RGCI - The Theory of Laches Does Not Apply Under Contracts Disputes Act

In the Lockheed Martin ASCBA Case 62209 Lockheed Martin Aeronautics Company April 13, 2022 Decision, the Board found that when there is a Congressionally established statute of limitation the “theory of laches” does not apply.

So, what is the Theory of Laches?

The “Theory of Laches” comes from the basic concept that the Courts will not assist a party in litigation that has not made a timely effort to assert their rights and assists only those parties that are aware of and vigilant about their rights. A party is said to be guilty of laches when they come to the Court to assert their rights after a considerable delay (i.e., passage of time). The underlying concept is the Courts should not examine stale cases, because the Court is there to assist a party that is vigilant and not indolent. The reasons for the delay if valid and reasonable may be accepted by the Court.[1]

In layman’s terms, you cannot sit on your claim against another party and place that party at a disadvantage in defending itself. This is often the case with the Government making a demand (i.e., Contracting Officer’s Final Determination) against a contractor after significant time has passed resulting in the contractor not having the personnel and documentation that was available to it when the issue occurred.

Actual Case

Yes, we know in this case the Government tried to press the theory of laches against the contractor. It is amazing how motivated the Government can get when faced with a claim for $143M. The case involved a $143M claim by Lockheed Martin against the Air Force for work outside the original scope (i.e., over and above) of upgrades to C-5 Galaxy aircraft.

Our Takeaway

As a contractor even if you have an extended period thanks to a statute of limitation, you should take action on any claims, request for equitable, or disagreement with a Contracting Officer final decision as soon as possible. While under FAR 52.233-1 the contractor has 6 years from the Government’s action to submit a written and certified claim, waiting is never a good idea. Additionally, once you receive a Contracting Officer final decision you have 90 days to appeal to ASBCA and 12 months to appeal to the Court of Federal Claims.

Remember under the Changes Clauses at FAR 52.243, for the most part, the contractor must assert its right to an adjustment under the clause within 30 days from the date the contractor receives the Government’s written change order. Once the Government affects a change through its actions, written or not, the contractor needs to be as timely as possible in putting the Government on written notice that the contractor plans to submit a request for equitable adjustment. Do not wait for everything to support the issue. Additionally, if the Government did not put its action/change in writing submit your written request to the Government for such written direction. If you believe the Government took an action that created a material increase in cost to the contract, put the Government on notice in writing and update as more facts and circumstances become available.

Many small businesses encounter the Government making technical package changes to fixed priced contracts that the Government professes are minor in nature. While we are not saying this is a common practice, it does happen. The risk to the contractor is that the date of the technical change starts the FAR 52.243-1(c) 30-day clock for the contractor to assert its right to an adjustment under the clause. We suggest that, unless you are sure the cost impact of any change is immaterial, the contractor send a written notice to the contracting officer asserting its right to an adjustment for any change and then start the process of determining the impact. It stops any legal battle over the 30-day limitation and if you later inform the Government the cost impact was not material – no harm no foul.

Redstone GCI assists contractors throughout the U.S. and internationally with understanding the Government’s expectations and supporting contractors from contract award to contract closeout. We would be happy to be part of your team

[1] Paraphrased from BYJU’S Exam Prep website (Doctrine of Laches - Meaning, Importance, Case Examples for UPSC. (byjus.com))

Contact Us for a Consultation

Written by John C. Shire, CPA

John C. Shire, CPA John is a Director with Redstone Government Consulting, Inc. providing government contract consulting services to our clients primarily related to the DFARS business systems, CAS Disclosure Statements, and DCAA/DCMA compliance preparation, advisory, and defense. Prior to joining Redstone Government Consulting, John served in a number of capacities with DCAA/DCMA for more than 30 years. Upon his retirement, he was based in Texas as an SES-level Corporate Audit Director for DCAA, managing a staff of 300 auditors at one of the largest DOD programs. Professional Experience John began his career in the late 80s working in the Clearwater, FL audit office and over the next three decades he progressed through a number of positions within both DCAA and DCMA with career highlights as DCAA Program Manager at Ft. Belvoir, Chief of Technical Programs Division, Deputy Assistant Director-Policy, Director of the DCMA Cost and Pricing Center, the SES-level Lockheed Martin Corporate Audit Director, and Director of Integrity and Quality Assurance. John’s three decades of experience in performing and leading DCAA auditors and DCMA reviewers provides a wealth of expertise to our clients. John’s role, not only in the performance of audits, but also in the development of audit policy affords him unique insights into the defense of audit findings and the linkage of audit program steps to the underlying regulatory framework. He is an expert in FAR, DFARS, and other agency acquisition regulation, as well as a subject matter expert in the Cost Accounting Standards having reviewed and provided audit feedback on many of the largest and most complex cost accounting practices during his tenure with the DCAA. John’s tenure with DCAA and DCMA came at a critical time during each agency’s history where a number of changes were occurring such as the response to the ICS backlog, development of audit approaches to the DFARS Business Systems and implementation of new audit initiatives as a result of Congressional oversight through the NDAA process. John’s leadership at the DCMA Cost & Pricing center saw oversight of all major DOD pricing actions, leadership of should cost review teams, the Commercial Pricing group and many other areas of strategic value to our clients. His involvement in these and other Agency initiatives is of great value to our clients due to his in depth understanding of DCAA and DCMA’s internal policy directives. Education John holds a Master of Business Administration and a B.A. in Accounting from the University of South Florida. Certifications Certified Information Systems Auditor State of Alabama Certified Public Accountant

About Redstone GCI

Redstone Government Consultants are a team of the most senior industry veterans and the brightest new talent in the industry. Many have held senior government positions including leadership roles in the DCAA. Our new talents bring significant accounting and software experience along with fresh perspectives, inspiration and energy to our team. Through our leadership and combined experience, we provide a unique perspective, bringing both government and contractor proficiencies to bear and ensuring rock-solid government compliance for our clients.

Topics: Defense Contractors, Government Regulations, Federal Acquisition Regulation (FAR)