GAJARSA, Circuit Judge.
The issue before the court is whether Raytheon Co. was required to pay interest to the Government for a potential violation of Cost Accounting Standard 413 ("CAS 413"), 48 C.F.R. § 9904.413. The Government appeals from a decision of the Armed Services Board of Contract Appeals ("Board"), which held on summary judgment
This appeal relates to certain contracts between Raytheon and the Government.
48 C.F.R. § 52.230-2(a) (the "CAS clause").
One type of cost that was allocable to the contracts at issue related to Raytheon's defined-benefit pension plans for its employees. See 48 C.F.R. § 9904.412-40(d); 48 C.F.R. § 9904.413-40(c). Defined-benefit plans guarantee fixed payments to retired employees, leaving the company responsible for ensuring that sufficient funds will be available. Companies therefore must make assumptions regarding, inter alia, the amount of money they expect to pay in the future, and the expected performance of the investments held by their pension plans. Based on these assumptions, companies determine how much money to invest in the plan in a given period so that future liabilities will be met. Because these contributions to the pension fund are part of the cost of doing business with the contractor, in the case of cost-type contracts they are paid, in part, by the Government. 48 C.F.R. § 3.205-6(j); see also Allegheny Teledyne, Inc. v. United States, 316 F.3d 1366, 1370 (Fed.Cir.2003).
The CAS provide rules for the appropriate determination of pension costs allocable to a particular business segment and to individual contracts within that segment. See 48 C.F.R. § 9904.412-40(d); 48 C.F.R.
Here, Raytheon sold two of its business segments that had performed work on CAS-covered Government contracts. In 1998, Raytheon sold Montek Aerospace to Moog Inc., but retained all of the pension assets and actuarial liabilities. It is undisputed that this constituted a segment closing. Approximately two years later, Raytheon informed the Government that it had calculated a pension surplus as of the date of the segment closing. The contracting officer asked Raytheon to calculate the Government's share of the surplus (i.e., the segment closing adjustment). After several years of calculations, re-calculations, and disputes, Raytheon eventually agreed that the Government's share was $487,305. On August 30, 2004, the Government then requested that Raytheon pay the adjustment. Because CAS 413-50(c)(12)(vii) refers to an adjustment in the period of the segment closing, the Government viewed the debt as due in 1998, and therefore also demanded simple interest on the amount due dating back to the initial segment closing. On September 21, 2004, Raytheon submitted a check for the segment closing adjustment, but refused to pay interest.
In 2000, Raytheon sold Raytheon Engineers and Constructors ("REC") to Washington Group International, but retained the pension assets and liabilities. This sale also constituted a segment closing. Raytheon informed the Government that there was a pension surplus, and calculated the Government's share at $4,935,197. The parties disputed the appropriate amount of this share for some time, and eventually settled on a Government share of $14,681,268. On August 31, 2004, the Government requested payment of the calculated adjustment, as well as simple interest on that amount dating back to the segment closing. On September 21, 2004, Raytheon submitted a check for the segment closing adjustment, but refused to pay interest.
The dispute here stems from Raytheon's failure to pay interest on the amounts owed under CAS 413-50(c)(12) for the period between the segment closing and the date of payment. The contracting officer
Raytheon appealed to the Board, which initially granted summary judgment to the Government. Raytheon Co., ASBCA No. 54907, 07-2 BCA ¶ 33,655 (Aug. 21, 2007) ("Original Decision"). In its Original Decision, the Board held that CAS 413 requires a current period adjustment (i.e., a payment or credit in the period of the segment closing) and that Raytheon had failed to timely make the adjustments. Id. at 18. It also held that "where there is a pension surplus, it follows that unless and until appellant timely provides this current period adjustment to the government as a credit or otherwise as required by CAS 413, the government has paid increased costs." Id. Thus, the Board found that Raytheon's "CAS non-compliance, i.e., its failure to timely `settle up' with the government as required by CAS 413, resulted in increased costs paid by the United States," id. at 19, and that Raytheon was consequently liable for interest under the CAS clause, id. at 23. The Board held that the appropriate interest calculation involved daily compounding because the statute which dictated the terms of the contract, 41 U.S.C. § 422(h), determines the interest rate by reference to 26 U.S.C. § 6621, which necessarily implicates the compounding methodology found in § 6622. Id. at 23.
Raytheon petitioned for reconsideration, and the Board changed its decision. Raytheon Co., ASBCA No. 54907, 08-1 BCA ¶ 33,859 (Apr. 28, 2008) ("Final Decision"). In its Final Decision, the Board determined that its initial finding of noncompliance with CAS 413:
Id. at 2. Rather than vacate its order, however, the Board granted summary judgment to Raytheon on the theory that the segment closing adjustment contemplated by CAS 413 "did not result from a CAS violation . . . which is what the CAS statute and CAS clause require in order for appellant to be liable for a contract price adjustment and interest under these provisions." Id. at 2 (emphasis altered). Without this "cause and effect relationship" between the CAS violation and the adjustment, the Board determined that the "interest provisions under the CAS statute and CAS clause have no application under the facts of this case. Accordingly, the government is not entitled to interest under the CAS statute and the CAS clause." Id. at 3. The Government appealed, and we have jurisdiction pursuant to 28 U.S.C. § 1295(a)(10).
We review decisions of the Board as set out in 41 U.S.C. § 609(b). On questions of law, our review is de novo. Reflectone, Inc. v. Dalton, 60 F.3d 1572, 1575
In general, a contractor must adjust the contract price to correct a CAS violation if (A) the Contractor fails to comply with an applicable Cost Accounting Standard, and (B) such failure results in any increased costs paid by the United States. 48 C.F.R. § 52.230-2(a)(5). The CAS-clause adjustment provides for the payment of interest, but otherwise limits the Government's recovery to "the increased cost to the Government, in the aggregate, on the relevant contracts subject to the price adjustment." Id.
A. CAS Noncompliance
On the undisputed facts, it is clear that Raytheon violated CAS 413. The Board stated that the existence of a CAS violation was unclear because the record did not reflect the accounting treatment used to allocate Raytheon's segment closing adjustment. The accounting treatment, however, is not the relevant consideration. CAS 413-50(c)(12)(vii) provides, as noted above, that the segment closing adjustment must be allocated to the period in which the segment was closed. It further provides that contract prices must be "adjusted accordingly." CAS 413-50(c)(12)(vii). The requirement that contract prices be "adjusted accordingly" indicates that, as the CAS Board's promulgation comments state, "[u]nder this final rule, the [CAS 413-50(c)(12)] adjustment is determined as a current period adjustment." 60 Fed.Reg. 16534, 16539 (Mar. 30, 1995); see also Allegheny Teledyne, 316 F.3d at 1382-83 (holding that the prior version of CAS 413 requires a current period adjustment).
The conclusion that CAS 413 requires a current period adjustment (i.e., payment in the current period), rather than simply dictating the appropriate accounting treatment for the adjustment, is further supported by the treatment of an ongoing contractual relationship between the parties. Specifically, CAS 413 provides that "if the contractor continues to perform Government contracts, the contracting parties may negotiate an amortization schedule, including interest adjustments." CAS 413-50(c)(12)(vii) (emphasis added). Thus, the rule explicitly requires interest in the event that the segment closing adjustment is credited to the Government over time. This requirement is inconsistent with Raytheon's contention that CAS 413 requires only an accounting allocation to the current period, rather than payment in the current period, and demonstrates that the CAS Board intended for the adjustment to be due in the period of the segment closing.
The record here is clear that Raytheon closed its Montek segment in 1998, and its REC segment in 2000. It is equally clear
B. Increased Costs to the Government
The Board was incorrect in holding that Raytheon's CAS violation did not cause the Government to pay increased costs.
The Government's payments to Raytheon during the periods in which the segments were closed are the relevant payments for determining the applicability of CAS noncompliance interest. This court has held that, while CAS 413 looks to past contracts in measuring the amount of the required segment closing adjustment, the adjustment itself is implemented through contracts open during the period in which the segment is closed. See Allegheny Teledyne, 316 F.3d at 1373 (affirming the Court of Federal Claims' holdings concerning a prior version of CAS 413 that "the amount of the adjustment that is recoverable depends on the . . . contracts under which the costs were paid" and that "the adjustment is effectuated in the current period, meaning it may be recovered under any flexibly-priced contract that remains open during the year of the segment closing"). This is so because CAS 413-50(c)(12)(vi) provides that the segment-closing adjustment "may be recognized by modifying a single contract, several but not all contracts, or all contracts, or by use of any other suitable technique." Because CAS 413-50(c)(12) contemplates adjustment to any or all contracts that are open during the period of the segment closing, it is on these open contracts that the Government has paid increased costs. That is, during 1998 (for Montek) and 2000 (for REC), CAS 413-50(c)(12) required that Raytheon adjust the prices of its open contracts. Raytheon did not do so. Thus, the Government overpaid on those contracts open during 1998 and 2000, and that overpayment was a result of Raytheon's failure to properly credit the segment closing adjustment in those periods as required
Raytheon argues that we should consider only "relevant contracts impacted by the noncompliance," which Raytheon appears to interpret as the contracts under which the pension costs were collected. Raytheon argues that these are the only contracts that should be considered because the CAS statute prohibits the Government from recovering more "than the increased cost (as defined by the Board) to the Government, in the aggregate, on the relevant contracts subject to the price adjustment." 41 U.S.C. § 422(h)(3); see also 48 C.F.R. § 52.230-2(a)(5). Raytheon similarly argues that each contract to which pension costs were allocated must be separately analyzed. With respect to most CAS provisions, Raytheon would be correct that each affected contract would be considered individually. See 48 C.F.R. § 52.230-6(b)(3) (Feb.1995) ("Cost impact proposals submitted for failure to comply with an applicable CAS . . . shall identify the cost impact on each separate CAS covered contract."). However, as the Board correctly stated in its initial decision (and reaffirmed on reconsideration), CAS 413 is unusual:
Original Decision at 19; see also Final Decision at 2. Thus, while Raytheon is correct that interest is available only after identifying increased costs paid on a CAS contract, the relevant contract payments are those made in the period of the segment closing—and those were clearly "increased" by the failure to credit the segment closing adjustment in the period required by CAS 413.
On remand, consequently, the only issue remaining will be the appropriate calculation of interest. In its Original Decision, the Board determined that "interest owed the government for a CAS noncompliance is to be compounded daily." Original Decision at 20. Raytheon argues that this is not the appropriate calculation, and that only simple interest is owed. The Board's initial analysis was correct.
Congress has set out the appropriate interest rate calculation for CAS violations at 41 U.S.C. § 422(h)(4). That section provides:
Thus, the statute establishes the interest rate by reference to 26 U.S.C. § 6621. Relatedly, 26 U.S.C. § 6622(a) requires that:
This court has held that statutes which require interest payments at the rate set out in § 6621 require compound interest. See Canadian Fur Trappers Corp. v. United States, 884 F.2d 563, 568 (Fed.Cir. 1989) (discussing 19 U.S.C. § 1677g). Accordingly, because the amount of interest owed under § 422(h)(4) is calculated using the rate set out in § 6621, our precedent requires that it be compounded.
In Canadian Fur Trappers, this court considered the appropriate methodology for calculating interest to be used in relation to 19 U.S.C. § 1677g. 884 F.2d at 568. That section, just like § 422(h)(4), is located outside of title 26, but makes reference to the interest rate set out in § 6621. The Court of International Trade held that "[u]nder 26 U.S.C. § 6622, any interest calculated by reference to § 6621 is to be compounded daily." Canadian Fur Trappers Corp. v. United States, 691 F.Supp. 364, 372 n. 4 (Ct. Int'l Trade 1988) (emphasis added). This court affirmed, stating that "[t]he clear meaning of [§ 1677g's reference to § 6621] is to start compounding interest" on the date § 1677g was revised to refer to § 6621. Canadian Fur, 884 F.2d at 568. While our opinion did not discuss § 6622, it could not have reached the holding it did without establishing that all statutory references to § 6621 necessarily incorporate the compounding methodology in § 6622.
Raytheon argues that § 6622 applies only when the rate in § 6621 is invoked by the tax code, or when a court awards post-judgment interest. Since § 422(h)(4) fits into neither category, Raytheon concludes that § 6622 does not apply. This argument is based on the language of § 6622, which applies to "interest required to be paid under this title [the tax code] or sections 1961(c)(1) or 2411 of title 28, United States Code [post-judgment interest]. . . or any other amount determined by reference to such amount of interest." Raytheon emphasizes that, if the language "any other amount determined by reference to such amount" is read to include § 6622's compounding methodology in all cases where a statute references the rate in § 6621, there would be no reason to include specific reference to 28 U.S.C. §§ 1961(c)(1) and 2411. Raytheon therefore concludes that this construction is impermissible under the principle that courts should avoid an interpretation that renders statutory language superfluous. See, e.g., United States v. Menasche, 348 U.S. 528, 538-539, 75 S.Ct. 513, 99 L.Ed. 615 (1955) (The Court will "give effect, if possible, to every clause and word of a statute" (quotation marks omitted)).
A second, closely related, point is that § 6622 requires compounding for an "amount of any interest required to be paid under this title or [two sections] of title 28 . . . or any other amount determined by reference to such amount of
Despite the appeal of Raytheon's proposed interpretation of § 6622, our prior decision in Canadian Fur Trappers forecloses that view. Raytheon presents no argument for distinguishing that case, and we see no basis for doing so. A statutory reference to § 6621 located in title 19 is not meaningfully distinct from one located in title 41 so far as § 6622 is concerned. If 19 U.S.C. § 1677g requires compounding, as we have held, then § 422(h)(4) must as well.
Raytheon also relies on the Truth in Negotiations Act ("TINA"), Pub.L. No. 99-500, § 952, as evidence that § 6622 does not apply in all situations where an interest rate is determined by reference to § 6621. Raytheon notes that TINA refers to § 6621, and is implemented via the FAR as a simple interest requirement. 48 C.F.R. § 52.215-10(d) ("[T]he Contractor shall be liable to and shall pay the United States . . . (1)[s]imple interest on the amount of such overpayment . . . at the applicable underpayment rate . . . prescribed by the Secretary of the Treasury under 26 U.S.C. 6621(a)(2)"). The obvious, critical distinction is that the FAR—and hence the relevant contracts—expressly refer to simple interest.
The CAS clause—which serves as the basis for the interest award—simply implements § 422(h)(4). See 48 C.F.R. § 52.230-2(a)(5). The CAS clause essentially mimics the statutory language, providing for an adjustment "together with interest thereon computed at the annual rate established under section 6621 of the Internal Revenue Code of 1986 (26 U.S.C. 6621)." The lack of any significant distinction between the CAS-clause and the statute it implements indicates that the regulation was intended to create the same interest liability contemplated by the statute—an interest liability that includes daily compounding.
For the foregoing reasons, we reverse the decision of the Board and hold that Raytheon is liable to the Government for compound interest under the CAS clause. We remand so that the Board may enter judgment for an amount of interest calculated in a manner consistent with this opinion.
REVERSED AND REMANDED