts only. The Contracting Officer, Dean Patterson, subsequently informed plaintiff

that:

In light of performance concerns that NASA has regarding Contract

NNH05CC28D, you are advised to restrict your current audit recovery

reviews to fixed priced contracts. A meeting will be held, with your

participation, to address performance concerns, contract interpretations

and whether or not it is in the government's best interest to exercise the

option.

33

On August 15, 2006, Mr. Bowie issued a memorandum to all NASA Centers regarding

the March 4, 2005 internal memorandum from Gwendolyn Sykes, the NASA Chief

Financial Officer and stated:

A previous message regarding the program and contract with Horn and

Associates, Inc[.] (Horn) indicated the company would be working with each

Center to conduct an examination of payment records of only fixed price

contracts. This limitation is not consistent with language in the NASA-Horn

contract. Therefore, Centers please work with Horn to conduct an

examination of all contracts. This direction is valid until September 30, 2006,

when the current performance period on the Horn contract will expire.

Ten days after Mr. Bowie’s memorandum to the NASA Centers, on August 24,

2006, Contracting Officer Patterson, informed Horn & Associates that NASA would not

exercise a second option year on the contract, and, on September 30, 2006, the period

of performance under the contract would end. Thereafter, on August 31, 2006, Charles

McIntosh, a NASA branch manager and the assistant to Mr. Bowie, sent an email to each

of the offices of the deputy chief financial officers for each of the centers and asked them

to identify all the claims related to the Horn & Associates audit. Mr. McIntosh wrote:

As you know, there has been quite a bit of discussion over work that has

been done by Horn & Associates, Inc. regarding recovery audits and claims

that resulted from their work. In order for the agency to collect monies that

they claim are due, a thorough review of the claims in the attached

document, including contract and any other document as necessary to

support or deny the claim.

Please review the attachment and determine:

1) If the claim is a valid claim that represents an amount that can/should be

recovered (note: Horn receives payment on amounts that have actually

been collected)

2) If the amount should be recovered, please establish an accounts

receivable in SAP and request a refund

3) If the amount of the claim is not a valid amount that is deemed

recoverable, please provide information that explains/supports why we do

not consider the amount to be valid

Keep in mind that we normally do not request refunds on the following, (but

not limited to) types of contracts:

(A) Open contracts that are subject to final review at close-out

(B) Contracts with provisional rates that are pending audit by

DCAA

(C) Contracts with provisions for advanced payments for

nonprofit organizations that conduct experimental or research

and development work

34

(D) Contracts which authorize progress payments.

This guidance was applied by the NASA Centers. For example, at Johnson, in a

September 6, 2006 email from June Boeckel, regarding plaintiff’s claims, she referred to

the A-D framework and indicated: “As you can see from the above clarification many of

the claims you have submitted fall into this category and we will not be approving them

for recovery.”50 At trial, Ms. Boeckel confirmed that she took the lead in reviewing Horn &

Associates’ claims at Johnson, and that she did not approve claims that fell within the A-

D categories. Ms. Boeckel also had the following exchange with plaintiff’s counsel on

cross-examination about the McIntosh email:

[Q.] That was an email that Mr. Macintosh [sic] sent from NASA

headquarters to all of the centers or at least, certainly he sent to Johnson

Space Center, right?

A. Correct.

Q. And when you read this statement, "Keep in mind we normally do not

request funds on the following, but not limited to types of contracts." And

then he listed A, B, C, and D.

A. Request refunds.

Q. Refunds do not normally request refunds.

A. Mm-hmm.

Q. You understood that criteria as eliminating all the cost plus contracts from

the scope of the recovery audit at Johnson, correct?

A. Correct.

Q. You understood that was guidance from headquarters not to consider

cost contracts, right?

A. Correct.

Q. Marilyn Sampay forwarded that to you and asked you to take the lead on

applying these criteria to the claims that had been submitted by Horn and

Associates at Johnson, right?

50As noted above, Ms. Boeckel’s email was not addressed to plaintiff, but was language

that she drafted for her colleague John Beall to send to Horn & Associates. At trial,

plaintiff’s counsel asked Ms. Boeckel: “And then at the top there's the email back from

you to Mr. Beall. And in that email you’re writing for Mr. Beall a memo for him to send to

Mr. Hott. Is that right?” Ms. Boeckel answered: “Yes.”

35

A. Right.

In addition, Ms. Boeckel sent an email to Mr. McIntosh on September 18, 2006, in which

she said: “You will notice that we denied many claims based on the criteria you sent us

and it is provided on the spreadsheet.” Plaintiff argues that the McIntosh email “essentially

gutted” the earlier NASA headquarters message that “Centers please work with Horn to

conduct an examination of all contracts.” Moreover, plaintiff claims that “[t]he effect of the

McIntosh memorandum on the efforts of Horn to perform the recovery audit was

immediate and devastating.” The plaintiff also noted that Charles McIntosh did not testify

at trial, and regarding NASA’s conduct under the audit, indicated that “the only

representative from NASA headquarters who appeared to explain this conduct at trial was

Terry Bowie – and he was under subpoena from the Plaintiff.”

In addition, NASA personnel used this A-D framework to decline to process Horn

& Associates’ claims after the end of contract performance. For example, on February 8,

2007, NASA produced a document entitled: “Goddard Space Flight Center/Regional

Finance Office Determination of the Validity/Non-validity of Horn Claims.” The document

indicated: “We have reviewed this spreadsheet we received from headquarters OCFO

[Office of Chief Financial Officer] on January 31, 2007 . . . . We used the criteria received

below from headquarters OCFO to make our determinations.” The document indicated,

among other criteria:

Generally, NASA will consider claims for contract payment errors under the

following circumstances to be inappropriate:

a. Resulting from cost-type contacts subject to final contract audit that have

not been completed.

b. Resulting from cost-type contacts subject to final contract audit that were

completed and prior to final payment of the contractor's final voucher, all

prior interim payments made under the contract were accounted for and

reconciled.

Regarding the McIntosh email, defendant cites to the testimony of Gwen Obert,

who reviewed the claims after the end of the contract at Johnson. Ms. Obert testified that

her view of the four categories from the McIntosh email was that, “[b]asically these were

general categories that claims were falling into. However, it was my understanding that

we were to look at each claim independently and review each claim regardless of what

category it fell into.” Therefore, the defendant argues that

having abdicated to its responsibility to present anything but speculation as

to the meaning of this document, Horn has failed to meet its burden of

proving that the McIntosh email, in fact, constituted a breach of contract in

this case, particularly in a context where the evidence of record

demonstrates that it had virtually no net effect upon the manner in which

claims were reviewed, and where any short term effect that the email may

36

have had at Johnson was quickly corrected by the full merits review

ultimately conducted by Gwen Obert and her team. As such, the McIntosh

email is insufficient to establish breach.

The court disagrees with defendant’s characterization. The McIntosh

memorandum had effects at Johnson, which were testified to at trial by Ms. Boeckel.

Moreover, although Ms. Obert claimed to have re-reviewed all the Johnson claims, her

review took place after the end of the contract, in February 2007, and as plaintiff stated,

“[t]he fundamental problem with the Government’s position is that NASA’s breach

persisted throughout the time Horn was attempting to conduct the audit. The Boeckel

review took place in September 2006 at the very end of the contract period. NASA could

not undo its breach five months after the performance period of the contract is over. The

harm was already done.”51 Furthermore, on cross-examination, plaintiff’s counsel and Ms.

Obert had the following exchange

[Q.] it says that you didn't retain copies of initial denied claims if there were

no objections to the determination. That's not based on anything you knew

based on your firsthand knowledge, is it?

A. Based on review with Pat at the time when we were doing this letter, that

is the information that I understood.

Q. Right. You never personally interacted with Tom Hott, much less gave

him back his files, true?

A. Right, but I did have the compact disc.

Q. Okay. And the compact disc that you're referring to. Do you have any

idea where that came from or what the circumstances were of its creation?

A. They were provided by the auditor.

Q. To whom?

A. To Pat Bright.

Q. And did you understand that that was the same compact disc that had

been provided to headquarters?

A. I was not aware of that.

Q. Did you understand that that compact disc did not purport to include all

of the documentation relating to the claims?

51Without determining whether or not she was correct in her post-contract evaluations,

the court notes that Ms. Obert did not change any of the original denials of plaintiff’s claims

by Ms. Boeckel.

37

A. It was my understanding that they should have, but I was completely

aware --

Q. Did you think they did or not?

A. They did not because I looked at -- we were saying they did not, and I

looked at those discs. I have those discs.

Q. So is it fair to say for the claims that have an asterisk on them on your

spreadsheet, as a generalization you did not have enough information to

know whether those were good claims or not?

A. I reviewed the notes and information that Pat had and she was in those

meetings, and I had no objection to the information she provided.

Q. The question was is it fair to say for the claims that have an asterisk by

them on your list on this exhibit that you did not have enough information

yourself to make a determination as to whether or not they were valid

claims?

A. When I drafted this letter I felt comfortable with the information that I did

have from Pat Bright, but we did not have all the backup.

From Ms. Obert’s own testimony, the record suggests that she did not have all the

materials that Mr. Hott had when he originally compiled and presented the claims to NASA

officials, not did she meet with Mr. Hott. Moreover, as plaintiff argues in its post-trial briefs,

“Ms. Obert’s claims review ‘do over’ five months after the audit and without the benefit of

a full set of documents2 or any input from the Horn auditors does not somehow ‘cure’ the

admitted breach that occurred during the period of performance. Again, NASA failed to

perform at the time performance was due, and that is a breach of contract.”

In addition to the allegations of breach by NASA headquarters, Horn & Associates

also raised allegations of breach related to specific NASA Centers where the plaintiff

preformed the recovery audit. Defendant generally responds that each of the centers did

not breach the contract and specially argues that “Horn has not met its burden of proving

that the centers failed to timely review and pay Horn’s claims within a reasonable time.”

As the court examined the impact of the McIntosh email at Johnson, the first NASA Center

that the court examines is Johnson.

Johnson

As noted above, the Johnson recovery audit generated the second most claims,

but only a fraction of the claims were approved and recovered.52 Horn & Associates’ main

52Plaintiff identified and submitted 121 claims for Johnson only 19 of which were

approved and processed by NASA.

38

on-site auditor was Tom Hott, although Michael Colby also worked on the Johnson

recovery audit and Beth Hott, supported the Johnson recovery audit off-site. Mr. Hott

indicated that initially the audit “went fine. We had access to their records and we had a

nice place to work in front of the vault where the records were kept, and it was easy for

us to come up with a program to start the audit effectively and efficiently.” Mr. Hott,

explained, however, “[t]hen when we began turning in claims, they were, the claims were

immediately denied.” Mr. Hott explained when NASA personnel began to work with Horn

& Associates, at the beginning of the contract they relied on the Gwendolyn Sykes

memorandum. Mr. Hott testified “she [Marilyn Sampay] and June and Pat basically said

they were going to ignore Mr. Denwiddie’s [sic] direction and they were going to bank on

the letter by Ms. Gwendolyn Sykes at the start of the audit which indicated we could only

look at fixed-price contracts.” Regarding the process for presenting claims, Mr. Hott

testified:

On a regular basis, the first person was Pat Bright. Pat was the supervisor

of the accounts payable department. She reported to June Boeckel who

was, as I understand it, the director of accounting at the time. And June

reported to Marilyn Sampay who was the deputy CFO responsible for the

conduct of the audit, according to our contract. And then I had a few

occasions with John Beall, the CFO of the Johnson Space Center.

Mr. Hott was generally unsuccessful in getting the claims he submitted approved. He first

noted that he had challenges working with Ms. Sampay and Mr. Beall:

Marilyn Sampay, who was the deputy CFO charged with the responsibility

under our contract guidelines and under our contract, period, to process the

claims, had pushed the process down so far down the line in the

management spectrum that she distanced herself from the audit and would

not, would not, I guess, force her folks that worked for her to process claims

or to review them on the merits. That caused a detachment of management

from the audit process which is extremely detrimental. And John Beall

exacerbated that situation from the standpoint that he completely distanced

himself and would not hold Marilyn accountable to do her job as it was

spelled out in our contract. It was such an extreme degree that it kept us

from getting to -- through the audit.

Mr. Hott also indicated at trial that he encountered challenges with the NASA personnel

that he worked with more closely. Regarding Pat Bright, he testified at trial:

Pat was very cordial, initially, and Pat, we had very good access, all the

records, and we had a nice place to do our work. She was certainly reluctant

to accept any kind of a claim which is understandable because it's on her

watch. However, when claims that were very clear were being presented

and turned down with denials, without discussion and review on the merits

of the claim, it caused unusual amounts of time of research and of further

discussion with trying to get meetings with others to try to get the claims

39

understood and processed. There was a reluctance to have those kinds of

discussions and meetings and there was a lot of talk about, well, we don't

do it that way. We don't file those kinds of claims against our customers.

From his trial testimony, however, it appeared that most of the challenges Mr. Hott

faced were with Ms. Boeckel. Mr. Hott testified regarding Ms. Boeckel:

June Boeckel, who was Pat's supervisor, was very reluctant to accept or

approve claims and would create argumentation on the claims that had

nothing to do with the merits of the claims themselves, again causing

unusual time delays, especially when you consider the fact that we would

turn in a claim and it would be weeks or months before we would get the

information back. This caused a severe time problem because we continued

to try to work under one scenario and knowing full well that we would have

to go back and go through all of the claims, all of the contracts again and all

of the payments again.

Mr. Hott explained that he was willing to do the work again, “[b]ut the delay of the

claims, and delay and the like of interchange of information back and forth, which we

would normally be accustomed to in a recovery audit, caused considerable, considerable

time delays.” As a result, Mr. Hott testified that “the time delays made it virtually

impossible, and the stumbling blocks that we ran into made it virtually impossible to

complete the audit on a timely basis, because too much work was doubled and redoubled

and redoubled again, unfortunately.”

As explained above, Ms. Boeckel also relied on the guidance in the McIntosh email

to deny all claims based on interest on overpayment if they were cost-type contracts or if

the claims were based on contracts with provisional rates which were included in the A-

D framework. Even before the guidance from NASA headquarters, Johnson was not

moving quickly to resolve plaintiff’s submitted claims. For example, regarding claims for

cost rate adjustments, Ms. Boeckel testified on direct examination with plaintiff’s counsel:

Q. Now you see the email from Ms. Lile to you on June 28th, 2006 here?

A. I see it.

Q. And she indicates, I believe, that as of the end of now, June 2006, the

issue of claims on cost rate adjustments was still not resolved. Is that fair?

A. I'm reading it.

Q. It's right after the $7,500 number, the remaining claims relate to cost rate

adjustments which is still not totally resolved.

A. Correct.

40

Q. So it's true, as of June 2006, the issue of whether these types of claims

on the cost rate adjustments could be approved or not?

A. Correct.

Q. And you were in a holding mode on these claims at this time, correct?

A. Correct.

Q. And would it be fair to you to characterize your knowledge at this point

that based on the fact these claims were in A. holding pattern that they were

in fact continuing to stack up at this time?

A. If he was still doing, if he was still working on them I assume that they

would be, which, whatever ones he had worked up would be on hold.

Q. And that means they hadn't been resolved one way or the other?

A. Correct.

Moreover, Mr. Hott testified that at the end of the contract, he had submitted a

number of claims that were not yet acted upon to NASA. Mr. Hott indicated that

initially they were -- and weeks before that or months before that they were

allowing the claims to stack up. And when the stacks got too high on Pat

Bright's desk she asked me to hold them in my office, and we had three

desks full of claims that were not being reviewed. And then eventually she

started reviewing them and giving us, giving them back to us with a denial

by, she had created a cover sheet which was with the A-B-C-D, and then

began circling those as she felt that they applied to that particular claim.

At trial, plaintiff’s counsel also referred Mr. Hott to a September 11, 2006 email he

received from John Beall which stated in part:

This past week we did receive a list of the JSC [Johnson Space Center]

claims you submitted to Headquarters for recovery consideration. We also,

as I believe you know, received a reminder from Headquarters that we do

not normally request refunds on the following type contracts:

a. Open contracts that are subject to final audit at close-out.

b. Contracts with provisional rates that are pending audit by DCAA.

c. Contracts with provisions for advanced payments for non-profit

organizations that .conduct experimental or research and development

work.

41

d. Contracts which authorize progress payments.

We also, apologize for any delay in reviewing the claims as we waited for

clarification from Headquarters. Now that we have the clarification we are

in the process of reviewing the claims and will provide feedback as soon as

possible on our findings. Please keep in mind that if any of the claims

submitted fall into the above categories we may not be approving them for

recovery. Thanks for your patience and understanding. I look forward to a

successful completion of this recovery effort.

Mr. Hott had the following exchange with plaintiff’s counsel at trial regarding the email:

A. That's when I was notified that JSC [Johnson Space Center] and

headquarters were recommending that our claims not be processed on

open contract items for the A-B-C-D reasons.

Q. Well, you see the A-B-C-D on this document?

A. Yes, I do.

Q. Okay, are those the A-B-C-D reasons you're referring to?

A. Yes, they are.

Q. What was your understanding was the origin of that list and what it

meant?

A. The origin of the list came from headquarters as I understood it. How it

was developed I don't know exactly, but what it meant was our efforts of a

year and a half would be relatively useless.

Mr. Hott also testified that “I had no idea that it [the list] was being sent to headquarters,

but the corporate office of Horn was responsible for sending information into the

contracting officer on a periodic basis, as I understand it. I'm not sure what they were

sending them.” Furthermore, plaintiff’s counsel had the following exchange with Mr. Hott

about the email:

[Q.] If those types of contracts were not to be approved, claims on those

types of contracts, is that what was causing you concern?

A. Extreme heartburn. Yes, sir.

Q. And again, why would that cause you heartburn?

42

A. We would have a lot of our efforts over a year and a half, all the claims

that we would have written, 98 percent of the dollar value would be wiped

out and we would receive no revenue for our efforts for a year and a half.

Q. Before September of 2006, and this is about two weeks before the end

of the contract period, what notice did you have that you were limited to

fixed- price contracts in your review at the Johnson Space Center?

A. The only definitive -- I didn't have anything definitive. I had discussions

from June Boeckel and Pat Bright and Marilyn Sampay in June, and of

course in that period on through July and August and September we did not

have anything definitive until this memo came down from John Beall. And

at that point I did not consider it definitive even at that time.

Defendant responds to plaintiff’s arguments about the audit at Johnson by arguing

that although

Mr. Hott testified as to claims ‘stacking up’ at Johnson, and Horn relies upon

that testimony heavily in its brief, the evidence at trial previously noted

proves that a major cause of any such delays was Mr. Hott’s own

aggressive and repeated submission of meritless claims in areas (notably

cash discount and interest) where he had been unequivocally informed by

the agency that his approach to the recommended debts was contrary to

Federal law and Government contracts practice.

(internal citation and footnote omitted; emphasis in original). Therefore, defendant argues

that “[h]aving created or substantially contributed to the alleged review and processing

problem, Horn should not be heard to complain.”

Goddard

The center with the most claims identified by Horn & Associates in the audit was

at Goddard. As Mr. Farrar, one of the principals of Horn & Associates, testified, prior to

the beginning of the audit, “Goddard was designated as one of the biggest centers and

certainly one of the bigger opportunities that we had.” As explained above, only one claim

at Goddard was approved and processed by NASA, which was the SGT Inc. claim, for

$1,163.44 dollars, despite the 223 claims submitted to NASA for review by plaintiff during

the course of the audit.

Initially, the auditor on site at Goddard for Horn & Associates was Maggie

Baumbach. In addition, Ivan Sherman worked part-time at Goddard with Ms. Baumbach.

Ms. Baumbach begin work at Goddard in September 2005. At Goddard, Jon Wolz was

Deputy Chief Financial Officer for finance, and for the recovery audit, Mr. Wolz delegated

the review and approval process to Sandra Brown.

43

Mr. Farrar offered testimony that three months after arriving at Goddard, Ms.

Baumbach “was becoming very frustrated because she was having an extremely hard

time getting her claims presented. And at that point, she -- I don’t believe she had any

claims processed, and certainly none collected,” and that “nobody would meet with her.”

Mr. Farrer visited Goddard himself in December and testified that:

[W]e were still having the same issues, meaning that Maggie was still

generating claims, she was having an extremely hard time getting meetings

set up to present those claims. So I flew out there to both do training with

Maggie in addition to trying to set meetings up to possibly review the claims

while I was there. I personally tried to set meetings up with John Wolz . . .

the DCFO at Goddard. I tried to set meetings up with him. I tried to set

meetings up with his assistant who he referred us to occasionally, and I

can't remember his last name, but it was Tim[53] somebody. And Sandra

Brown. I never could get a meeting set up with Wolz or Tim, but I did run

into Sandra in the hallway and told her that we were having problems getting

the claims presented. She said that she would meet, she wasn't available

to meet with me while I was there, but she would meet with Maggie the

following week.

At trial, Ms. Baumbach discussed with plaintiff’s counsel one claim in particular that she

believed had merit, and the process at Goddard.

Q. So this duplicate payment took place on Christmas Eve 2003, right?

A. Yes.

Q. And you identified this two years later, in 2005.

A. Yes.

Q. It's still sitting there on the books.

A. Correct.

Q. And everybody agrees it's still there on the books.

A. Right.

Q. What happened next?

A. Well, then I guess I went to Tim Kelly to see if he would, see what we

can do next to pursue this, and then he suggested I talk to the contracting

officer even though it's purely a financial issue, it's not, I don't know, it only,

it's only finance that did this, that paid it twice. Anyway, so I met, I guess I

53 The individual was Tim Kelly.

44

met with the contracting officer and I think they couldn't just reverse it. I don't

know why they couldn't. I think the contracting officer can't really reverse

things. It would have to be your finance arm that would do that. I guess there

would be months that would go by. With this one I think it was a contracting

officer couldn't meet with me until like a month and a half later or something

because they were very busy with something. Sorry. I'm remembering this

in bits and pieces. So anyway, then after the contracting officer did have

time and agreed it was a duplicate payment, they still said but NASA owes

for other invoices so they're not sure what to do. I guess then after that I

think I would periodically bring it up with Tim Kelly and the finance people

to see what we can do. Can we try to resolve this in some way.

Q. What would they say?

A. They didn't -- I guess I never got a outright no and I never got a outright

yes. It would just sort of shift around, like maybe go talk to this person. It

just seemed to get lost and nobody coming out with a decision or how to,

when to pursue it as a bill of collection.

Q. When you stopped working on the NASA audit in May of 2005, had this

claim been collected?

A. No, it had not. It was very frustrating to me that such a black and white

claim had not been collected or even forwarded to a point where it would

initiate the collection of it.[54]

After eight months of working at Goddard on the recovery audit, Ms. Baumbach

left her position as plaintiff’s auditor for the Goddard recovery audit, claiming that “I

couldn’t afford to continue with no income. I had been months and months at this and we

had, nobody had a claim that was in the channel to be paid, to be collected from the

vendor, and so that was a big factor.” Ms. Baumbach continued: “And that NASA, that it

was so frustrating to not be able to get claims that were agreed to processed. It seemed

pretty dismal that I would be making any money. When I started I had high hopes that

there would be a nice audit here and that I'd have a decent string of income from it, but it

just wasn't panning out because claims were not being processed.”

54 In a footnote to its post-trial brief, plaintiff notes, “in 2009, more than two years after the

Recovery Audit ended, and after this lawsuit was filed, Goddard did collect the

$481,219.30 duplicate payment back from the vendor, although NASA has not paid Horn

its 13.5% contingent fee.” (emphasis in original). Plaintiff concludes: “It goes without

saying that NASA’s denial of a valid duplicate payment claim during the Recovery Audit,

and then subsequent collection of the same without compensating Horn, is a clear breach

of the express terms of the Contract and the duties of good faith and fair dealing.” The

court addresses plaintiff’s allegations of the breach of the duty of good faith and fair

dealing below.

45

In an email dated April 17, 2006, to Mr. Lowery, Mr. Farrar, and Jennifer Harris,

another Horn & Associates employee, Tom Horn explained that he spoke with Ms.

Baumbach and she indicated that it was “just too hard and doesn’t want to be the front

person. I told her we were staffing the place with more people and that we would have a

good person to handle the communications . . . and give guidance if she wants to continue

to help us, but she pretty much declined.” The email indicated, however, “[t]his actually

may not be all bad as she seems to be willing to help us with the outstanding items (so

she can get paid) and help with a smooth transition to the new guys.” The email from Tom

Horn to Mr. Lowery, Mr. Farrar, and Jennifer Harris continued, “It does not sound like she

has really audited that much at Goddard. She said she did a few contract reconciliations,

looking mainly for dups [duplicate payments] and believes she has only skimmed the

surface. She hasn’t looked at possible interest claims, or for that matter, a lot of other

claim types which may or may not be there.”55

Subsequently, in May of 2006, three auditors replaced Ms. Baumbach: Dan

Lizana, Steven Smith and Marie Beckey. Mr. Lizana indicated that once he arrived at

Goddard, “the two individuals that I recall and we were introduced to, the points of contact

was [sic] Yvette Blackwell -- she was the Supervisor for the examiners and she was our

point of contact -- and that week we were introduced to Sandra Brown, who was her

superior, who was going to be responsible for denying and accepting the claims.” Plaintiff

also points to an email sent by Mr. Wolz on May 10, 2006 to John Blair and Melvin

DenWiddie, in which Mr. Wolz states: “Jack/Melvin: Tom Horn wants to meet with me and

my staff next week for 30 minutes. At this time, I don’t know how much longer they plan

on being here. I’d like for them to leave.” Mr. DenWiddie testified on direct examination:

Q. Do you recall Mr. Wolz expressing that he would like the Horn associate

audit team to leave Goddard Space Flight Center?

A. Yes, many times. I'm surprised that he decided to put it in writing.

Q. You said many times, what do you recall being the reason Mr. Wolz

wanted Horn and Associates to leave?

A. Mr. Wolz, the Goddard Space Flight Center had several incidences of

improper payments. So Horn and Associates were not necessarily favorites

at the Goddard Space Flight Center because there were many opportunities

to find payments that had been made improperly.[56]

Like Ms. Baumbach, Mr. Lizana felt frustrated at NASA’s handling of Horn & Associates’

claims, although he did testify that Ms. Brown was frequently available for meetings. Also,

55 As indicated from Ms. Baumbach’s testimony, quoted above, she was frustrated that

she could not get claims approved or processed by NASA personnel and had difficulty,

at times, even meeting with NASA personnel.

56As indicated above, only one claim was approved and processed by NASA at Goddard

during the recovery audit.

46

despite his frustrations, Mr. Lizana worked on the Goddard recovery audit until the end of

contract performance. Mr. Lizana testified, however, that there was often not resolution

of the claims. He testified on direct examination:

So when we present a claim, and in this case we mostly present it to Sandra

Brown. When we sit down, we have all the information. And we're looking

for a response that explains anything that's a technicality, anything that

requires us to go get information, all right, anything that perfects the claim.

So we're saying, okay, your feedback is helpful because we will know how

to segment these claims and how to prepare them in a way that allows you

to make a very binary decision, yes or no, approved or denied.

After this process, when asked if the claim was approved or rejected, he testified:

Rejected, no, not outright rejected during the recovery audit, meaning the

time that we were at the facility, no.

Q. Okay. So if it wasn't accepted or outright rejected during the period you

were at the site, what did happen during the period at the site?

A. Well, we provided these claims. And essentially, as I said, we wanted a

yes or no decision, all right. What is it that I need to provide for a yes or no

decision?

Mr. Lizana testified that it would have been helpful to have an answer, even if the answer

was no. He indicated without that,

it left us in limbo, because it wasn’t a rejection and it wasn’t approval. You

can learn a lot from rejecting a claim. If you reject a claim on the technical

details, it teaches me, at least as an auditor, okay, these are the things I

need to be concerned with from a technical point of view. But if you just

reject a claim outright for something that really was nebulous in our

understanding, it wasn’t instructful -- it didn’t provide us instructions to go

back and say, hey, this is what we should be doing. And so it was kind of

frustrating because you have these responses that really didn't allow us to

be more efficient in the way that we presented the claim.

Mr. Lizana also had the following exchange with plaintiff’s counsel about presenting

claims:

Q. Does anyone at Goddard Space Flight Center, when you would present

a claim that included overpayments during the audit period and

overpayments prior to the audit period or after the audit period, did anyone

at Goddard Space Flight Center tell you that was beyond your scope? You

should remove those and only focus on the period in the audit?

47

A. At the time of us presenting the claim, no. They didn't bring that up as an

issue at the time it presented it.

Q. If someone had brought that up as an issue, would you have complied

with those wishes and removed those and reformatted the claim?

A. Absolutely.

In addition, Mr. Lizana testified, even when he was given a reason, it was one that often

did not make sense to him. For example, according to Mr. Lizana, one claim “was not

outright rejected. But our explanation was NASA was not interested really in pursuing this

claim because this was a cost type contract and DCAA [Defense Contract Audit Agency]

will check it at close-out.” Mr. Lizana said he was also provided the following explanations

for not approving the claims by Goddard:

The response was mostly this is a cost reimbursable contract, and we can't

go back for this because it’s that contract. And therefore we don't recognize

this as being a contract that Horn should be doing recoveries on. In addition

to that, you also at times you heard the excuse of, okay, this is DCAA, they’ll

catch it, what have you. And so those were mainly the responses that we

would get from most of our claims that we presented.

As indicated in an email from Ms. Brown to Mr. Lizana:

My position remains that until either Procurement and/or DCAA determines

that Swales [& Associates] has violated their contractual agreement with

NASA Goddard, I am at no liberty to act upon your claim. Validation of your

claim has to be supported in conjuction [sic] with the audit/findings of

Procurement and/or DCAA.[57]

In light of the foregoing, plaintiff argues that “[b]y not approving or denying recommended

debts, Ms. Gardin [Brown] not only breached the express terms of the Contract to validate

the recommended debts in a reasonable time, but also breached the duty to cooperate

57Mr. Lenck, the Deputy Chief Financial Officer at Kennedy, discussed below, testified

about the role of DCAA in NASA’s contract process:

In cases where NASA is the administrative contracting officer, the Defense

Contract Audit Agency will issue an audit report to the administrative

contracting officer and then the administrative contracting officer for NASA

will actually use that as a guide in negotiating the rates with the contractor.

We are not required to accept all of the DCAA recommendations. It's a

negotiation process. But we certainly use it as a guide and I will tell you if we

don't use a recommendation they make, we will document the files as to why

we did not use the rates the Defense Contract Audit Agency recommended.

48

and the duty not to hinder.”58 Plaintiff also argues that “Ms. Gardin also did not provide

the Horn auditors with information they requested that was necessary to complete the

Recovery Audit and to perfect the recommended debts.”

In response, defendant first concedes that “there were specific problems with

review at Goddard,” and that “Goddard was slow to evaluate claims, and, at or near the

end of the audit, denied Horn’s overwhelmingly meritless claims for reasons that were

inconsistent with the terms of the Horn recovery audit contract.” Defendant notes that Ms.

Brown

testified that she did not initially understand that Horn’s contract provided

for an audit of all contracts. Thereafter, Ms. Gardin and Goddard Deputy

Chief Financial Officer Jon Wolz took the view that, based upon their

interpretation of guidance issued by the Office of Management and Budget

(OMB),[59] cost contracts should be excluded from Horn’s review,

notwithstanding the terms of Horn’s contract, unless the alleged

overpayment involved “[a] true duplicate payment on an invoice” or “a

mathematical error possibly.” Ms. Gardin was also of the view that OMB

guidance did not address Horn’s attempt to assess interest on

overpayments (again, notwithstanding the terms of Horn’s contract). Claims

on cost contracts and for interest were denied accordingly.

(internal citations omitted).

In addition, years after the audit, the Department of Justice informed the court, and

plaintiff, that it believes that14 claims identified and submitted by Horn & Associates at

Goddard were valid, and another 2 claims were partially valid. During the period of

58As noted above, in between the time of the recovery audit and the testimony at trial,

Sandra Brown changed her name to Sandra Gardin. The court refers to her by her name

during the recovery audit, Ms. Brown.

59 Plaintiff argues that:

[U]nbeknownst to the Horn auditors until the last few days of the Recovery

Audit, the Goddard officials charged with reviewing and validating

recommended the debts had reached the conclusion on their own that the

scope of the Recovery Audit as set forth in the Contract was inconsistent

with the U.S. Code and guidance from the Office of Management and

Budget (“OMB”) and, therefore, was “illegal.” On that basis, at the

conclusion of the Recovery Audit the officials at Goddard approved only

three recommended debts submitted by Horn auditors and denied tens of

millions of dollars of recommended debts that had been written on cost-type

contracts and contracts with provisional rates.

Plaintiff also contends that “[t]he Government now concedes that it breached the Contract

to the extent it denied interest claims because they were written on open cost contracts.”

49

contract performance, NASA approved two claims, but only processed the one claim for

SGT Inc. The other claim, a different Aerospace Corp. claim, was approved for payment,

but not processed by NASA. Defendant agrees that these claims were: “(1) well grounded

and justifiable at the time they were submitted, and (2) denied by Goddard in error.”

Despite the foregoing, defendant argues, “Mr. Lizana and Mr. Smith, along with Ms.

Beckey, proved to be grossly incompetent auditors who, for reasons not reasonably

attributable to any action or inaction on the part of NASA, were incapable of performing

the work of the contract.” Defendant argues that the balance of the claims that were

denied by Goddard were proper and therefore, argues that NASA did not breach the

contract.

Kennedy

Brock Young was the primary auditor for the Horn & Associates recovery audit to

work at Kennedy. Mr. Young started the recovery audit at Kennedy in May 2005 and Mr.

Young continued to work on the Kennedy recovery audit until the end of contract

performance. Only two of the claims submitted to NASA at Kennedy were collected. The

main point of contact for Mr. Young was Sam Lenck, Deputy Chief Financial Officer for

Kennedy and Brenda Brooks, the Kennedy supervisor over accounts payable.

At trial, Mr. Young first expressed frustration with the data. He indicated on direct

examination with plaintiff’s counsel:

[A.] Well, you really can’t do an audit without the data. You can do some

things. I mean, you can look at the physical paper. Like with NASA, they

had paper for everything, so I could go and look at the contract, which is in

paper form, and even the transmittals, the payments in paper form. But until

you have the data you can’t really see what was actually paid. You can’t

see if you're missing any paper in the audit. You have to have the data to

actually do the final part.

Q. When did you receive usable payment data for Kennedy?

A. The data was received either the end of August, first of September 2005

range.

Mr. Lenck confirmed some of the issues with the Mr. Young and data at trial, testified on

direct examination that, referring to Mr. Young:

We attempted to provide anything he asked for. I know he was interested in

the electronic data, which we attempted to secure for him. It was a little

difficult and it was probably a little different at each center. When he came,

we were under -- our accounting system was SAP . . . those records were

still available, but the system was not operating. So I think our IT people

had to get the system back up and running in order to print out, get

50

electronic information for him, for the auditor. So that may have taken a little

time to do that.

Mr. Lenck, however, emphasized that “[t]he records were certainly made available to him.

We had records -- our accounts payable files would have included the purchase order or

the contract, in addition to all of the billings that the vendors or contractors had requested.

He would have certainly had access to those.”

Mr. Young also was frustrated by Mr. Lenck, who viewed his role as “to act as the

middleman between Mr. Young and the contracting officer, Ms. Solum.”60 Mr. Young

indicated that he first talked to Mr. Lenck and he would take the documents, “which would

be the contract file, the mods [modifications], and the invoices in question, and we'd go

through it in that form. And that's what I'd review with NASA is all the data with them so

they would have everything they needed to look at the claim.” After that, Mr. Young

testified,

I would typically never hear back from them. So what I thought was

happening was Sam was going to approve it and send it where it needed to

be sent, like to the vendor, things of that nature. Later on I found out what

he was really doing was he was facilitating the process, but he was leaving

it up to the contracting officers to approve. So then at that point, I was

assuming they were going to the contracting officers. The thing is I was

never getting anything back, so I don’t know what actually happened.

Plaintiff argues that “[b]y deferring to Ms. Solum to make the decisions about the

Cendant[61] recommended debts, Mr. Lenck abdicated the role assigned to him by the

Contract and placed approval of the Cendant recommended debts in the hands the

person who had a personal and professional interest in finding that she had not approved

overpayments.”

Mr. Young also explained an additional frustration with Mr. Lenck’s process:

[W]e called a meeting. In that meeting, we had Leslie Solum, we had

Leslie's boss, we had a legal representative as well there. Steve Chance

was the COTR, that's the Contract Officer Technical Representative is what

a COTR is, COTR. And then we had myself, Sam Lenck, Brenda Knox, or

Brenda Brooks was there, and I think one or two other people as well. So it

was a pretty big meeting. There's [sic] roughly 10 people in this meeting.

60 As noted above, Ms. Solum was a contracting officer for the contracts awarded at issue

at Kennedy, and not the contracting officer for the contract at issue in this case.

61As indicated in defendant’s post-trial brief, “Cendant was a relocation contractor that

would assist employees transferred to different NASA Centers by purchasing their homes

and providing related services.” Mr. Young submitted four claims regarding Cendant

during the recovery audit period.

51

We went through everything, decided that yes, there's definitely something

there and we were to pursue it.

Mr. Young testified, however, in response to the question, “what did you understand was

supposed to take place next?”

A. When I left that meeting, what was supposed to take place next was

Leslie Solum should have had it reviewed and sent out a letter to the vendor

to try to collect the money. The agreement was that yes, it looks like

something was there, so what was supposed to happen was she was

supposed to send the information to the vendor saying either explain to us

why it is not valid or remit the money.

Q. What actually did happen?

A. Nothing happened actually.

Q. What do you mean nothing happened?

A. Well, that was the last anything ever happened to it. I followed up with it

in January, mid to late January, to find out what had happened with it, where

were we. And at that point, that's when I was told that Leslie and Dawn

Oliver, the legal representative, was reviewing it and wanted to make some

changes. I didn't know that earlier. We would have took care of it earlier.

At trial Mr. Lenck explained his style to defendant’s counsel, indicating:

Based on my many years experience in that role -- when I first got there, I

thought I knew everything and could make decisions, boom, boom, boom.

The longer I was there, I realized that everyone has input. And even if it's

like three against one, that one person might be right. So let's hear

everybody's opinion and try to see what the facts are. And some people do

complain that NASA takes too long to make decisions, but that's why it takes

us some time. We want to assure ourselves that we have all the facts, not

just facts as told by one person.

Mr. Young expressed further frustration with the lack of action by NASA with

respect to the claims he submitted to NASA, one time referring to the process as:

I’d call it the abyss where all the claims went to and I never heard back from

them. So it was kind of like getting this area where I was left out standing

on okay, what do I do with this? Because it wasn't approved, it wasn’t

denied. It was just in this limbo of processing role, which didn't make sense

to me. And I would never hear back.

52

Mr. Young also provided a specific example of one claim, in an exchange with plaintiff’s

counsel:

Q. You submitted it to him, he agreed it was a good claim?

A. He agreed it was a valid claim at that point. So then I went back and

wrote it up.

Q. And that's what Exhibit No. 8 reflects, correct?

A. Correct.

Q. And what happened after you submitted this?

A. Well, after I submitted it I turned it in to Sam [Lenck] again as an official

claim at this point, and as the official claim, he was going to do what he did.

Now this would have been --

Q. Well, just tell me what he did. What happened with respect to this claim?

Did he approve it or not?

A. He did not approve it. He said it had to go to the contracting officer for

approval. And at that point, I don't know what happened to it. I never saw

the claim again until the very end when they were trying to wrap up the

audit.[62]

Plaintiff also points to the only two claims that were paid at Kennedy as evidence of the

reluctance of NASA to pursue claims. On cross-examination with plaintiff’s counsel, Mr.

Lenck testified:

Q. So am I correct in understanding from your testimony that Kennedy

Space Center never actually approved claims 2085 and 2056, right?

A. I would say more like we pocket approved it because we did not

disapprove it.

Q. Okay.

A. We just accepted the money and closed our eyes.

Q. Okay. But Kennedy Space Center did not send those two out for

collection, right?

62The description of this process repeated itself at trial in a dialogue with plaintiff’s

counsel, with Mr. Young referring to one example: “I don't know what happened with it. I

never saw it again, and so there was nothing for me to do with it. It was in this limbo land.”

53

A. No, we didn't.

Q. You got money notwithstanding that you didn't send it out?

A. Correct. And we're assuming it's correct. I never went back and looked.

Mr. Lenck also responded by plaintiff’s counsel’s question: “And none of the other claims

that Mr. Young submitted, with the exception of the Cendant claims, were ever actually

even sent out for collection; correct?” by answering: “Claims themselves, no.” Defendant

responds that “[t]he notion that the Government actually breached its contractual

obligation to review and validate claims by reviewing Horn’s claims closely through

multiple levels of evaluation is entirely absurd.” Defendant, argues, as with the other

centers, that the auditors, not the government personnel at Kennedy, were the problem,

indicating “[i]ndeed, Mr. Young emerged as a major contributor to delay due to the poor

quality of his initially submitted claims.” Plaintiff responds that “[e]ven if certain claims

submitted by Mr. Hott had been meritless, such submissions would not excuse Johnson

of its obligation under the Contract to timely review any recommended debt that Mr. Hott

presented.” (footnote omitted; emphasis in original).

Marshall

James “Chip” Edgerton, was the primary subcontractor for Horn & Associates to

work at Marshall. Initially, he employed two additional auditors to work with him, John

Crochet and Michael Mescher, with whom he had worked on pervious recovery audits.

His point of contact for the recovery audit was John Anderson, the Deputy Chief Financial

Officer for finance. Mr. Edgerton testified at trial that he began the recovery audit in June

2005 with Mr. Crochet and Mr. Mescher, but after a week, Mr. Crochet did not return

because “[t]here was never enough work for three people,” and Mr. Masker worked for

two or three weeks a month for the rest of 2005, but did not return in 2006 because “[w]e

didn’t have enough complete files to audit.” Mr. Edgerton also indicated that he frequently

had to request documents again and again. Mr. Edgerton left Marshall at the end of May

2006, with the intention of returning once

it was worked out of how to get the complete files, then we could ramp it

back up, bring in either Mike [Mescher], Jack [Crochet] and myself or bring

in some, if we had other audits going on right then we couldn’t drop those,

so we would find other associates that we could use to bring in to help work

on the audit.

Mr. Edgerton, however, did not return to Marshall. When asked to summarize his

experience at Marshall, Mr. Edgerton indicated that “[t]hey were nice people, but . . . you

know, that they had their work to do and their work came first. And so our files came

second. So it was, you know, it was a -- it wasn’t a combative relationship, it's just that

their jobs came first and ours came second.” Specifically, regarding the files he requested,

typically from Ms. Becky Black, Mr. Edgerton indicated that “[o]f the files I requested I

54

probably received, maybe 60 to 70 percent of a complete file.” Mr. Edgerton explained at

trial why this was such an issue:

We didn't have enough complete files to audit. We were -- I was

continuously requesting documents or re-requesting documents. And some

of these files are, like balloon. They can be, the contract can be for three or

four years, five years, you know, ten years, and you would have 20, 30, 40,

50 folders, order folders, that relate to that. If you're missing one of those

order folders and you have something, you're missing a later audit folder

and you're looking at this audit folder and it says that there was a mistake

in payment, how do you know it wasn't corrected in that next one? If you

don't have it you can't determine that. So if you don't have the complete file

you can't do a complete audit.

Mr. Edgerton testified, regarding Mr. Alexander, although he was available to meet and

discuss the claims initially,63 “it got harder to find him or get in to see him,” and when he

did, there often was not resolution. For example, Mr. Edgerton discussed the process of

review for one claim on direct examination:

Q. So what was the outcome of this claim at the first meeting you had with

Mr. Alexander?

A. The additional research as to find out if NASA had these Dewars.[64]

Q. Did you present Mr. Alexander with that add

This text is long and has been trimmed here. Open the source document for the complete record.