  United States Court of Appeals
      for the Federal Circuit
                ______________________

            SECRETARY OF DEFENSE,
                   Appellant

                          v.

     NORTHROP GRUMMAN CORPORATION,
                 Appellee

--------------------------------------------

     NORTHROP GRUMMAN CORPORATION,
                Appellant

                          v.

            SECRETARY OF DEFENSE,
                     Appellee
              ______________________

                 2018-1945, 2018-1990
                ______________________

    Appeals from the Armed Services Board of Contract
Appeals in Nos. 57625, 60190, Administrative Judge Rob-
ert T. Peacock.
                 ______________________

             Decided: November 15, 2019
               ______________________

    DANIEL B. VOLK, Commercial Litigation Branch, Civil
Division, United States Department of Justice,
2               DEFENSE v. NORTHROP GRUMMAN CORPORATION




Washington, DC, argued for Secretary of Defense. Also
represented by JOSEPH H. HUNT, ROBERT EDWARD
KIRSCHMAN, JR., PATRICIA M. MCCARTHY; ROBERT LYN
DUECASTER, Contract Disputes Resolution Center, Defense
Contract Management Agency, Chantilly, VA.

    DONALD B. VERRILLI, JR., Munger, Tolles & Olson LLP,
Washington, DC, argued for Northrop Grumman Corpora-
tion. Also represented by GINGER ANDERS; CHARLES BAEK,
STEPHEN JOHN MCBRADY, NICOLE J. OWREN-WIEST, Crow-
ell & Moring LLP, Washington, DC.
                 ______________________

    Before PROST, Chief Judge, BRYSON and REYNA, Circuit
                           Judges.
REYNA, Circuit Judge.
    The Secretary of Defense appeals a final decision of the
Armed Services Board of Contract Appeals finding that the
United States Government improperly disallowed certain
retirement benefits costs that Northrop Grumman Corpo-
ration asserts are eligible for reimbursement. Northrop
Grumman Corporation conditionally cross-appeals the
Armed Services Board of Contract Appeals’ finding that the
retirement benefit costs are unallowable under the appli-
cable regulations because they were calculated using an
improper accounting method. Because substantial evi-
dence supports the Armed Services Board of Contract Ap-
peal’s finding that Northrop Grumman Corporation never
claimed and will never claim any of the disputed retire-
ment benefits, we affirm and do not reach the cross-appeal.
                        BACKGROUND
             I. Post-Retirement Benefits Costs
    This dispute concerns Northrop Grumman Corpora-
tion’s (“Northrop”) accounting of costs for providing post-
retirement benefits (“PRB”).      PRBs are non-pension
DEFENSE v. NORTHROP GRUMMAN CORPORATION                    3



benefits that are made available to employees upon their
retirement. Examples of PRBs include post-retirement
health care, life insurance, disability benefits, and other
welfare benefits. Relevant to these appeals is that PRBs
can be modified or eliminated entirely, unlike pension ben-
efits which cannot be modified by the employer.
     The Federal Acquisition Regulation (“FAR”) 1 permits
contractors such as Northrop to seek reimbursement from
the federal government for its PRB costs. Only those PRB
costs that are “allowable,” however, may be reimbursed by
the government. Effective July 25, 1991, the FAR was
amended to add FAR 31.205-6(o), which governed allowa-
bility of reimbursement of PRB costs in government con-
tracts. This amendment required PRB costs assigned to a
given year to be funded by that year’s tax return deadline
in order to be allowable. While the amendment permitted
the use of accrual accounting 2 methods for PRB costs, it did
not expressly require that any specific accounting standard
be used. However, effective February 27, 1995, the FAR
was amended again, this time to require the use of the ac-
counting standards set out in the Statement of Financial




    1   The version of the FAR in effect on July 8, 2005,
applies to this case.
    2   Accrual accounting (unlike cash accounting) fo-
cuses on when transactions occur, rather than when pay-
ments are made. Because PRB plans are funded well
before retirement occurs and benefits are paid out, accrual
accounting relies on actuarial assumptions such as life ex-
pectancy to predict future costs while allocating those costs
to current years.
4              DEFENSE v. NORTHROP GRUMMAN CORPORATION




Accounting Standards 106 (“FAS 106”) 3 to determine al-
lowable PRB costs in government contracts. 4
    At the time of the 1995 FAR amendment, Northrop ac-
counted for its PRB costs using an accounting method that
conformed to the requirements established by the Deficit
Reduction Act of 1984 (“DEFRA”) rather than FAS 106.
Following the 1995 FAR amendment, Northrop continued
to account for its PRB costs for government contracting
purposes using the DEFRA method, even though that
method was no longer in compliance with the FAR.
    The DEFRA and FAS 106 both require the use of ac-
crual accounting methods, but the actuarial assumptions
underlying each method are different. The primary differ-
ence between the DEFRA method and the FAS 106 method
is that the DEFRA method calculates PRB costs based on
current medical costs, while the FAS 106 method calcu-
lates PRB costs to include future increases in medical costs.
J.A. 32. As a result, annual PRB costs computed using the
DEFRA method typically start lower and increase over
time whereas annual PRB costs computed using the FAS
106 method typically start higher and decrease over time.
J.A. 2.



    3    FAS 106 as issued in 1990 is available on the Fi-
nancial Accounting Standards Board’s website at
https://www.fasb.org/jsp/FASB/Document_C/DocumentPa
ge?cid=1218220123671.
    4    After the February 27, 1995, amendment,
FAR 31.205-6(o)(2)(iii) provided in relevant part that “to be
allowable, PRB costs . . . must be measured and assigned
according to Generally Accepted Accounting Principles.”
FAR 31.205-6(o)(2)(iii) (1995); see also 59 Fed. Reg. 67045
(Dec. 28, 1994). It is undisputed that the reference to “Gen-
erally Accepted Accounting Principles” in FAR 31.205-
6(o)(2)(iii) refers to FAS 106. J.A. 3.
DEFENSE v. NORTHROP GRUMMAN CORPORATION                    5



    Between 1995 and 2006, Northrop filed disclosure
statements with the government on numerous occasions,
disclosing its continued use of the DEFRA method. The
government was aware that Northrop was not in compli-
ance with the FAR, but it did not object to Northrop’s con-
tinued use of the DEFRA method because its use resulted
in lower reimbursement costs to the government. J.A. 99.
Indeed, had Northrop used the FAS 106 method between
1995 and 2005, the government would have paid an addi-
tional $253 million during that period. See J.A. 32; Oral
Arg. at 15:18–15:34; see also J.A. 1000 (member of DCAA
testifying that the government saved $253 million between
1995 and 2006). In addition, both the Defense Contract
Management Agency (“DCMA”) and the Defense Contract
Audit Agency (“DCAA”) informed Northrop during these
years that the agencies found “no instances of noncompli-
ance with applicable Cost Accounting Standards or with
FAR Part 31 cost principles.” J.A. 4; see also J.A. 3–6. Alt-
hough not reflective of official policy, DCMA even used
Northrop’s continued use of the DEFRA method in its in-
ternal training documents as an example of acceptable ac-
counting methods under the FAR. J.A. 10, 33. 5 At the
time, DCMA members interpreted the FAR’s requirement
that FAS 106 method be used as setting a ceiling on allow-
able costs under the regulations, concluding that the differ-
ence between the DEFRA and FAS 106 calculations would
not become unallowable even if not assigned and funded
within a given year as required by FAR 31.205-6(o)(3). 6 Id.



    5    Internally, there was disagreement between mem-
bers of the DCMA and the DCAA about whether Northrop’s
continued use of the DEFRA method was acceptable.
    6    FAR 31.205-6(o)(3) provided: “To be allowable,
costs must be funded by the time set for filing the Federal
6              DEFENSE v. NORTHROP GRUMMAN CORPORATION




     Because PRB cost calculations under the DEFRA
method increase over time, and calculations using the FAS
106 method decrease over time, Northrop predicted that its
PRB cost calculations using the DEFRA method would ex-
ceed those allowable under the FAR and FAS 106 in 2015.
To avoid this eventuality, Northrop in 2006 switched from
using the DEFRA method to using the FAS 106 method.
As part of the switch, Northrop was required to calculate
its “transition obligation”—the difference between the PRB
costs that would have accrued had Northrop adopted the
FAS 106 method in 1995 and the PRB costs that actually
accrued due to its continued use of the DEFRA method. See
56 Fed. Reg. 41,738, 41,739 (Aug. 22, 1991); FAS 106,
¶ 110. Northrop’s transition obligation in 2006 would have
been approximately $305 million.
    At the same time it adopted the FAS 106 method,
Northrop amended its PRB plans. The amendment capped
the annual amount Northrop would contribute to the PRB
plans independent of future healthcare cost increases,
thereby limiting the benefits available to its employees un-
der those plans. As a result of this “negative plan amend-
ment,” Northrop’s PRB cost obligations were reduced by
approximately $307 million. Northrop subtracted these
savings from its transition obligation, as required by FAS
106. Northrop notified DCMA of its PRB plan amendment
and its switch to the FAS 106 accounting method on Octo-
ber 23, 2006, and November 3, 2006, respectively.
    On July 26, 2007, DCMA issued a notice of its intent to
disallow costs. DCMA took the position that Northrop’s
transition obligation was unallowable in future accounting
periods because Northrop did not measure or fund its PRB


income tax return or any extension thereof. PRB costs as-
signed to the current year, but not funded or otherwise liq-
uidated by the tax return time, shall not be allowable in
any subsequent year.” FAR 31.205-6(o)(3) (1995).
DEFENSE v. NORTHROP GRUMMAN CORPORATION                    7



plans between 1995 and 2006 using the required FAS 106
method, and therefore failed to timely assign the unfunded
difference between the higher FAS 106 amount and the
lower DEFRA amount to those years. J.A. 27. DCMA is-
sued a Final Determination on April 9, 2008, disallowing
approximately $253 million of Northrop’s PRB costs from
its post-2006 reimbursement submissions. 7 Northrop sub-
mitted a certified claim for these funds on May 20, 2010.
DCMA denied Northrop’s claim on February 18, 2011. As
a result of the government’s disallowance, Northrop has de-
ducted the disputed $253 million from its annual PRB cost
reimbursement submissions since 2007, amortized over a
20-year period—approximately $12.7 million annually.
             II. Proceedings Before the Board
    Northrop appealed DCMA’s denial to the Armed Ser-
vices Board of Contract Appeals (“the Board”). The Board
bifurcated the proceedings into two phases—entitlement
and quantum. The Board held an evidentiary hearing in
each phase.
                  A. Entitlement Phase
    During the entitlement phase, the Board determined
that Northrop’s use of the DEFRA method was not in com-
pliance with FAR 31.205-6(o). J.A. 12. The Board pointed
to Northrop’s concession that “there is no dispute that the
DEFRA method did not comply with GAAP requirements,”
as required by the FAR. Id. The Board also found that by


    7   Of the $304,754,315 that constituted Northrop’s
transition obligation prior to factoring in its negative plan
amendment, DCMA allowed $51,392,803, finding those
PRB costs to be applicable to contracts awarded prior to the
February 27, 1995, FAR amendment that required the use
of the FAS 106 method. J.A. 1292 n.10. The remaining
$253,361,512 in disallowed PRB costs is at issue in this ap-
peal.
8              DEFENSE v. NORTHROP GRUMMAN CORPORATION




not using the FAS 106 method, Northrop did not timely
fund its PRB obligations to the full extent permitted by the
FAR. Id. According to the Board, this rendered $253 mil-
lion of Northrop’s transition obligation unallowable under
FAR 31.205-6(o)(3). J.A. 12–13. The Board rejected sev-
eral of Northrop’s arguments, including its contention that
the FAS 106 method only set a ceiling for allowable costs
under the FAR and any costs up to that amount should be
allowable notwithstanding Northrop’s failure to fund those
costs. J.A. 13–16. The Board explained that “no such lan-
guage is contained” in FAR 31.205-6(o)(3), and thus the
plain language of that regulation contradicted Northrop’s
arguments. J.A. 13.
    The Board determined, however, that it could not re-
solve Northrop’s argument that the government’s disallow-
ance was improper because the negative amendment to
Northrop’s PRB plans ensured that the $253 million in dis-
puted PRB costs “have never been and will never be
claimed or incurred.” J.A. 16. The Board explained that
there was inconsistent testimony as to whether Northrop
included the unallowable costs in its reimbursement sub-
missions in 2007 and subsequent years, and those submis-
sions were not in the record. J.A. 11, 16. The Board left
the resolution of these quantum issues until the next phase
of the proceedings. J.A. 17. Northrop moved for reconsid-
eration, which the Board denied. J.A. 19–24.
                   B. Quantum Phase
    During the quantum phase, the Board found that
Northrop’s negative amendment to its PRB plans saved
$307 million from its future PRB plan obligations, “en-
sur[ing] that [Northrop] would not have to pay PRB costs
arising from future increases in healthcare costs in excess
of the fixed dollar ‘cap.’” J.A. 35. The Board further found
that FAS 106 required Northrop to exclude these savings
from its transition obligation calculations. Id. (citing FAS
106, ¶ 28). Citing expert testimony, the Board explained
DEFENSE v. NORTHROP GRUMMAN CORPORATION                   9



that because the primary difference between the DEFRA
method and the FAS 106 method is that FAS 106 requires
accounting for future increases in healthcare costs, “the
costs that were eliminated before computing the transition
obligation were the same costs that comprised the $253
million of unfunded pre-transition costs.” Id. The Board
determined that, therefore, “it would not have been possi-
ble for [Northrop] to include the $253 million of unfunded
costs in its calculated PRB costs in 2007 or thereafter,”
meaning that Northrop could not have claimed those costs
for reimbursement. Id. According to the Board, Northrop’s
use of the DEFRA method therefore “did not lead to any
recovery of claimed but unfunded costs, or to duplicate re-
covery,” and instead benefitted the government. J.A. 35–
36, 40.
    The Board rejected the government’s argument that
even though Northrop did not use the FAS 106 method be-
tween 1995 and 2006, it nonetheless still incurred the ad-
ditional $253 million in PRB costs “by operation of law” due
to the FAR’s requirement of using the FAS 106 method.
The Board stated that the government “disregards funda-
mental concepts related to cost ‘incurrence,’ and misfocuses
on an ‘allowability’ regulation rather than [Northrop’s PRB
plans].” J.A. 39. The Board explained that cost incurrence
is defined by Northrop’s plan obligations, and thus the only
costs that Northrop incurred prior to 2006 were those cal-
culated using the DEFRA method. Id. The Board deter-
mined, therefore, that Northrop did not “incur” the
disputed $253 million between 1995 and 2006. Id.
    The Board also rejected the government’s argument
that Northrop’s negative plan amendment had no effect on
the costs Northrop incurred between 1995 and 2006. J.A.
37, 41. The Board pointed to the unrebutted testimony of
actuaries, who testified that Northrop’s transition obliga-
tion was eliminated “as a consequence” of its negative PRB
plan amendment. J.A. 41. The Board noted that the gov-
ernment was justly concerned about allowability of
10             DEFENSE v. NORTHROP GRUMMAN CORPORATION




Northrop’s transition obligation because the PRB costs
that constituted that obligation were not timely funded be-
tween 1995 and 2006 as required by the FAR. J.A. 40–41.
The Board explained, however, that Northrop’s negative
plan “amendment should have assuaged and eliminated
the government’s valid concerns here” because it “removed
properly objectionable portions [from] the transition obli-
gation.” J.A. 42.
    The Board further found the government’s disallow-
ance to be inconsistent with FAR 31.201-2(c), which pro-
vides that only costs “in excess of the amount that would
have resulted from using practices consistent with this
subpart are unallowable.” J.A. 38 (quoting FAR 31.201-
2(c)) (emphasis removed). The Board explained that alt-
hough Northrop did not use the proper accounting method,
it was undisputed that the PRB costs that Northrop calcu-
lated using the DEFRA method did not exceed the amount
that Northrop could have claimed if it had used the FAS
106 method since 1995. Id. Combined with Northrop’s
negative amendment to its PRB plans, this resulted in “no
excess to disallow.” Id. (emphasis removed).
    Based on its findings, the Board concluded that
Northrop’s negative plan amendment “ensured that
[Northrop] would never incur the costs disallowed and ef-
fectively mooted allowability issues associated with the
transition obligation” because Northrop “has never, and
will never, claim, and the government will never pay,” the
disputed $253 million in disallowed costs. J.A. 41–42. Ac-
cordingly, the Board sustained Northrop’s appeal, explain-
ing that “the government suffered no damages” as a result
of Northrop’s noncompliance with FAR 31.205-6(o). J.A.
25, 42.
   Following the Board’s quantum phase decision, the
government moved for reconsideration, which the Board
denied on January 9, 2018. J.A. 45, 51. The Board rejected
the government’s argument that the quantum phase
DEFENSE v. NORTHROP GRUMMAN CORPORATION                   11



decision was inconsistent with the earlier entitlement
phase decision. The Board explained that during the enti-
tlement phase, it only decided that Northrop failed to com-
ply with the FAR requirement of using the FAS 106
method. J.A. 45. The Board stated that the entitlement
phase decision expressly left open the issue of the resulting
financial consequences of Northrop’s noncompliance. J.A.
46. The Board reiterated its quantum phase finding that
“it is clear beyond cavil on a fully developed quantitative
record that [Northrop] never has and never will incur and
claim the disallowed costs and the government never has
and never will pay any ‘excess’ resulting from the noncom-
pliance.” Accordingly, the Board concluded that the gov-
ernment failed to prove its quantum damages. J.A. 51.
     On appeal, the Secretary of Defense (“Secretary”) asks
us to reverse the Board’s quantum phase decision that
Northrop has never and will never claim reimbursement
for the disputed $253 million in PRB costs because it did
not incur those costs between 1995 and 2006. Northrop
conditionally cross-appeals the Board’s entitlement phase
decision that the $253 million in PRB costs that Northrop
failed to timely fund between 1995 and 2006 are unallowa-
ble. We have jurisdiction under 28 U.S.C. § 1295(a)(10).
                        DISCUSSION
    We review the Board’s legal conclusions de novo. Par-
sons Glob. Servs., Inc. ex rel. Odell Int’l, Inc. v. McHugh,
677 F.3d 1166, 1170 (Fed. Cir. 2012). Interpretation and
application of the FAR are issues of law that we review de
novo. Id. We set aside the Board’s factual findings only if
they are fraudulent, arbitrary or capricious, so grossly er-
roneous as to necessarily imply bad faith, or not supported
by substantial evidence. Laguna Constr. Co., Inc. v. Carter,
828 F.3d 1364, 1368 (Fed. Cir. 2016); Rockies Exp. Pipeline
LLC v. Salazar, 730 F.3d 1330, 1335 (Fed. Cir. 2013) (citing
41 U.S.C. § 7107(b)(2)).
12              DEFENSE v. NORTHROP GRUMMAN CORPORATION




    Resolution of this appeal turns on whether substantial
evidence supports the Board’s finding that Northrop’s neg-
ative amendment to its PRB plans effectively eliminated
the $253 million in disputed PRB costs from its transition
obligation such that those costs were never and will never
be charged to the government. We conclude that it does.
     The Board found that Northrop’s negative amendment
to its PRB plans saved $307 million from its future PRB
plan obligations, and the Secretary does not dispute this
finding. J.A. 35; Appellant’s Br. 27. 8 It is also undisputed
that these savings resulted from capping the amount
Northrop would pay in PRB costs regardless of future
healthcare increases, thus removing the effect of those in-
creases on its PRB cost calculations. J.A. 35; see J.A. 1539.
The government also conceded that the major difference
between the DEFRA method and the FAS 106 method is
that the FAS 106 method accounts for future healthcare
cost increases and the DEFRA method does not. J.A. 32,
177. These undisputed facts support the Board’s finding
that by eliminating the effect of future healthcare cost in-
creases from its PRB obligation, Northrop’s negative plan
amendment eliminated “the same costs that comprised the
$253 million” in dispute. J.A. 35.
    The Board also cited to FAS 106, explaining that it re-
quired Northrop “to exclude obligations associated with the
future health care cost increases that were eliminated pur-
suant” to its negative amendment prior to calculating its
transition obligation. Id.; see also FAS 106, ¶ 28 (“[P]lan
amendments shall be included in the computation of the
expected and accumulated postretirement benefit


     8  The Board explained that the facts were substan-
tively not in dispute below, and that the majority of its fac-
tual findings were “in essence ‘stipulated.’” J.A. 26 n.2.
Accordingly, the Board adopted the undisputed facts as
proposed by the parties. Id.
DEFENSE v. NORTHROP GRUMMAN CORPORATION                  13



obligations.” (emphasis removed)). This evidence also sup-
ports the Board’s findings that the disputed $253 million
in unfunded pre-transition PRB costs were never part of
Northrop’s transition obligation. J.A. 35.
    The Board’s findings are also supported by unrebutted
testimony of Northrop’s independent actuary expert, Mr.
McQuade, on which the Board relied. See id. Mr. McQuade
testified that Northrop’s negative amendment eliminated
the disputed $253 million from Northrop’s transition obli-
gation because the amendment eliminated $307 million
from Northrop’s accumulated post-retirement benefit obli-
gation on which its transition obligation was based. J.A.
821–22. He also testified that the amended PRB costs and
the $253 million in unfunded costs “are both based on fu-
ture increases in healthcare costs,” and by eliminating the
effect of those increases on its PRB obligations, Northrop’s
amendment more than eliminated its transition obligation.
J.A. 830. Mr. McQuade further testified that the govern-
ment “will never pay for the $253 [million] of unfunded
costs because those costs have been eliminated.” J.A. 822.
This testimony is substantial evidence that supports the
Board’s findings that it would have been impossible for
Northrop to include the disputed $253 million in its post-
2006 PRB cost calculations or to subsequently claim those
costs for reimbursement from the government, and that as
a result, the government’s disallowance of those costs was
improper. J.A. 35, 42.
    On appeal, the Secretary frames his challenge to the
Board’s decision as disputing the Board’s legal interpreta-
tion and application of FAR 31.205-6(o) to undisputed
facts. Appellant’s Br. 25; Appellant’s Reply Br. 19. We dis-
agree with this characterization. The dispute here is not
over whether Northrop violated FAR 31.205-6(o) by using
the DEFRA method or whether Northrop’s $253 million in
14             DEFENSE v. NORTHROP GRUMMAN CORPORATION




unfunded PRB costs are unallowable. 9 Rather, the Secre-
tary disputes the Board’s factual findings that those unal-
lowable costs were not charged to the government by virtue
of being excluded from Northrop’s transition obligation by
Northrop’s negative amendment to its PRB plans. As ex-
plained above, these factual findings are supported by sub-
stantial evidence and are therefore “final and conclusive.”
41 U.S.C. § 7107 (2012).
    We also disagree with the substance of the Secretary’s
arguments. The Secretary argues that because Northrop
underfunded its PRB costs by $253 million between 1995
and 2006 by using a noncompliant accounting method,
those costs will always remain “unallowable” pursuant to
FAR 31.205-6(o)(3), and the government is therefore re-
quired to disallow that amount from Northrop’s future PRB
reimbursement claims. Appellant’s Br. 25–26. This argu-
ment would have merit had Northrop not amended its PRB
plans because that underfunded amount would then have
been part of the Northrop’s transition obligation. As the
Board correctly explained, however, Northrop’s negative
plan amendment mooted the issue of allowability by elimi-
nating the disputed $253 million from the transition obli-
gation. J.A. 41. Thus, Northrop never actually submitted
any unallowable costs for reimbursement, and the govern-
ment had no basis to disallow that amount from Northrop’s
post-2006 reimbursement submissions.
    The crux of the Secretary’s argument is his assertion
that Northrop’s negative plan amendment was a separate
event from its switch to the FAS 106 method. Appellant’s
Reply Br. 4, 9; see also Oral Arg. at 4:30–4:49,


     9  In its conditional cross-appeal, Northrop does chal-
lenge the Board’s determination at the entitlement phase
that these costs are unallowable under FAR 31.205-6(o).
We do not reach this question, however, because we affirm
the Board’s quantum decision.
DEFENSE v. NORTHROP GRUMMAN CORPORATION                    15



http://oralarguments.cafc.uscourts.gov/default.aspx?fl=
2018-1945.mp3. Based on this assertion, the Secretary ar-
gues that Northrop’s negative plan amendment cannot off-
set the disputed $253 million in PRB costs because had
either of these events happened without the other, the gov-
ernment would be entitled to disallow the disputed $253
million. Appellant’s Br. 25–26; Appellant’s Reply Br. 4–10.
We disagree.
     Both events occurred simultaneously in this case, and
Northrop’s negative plan amendment had a direct effect on
its adoption of the FAS 106 method. We agree that the
amendment did not go so far as to transform Northrop’s
underfunded $253 million in PRB costs into allowable costs
under FAR 31.205-6(o). The amendment, however, low-
ered the entire accumulated value of Northrop’s PRB
plans, which was used to calculate its transition obligation.
Thus, although the amendment did not affect the allowa-
bility of the disputed $253 million, it cannot be viewed in
isolation from Northrop’s adoption of the FAS 106 method
because the amendment completely eliminated Northrop’s
transition obligation.
     The Secretary further contends that because the two
events should be treated separately, the government is en-
titled to receive the full benefit of Northrop’s negative plan
amendment. Appellant’s Br. 27; Appellant’s Reply Br. 21.
The Secretary asserts that if Northrop had properly ac-
counted for its PRB costs using the FAS 106 method since
1995, then the government “would have realized the full
$307 million in cost reductions” upon Northrop’s amend-
ment to its PRB plans in 2006. Appellant’s Br. 27. Instead,
the Secretary contends, the government has been deprived
of the benefit of Northrop’s amendment. We disagree. It
is undisputed that the government has already benefitted
by saving $253 million between 1995 and 2006 as a result
of Northrop’s use of the DEFRA method. See J.A. 32; see
also J.A. 1000 (member of DCAA testifying that the gov-
ernment saved $253 million between 1995 and 2006); Oral
16             DEFENSE v. NORTHROP GRUMMAN CORPORATION




Arg. at 15:18–15:34 (government’s counsel conceding that
had Northrop used the FAS 106 method between 1995 and
2005, the government would have paid an additional $253
million during that period). Rather than attempting to re-
cover a lost benefit, the Secretary in essence now seeks to
benefit twice from Northrop’s noncompliance with FAS
106. 10
     The Secretary next argues that the Board erred by de-
termining that Northrop never incurred the full PRB costs
as calculated under FAS 106, even though Northrop calcu-
lated a lower PRB cost amount using the DEFRA method.
Appellant’s Br. 28–31; Appellant’s Reply Br. 14–15. The
Secretary contends that regardless of which method
Northrop used to calculate its PRB costs between 1995 and
2006, Northrop still incurred the same PRB costs because
its employees were earning their benefits during that time.
Appellant’s Br. 29–30; Appellant’s Reply Br. 16. According
to the Secretary, those costs are therefore necessarily part
of Northrop’s transition obligation and must be disallowed
because Northrop did not timely fund those costs. Appel-
lant’s Reply Br. 16. Whether Northrop incurred these
costs, however, is immaterial to our analysis because
Northrop never charged the government the disputed $253
million. As a member of DCAA admitted to the Board, the
government therefore “has not been damaged.” J.A. 933–
34. Nor can Northrop charge those costs to the government
in the future because its negative amendment eliminated



     10 We note that the government did not object to
Northrop’s use of the DEFRA method while Northrop was
saving the government money between 1995 and 2006.
J.A. 3–5, 32–33. The government even internally approved
of Northrop’s accounting practices. J.A. 33. It was only
after Northrop adopted the FAS 106 method and amended
its PRB plans to eliminate its transition obligation that the
government changed its position.
DEFENSE v. NORTHROP GRUMMAN CORPORATION                17



those costs from its transition obligation, as required by
FAS 106. See J.A. 35, 38, 820–21; FAS 106, ¶ 28.
                      CONCLUSION
    We have considered the Secretary’s remaining argu-
ments and find them unpersuasive. We conclude that sub-
stantial evidence supports the Board’s finding that
Northrop’s negative PRB plan amendment effectively elim-
inated Northrop’s transition obligation. We therefore af-
firm the Board’s decision that the government’s
disallowance of the disputed $253,361,512 of Northrop’s
PRB costs was improper and dismiss Northrop’s condi-
tional cross-appeal.
                      AFFIRMED
