                ARMED SERVICES BOARD OF CONTRACT APPEALS

Appeals of --                               )
                                            )
Lockheed Martin Services, Inc.              )      ASBCA Nos. 58028, 58794
                                            )
Under Contract No. MDA220-0l-D-0002         )

APPEARANCE FOR THE APPELLANT:                      Joseph J. Dyer, Esq.
                                                    Seyfarth Shaw LLP
                                                    Washington, DC

APPEARANCES FOR THE GOVERNMENT:                    Regina M. DelaRosa, Esq.
                                                   April M. Breck, Esq.
                                                    Trial Attorneys
                                                    Defense Finance & Accounting Service
                                                    Indianapolis, IN

                 OPINION BY ADMINISTRATIVE JUDGE CLARKE

       Lockheed Martin Services, Inc. (LMSI), appeals from the Defense Finance
& Accounting Service (DFAS) contracting officer's (CO's) decisions denying LMSI's
claim for $1,140,462.56 in additional costs and asserting DFAS' claim demanding the
return of a license fee of $799,089.39. We have jurisdiction pursuant to the Contract
Disputes Act of 1978 (CDA), 41 U.S.C. §§ 7101-7109. We sustain LMSI's appeals.

                                 FINDINGS OF FACT

       1. DFAS awarded Contract No. MDA220-0l-C-0002 (Contract 0002), effective
28 September 2001, to ACS Government Solutions Group, Inc. (ACS), for the
performance of the Defense Retired/Annuitant Pay System (DRAS) (R4, DVD-A,
tab C-0002 at PDF 1 of 189). On 13 March 2006 the contract number was changed to
MDA220-01-D-0002 (R4, DVD-A, tab D-0002 at PDF 1 of 259).

       2. Contract section C, Description and Specifications, Performance Work
Statement (PWS) (R4, DVD-A, tab C-0002 at PDF 31, 85 of 189), includes the following
relevant paragraphs:
7.0 GOVERNMENT-FURNISHED PROPERTY AND
SERVICES

7.1 Government Furnished Property and Services
The government will provide the property, facilities,
materials, and services described in Section J-4 and
proposed by the contractor. The contractor shall maintain
accountability of all accepted Government property and
shall comply with all applicable policy and guidance
regarding its use.



7.1.2 Defense Retired/Annuitant Pay (DRAS) Automated
Information System (AIS)
If the contractor uses the Government-furnished DRAS
AIS, the DRAS software technical data rights thereto, and
data files, as updated, shall be returned to DF AS at the
completion of the performance period.

7.1.3 Facilities
          The government will provide the facilities
      described in Section J .4 and proposed by the
      contractor in the current "where-is/as is"
      configuration. The Contractor will utilize, to the
      extent possible and most efficiently to DFAS, the
      existing facilities, equipment and software ofDFAS.
      Government furnished facility space will remain
      subject to space allocation policies prescribed in
      applicable property management regulations ....



7.1. 4 Equipment
            The government will provide the
       "where-its/as-is" equipment listed in Section J-4.
       The contractor shall be responsible for all
       maintenance, repair, and replacement of all accepted
       government equipment. The contractor shall
       maintain custody of the material and return the
       material to the government at the end of its useful
       life or at the termination of the contract.



                             2
             8.0 Contractor-Furnished Services and Materials
             If the contractor uses an AIS other than DRAS, the
             contractor shall make available to DFAS, or its agents,
             licenses for continued use of the AIS following the
             expiration or termination of the contract. Such license
             shall be made available at the most favorable terms, prices,
             and conditions provided to any other customer of the
             contractor. The contractor is responsible for providing all
             property, materials, and services except as provided in
             Section J-4.

(R4, DVD-A, tab C-0002 at PDF 46-4 7 of 189)

       3. Contract section H - Special Contract Requirements, contains the following
relevant clauses:

             H.8 REFRESH OF DEFENSE RETIRED/
             ANNUITANT PAY SYSTEM TECHNOLOGY

             If the contractor proposes the Defense Retired/Annuitant
             Pay System (DRAS) to perform the requirements and
             during performance determines it is more efficient to
             refresh the DRAS technology and change the system
             configuration, the contractor shall submit a proposal to the
             contracting officer for consideration. The contracting
             officer and contractor shall negotiate the terms and
             conditions of the agreement and process the change as a
             contract modification. Refresh of DRAS Technology is not
             considered to be routine or normal maintenance to sustain
             system operability.



             H.10 VENDOR PROPRIETARY TECHNOLOGY

             The contractor shall (a) obtain prior written approval from
             the Contracting Officer Representative (COR) prior to
             using contractor or third party proprietary technology to
             perform the services; and (b) provide, upon the
             Government's request, at no additional cost, a perpetual,
             irrevocable, non-exclusive, world-wide, royalty-free


                                          3
               license to install, use, copy, modify and incorporate into
               DFAS' proprietary and licensed systems, any of the
               contractor and third party proprietary technology that the
               contractor used in providing services to DFAS; provided
               that clause (b) will not apply to software, code or
               modifications which are generally commercially available
               on reasonable terms.

(R4, DVD-A, tab C-0002 at PDF 58, 61-62of189)

       4. Contract section J -List of Documents, Exhibits, and Other Attachments,
includes the following:

                                       Section J.4

                  GOVERNMENT-FURNISHED PROPERTY AND
                              SERVICES



               J.4.3. GOVERNMENT-FURNISHED EQUIPMENT
               (GFE). If the contractor proposed to utilize specific items
               of GFE, the government will furnish and/or make available
               items described in the contractor's technical proposal in an
               "as is, where is" condition. The contractor's proposal's
               description of specific items of GFE is incorporated
               herein.CI]

               J.4.3.1. REPLACEMENT OF
               GOVERNMENT-FURNISHED EQUIPMENT. Should
               any item of government-furnished equipment require
               replacement, the contractor shall be responsible for such
               replacement at no cost to the government.

               J.4.3.2. GFE INVENTORIES. In conjunction with the
               transfer of responsibility for pay services operations during
               the base period of the contract, specific items of govemment-
               furnished equipment will be jointly inventoried. A joint GFE
               inventory will be accomplished during each contract option

1
    The proposal lists only Cleveland and Denver facilities with "equipment" "existing
        property as is" (R4, tab 66 at 0998).



                                            4
               period, and a final joint inventory will be made upon contract
               termination or expiration of any contract period during which
               the contractor has not received notice of exercise of a contract
               option ....

              J.4.3.3. GFE MAINTENANCE. The government will
              not maintain or repair GFE. All GFE is provided on an "as
              is, where is" basis. The contractor shall be responsible for
              maintenance of Government-Furnished equipment for its
              useful life.

              J.4.3.4. REPLACEMENT OF GFE. The government
              will not replace GFE; GFE is offered on a one-time, "as is,
              where is" basis at the outset of contract performance. If
              GFE items require replacement the contractor shall be
              responsible for such replacement at no cost to the
              government.



              J.4.5. USE OF GFE, GFP,l21 AND GFS. Use will be
              limited to that required for the performance of tasks in
              the PWS.

              J.4.6. LIST OF PROPERTIES, FACILITIES,
              MATERIALS AND SERVICES OFFERED BY THE
              GOVERNMENT

                    GOVERNMENT FURNISHED PROPERTY

              DRAS Automated Information System

              [List of DRAS hardware and software omitted]

(R4, DVD-A, tab C-0002 at PDF 106-09 of 189)

Mail Imaging Routing and Optical Reporting System

      5. Prior to Contract 0002 DFAS performed the DRAS function itself using
government-owned hardware and software known collectively as the Mail Imaging
Routing and Optical Reporting System, "MIRORS." In its 23 January 2001 proposal for

2
    Government-Furnished Property (R4, DVD-A, tab C-0002 at PDF 81 of 189).

                                            5
this contract ACS stated it planned to replace MIRORS with ACS Intelligent Queue (IQ)
(supp. R4, tab 67 at 1155). ACS explained that replacing MIRORS with ACS IQ would
result in a net savings from a reduction in staff (id.). After contract award, DFAS
provided ACS Government-Furnished Equipment in the form of computers, data bases
and the MIRORS system. MIRORS converted incoming mail to digital images and
distributed them within ACS as needed. (Tr. 1/34) ACS commenced performing using
MIRORS. When ACS started performing, MIRORS was ten years old and it was
recognized that it was behind current technology (tr. 1/36). MIRORS hardware
experienced increasing failures and the manufacturer of the "SAN tower," Hewlett
Packard, would no longer provide maintenance (tr. 1137).

       6. Both parties agree that the contract did not require that ACS replace MIRORS
(gov't reply br. at 2; app. br. at 4). By letter dated 29 April 2003 to Ms. Kleinknecht,
DF AS contracting officer, ACS stated it intended to replace the MIRO RS with a new
system using the latest technology. ACS stated:

              It is our intent to attach a Functional Requirements
              Document ("FRD") of the high-level requirements for the
              MIRORS, upon DFAS' concurrence as required by section
              H.5 of the prime contract. A copy of the FRD is provided
              for your review and approval.. ..



             ACS will submit a detailed proposal to DFAS, in
             accordance with Section H.8, to negotiate the terms and
             conditions for data transfer, use and licenses to third party
             software, continuity of services, and ownership of the
             system at contract termination.

(R4, tab 69 at 1258) The record does not contain evidence of a response to this letter by
CO Kleinknecht or anyone else at DFAS (tr. 1/44). Both parties agree that ACS asked
DFAS if it would pay for the development of the MIRORS replacement and DF AS
refused (gov't reply br. at 2; app. br. at 5; tr. 1142; gov't ex.Cat 2264-65).

       7. By email dated 6 May 2003, at DFAS' request, ACS sent CO Kleinknecht a
copy ofa draft MIRORS System Replacement Statement of Work (SOW). The SOW
explained that the MIRORS system was "eleven years old and the hardware and software
are obsolete." (R4, tab 70 at 1335, 1337)

        8. LMSI purchased ACS in early 2004 (tr. 1133, 38). LMSI determined that ACS'
IQ system would not work as a replacement for MIRORS and decided to develop its own
(tr. 1158-60). By letter dated 1 June 2004 Mr. Vittori, LMSI's contracts administrator,


                                           6
notified Mr. Peter Joyce, DFAS contract specialist, that LMSI intended to replace
MIRORS with an internal LMSI Corporation product, with terms and conditions to be
addressed later (tr. 11130-32; R4, tab 71 at 1344). The replacement was based on the
E-STARS system that was customized for the retired and annuitant pay system (tr. 1138).
E-STARS was an integrated system that used third party software "knitted together" using
LMSI proprietary code (tr. 1144-45). The replacement system was referred to as "RAPID"
(tr. 1141). LMSI began transitioning to RAPID in December 2004 (tr. 1/50). In the letter
Mr. Vittori refers to ongoing discussions between LMSI and DF AS and a presentation "on
E*Stars that will address functional capabilities, DRAS interface approach, and requisite
terms and conditions" (R4, tab 71 at 1344). DFAS' refusal to pay for the replacement of
MIRORS and the fact that MIRORS was failing "drove LM to define and purchase a
replacement, entirely funded by LM" (gov't ex.Cat 2264). RAPID software was never
added to the contract by modification (id. at 2265).

       9. By email dated 26 July 2004 to Mr. Joyce, Mr. Vittori wrote:

             FYI- major issue with MIRORS. We cannot process
             work unless it is manual. We are accessing situation and
             will be back in touch with risk mitigation. Debra has been
             briefed by Jim. We are expediting the E*Stars as fast as
             possible. I likely will be asking for relief on J-1 measures
             if the situation with this GFE system does not improve
             quickly.

(R4, tab 76 at 1388)

       10. By internal DFAS email dated 6 August 2004, Mr. Joyce wrote:

             The original contract assumed this happening (ACS
             proposed later in the contract life to provide a replacement,
             its "ACS Intelligent Queue (IQ)sm" system, and from my
             conversations with LMGS it will be a cost they pick up in
             full. There is a caveat in a sense that when we get to the
             end of the contract and ifLMGS is not awarded the follow
             on there may be a need to purchase usage rights to the
             E-Stars replacement, but really that would depend on how
             a follow on might be worded.

(R4, tab 78 at 1391) Later that same day Mr. Joyce sent out another internal email
where he wrote:

             This is really representative of the problem with this
             contract. I'd think that those managing it as CORs and


                                           7
              COTRs would be monitoring situations such as this so if it
              came to be (as it has here), that we had a system that was
              simply breaking down due to age (the hardware
              replacements are no longer manufactured) that we would
              have a few options, or would have thought about a few
              options. But since we are spending so much time on
              repetitive oversight and because we believe "where is - as
              is" also means "if it is falling apart it[']s not our problem
              now" we end up with this scenario. There is absolutely no
              foresight, no vision, no thought as to what might happen
              tomorrow. I'd really liked to have had a better idea of how
              bad this was.

(R4, tab 78 at 1391)

       11. Appellant's RAPID system received all of its required approvals and was
implemented in December 2004 (R4, tab 89 at 1441, see also tab 53 at 590). Mr. Vittori
was asked on cross-examination if "RAPID is generally commercially available upon
reasonable terms" and he responded, "No" (tr. 1/208). Mr. Vittori testified that to his
knowledge, RAPID has not been sold to third parties (id.).

DFAS Decides to Bring DRAS Back In-House

        12. In about April 2009 DF AS decided not to exercise any remaining contract
options and to return to performing the pay services itself (tr. 1/131). It exercised contract
line item number (CLIN) 0052, Transition Out Period (R4, DVD-A, tab D-0002 at PDF
101 of259), and asked LMSI for a transition plan (R4, tab 92 at 1511). By email dated
11August2009, Mr. Vittori submitted a revised proposal for contract transition (tr. 1/132;
R4, tab 10). LMSI proposed a price of$3,074,514.15 for RAPID as follows:

             Part 3- RAPID

                               RAPID Baseline Value          $1,513,132.92
                RAPID Third Party Software-UPDATE            $ 341,094.04
                           RAPID Hardware-Refresh            $ 694, 781.22
                                Enhancements to Base         $ 525,505.97
                                         SUBTOTAL            $3,074,514.15

(R4, tab 10 at 144)

       13. By email dated 2 September 2009 to Mr. Miller, DFAS contract specialist,
Mr. Vittori provided a licensing agreement, dated 28 October 2002, between LMSI and
Fluor Hanford, Inc. (Hanford), to explain "the parameters related to ownership and


                                            8
development ofE-Stars" (R4, tab 15 at 197, 200). The license provides that the
Department of Energy (DOE) owns the copyright to E-STARS and that Hanford, acting as
DOE's agent, grants to LMSI "a nontransferable, exclusive license to copy, market,
distribute and service E-STARS for commercial purposes" (id. at 200). The license
specifically provides that DOE retains ownership ofE-STARS but that LMSI retains
ownership of"derivative works including improvements, additions and/or upgrades to
E-STARS" developed by LMSI at its private expense (id. at 200-01).

DFAS Requests DCAA Audit

       14. DFAS requested a DCAA audit ofLMSI's transition proposal. By email
dated 8 September 2009 to Ms. Clark, DCAA, Mr. Miller, DFAS, stated:

               Just to clarify, the request [for audit] only pertains to part 3
               of the proposal, not the entire proposal. Specifically,
               DFAS is trying to ascertain that LM is only proposing the
               costs to develop RAPID and has not included profit. The
               costs to develop RAPID are allowable according to clause
               H.10 below.

(R4, tab 16 at 204) Mr. Miller was stating DFAS' interpretation ofH.10 at that time
(tr. 2/196). CO Minnich, DFAS (tr. 2/115), agreed with this email and explained that he
interpreted the words "at no additional cost" in H.10 to allow for the payment of the cost to
develop RAPID and then DFAS would have the right to a no-cost license (tr. 2/137-38).
CO Minnich was persuaded that LMSI had not billed nor been paid for the development of
RAPID (id.). CO Minnich would not allow profit because H. l 0 used the term "costs" and
cost does not include profit (tr. 2/139). Mr. Vittori also recalled that CO Minnich believed
that LMSI's cost to develop RAPID was allowable (tr. 1/142-43). CO Minnich did not
consider H.8 when arriving at his first interpretation ofH.10 because RAPID was not part of
DRAS (tr. 2/189).

Tentative Agreement on Price for RAPID

       15. Mr. Vittori recalled a 20 October 2009 meeting he attended with
Mr. Jim Egeland, LMSI program manager, Mr. Doug Smith, DFAS project office lead, and
CO Miller, 3 DFAS (by phone) (tr. 1/137-38). CO Miller recalled the 20 October 2009
meeting/conference call and testified that Mr. Smith and Mr. Egeland started "haggling"
over the purchase price for RAPID and agreed on $2.6M. CO Miller did not participate in
the "haggling" and agreement on price. He did not agree to the price. (Tr. 2/196-98) At
the end of the meeting CO Miller stated that DFAS would have to provide information that

3
    Sometime before this meeting Mr. Miller was apparently elevated from contract
       specialist to contracting officer.

                                              9
would allow him to determine that the $2.6M was fair and reasonable (tr. 2/200).
Mr. Vittori testified that the $2.6M was less than LMSI's proposal and did not include profit
(tr. 11139). He also recalled CO Miller added the caveat about reasonableness at the end of
the meeting (tr. 11139-40). He testified that the $2.6M included the initial development,
enhancement, third party software and hardware, what he referred to as "one bundled price"
(tr. 11140).

The 20 November 2009 DCAA Audit

        16. The results ofDCAA's 20 November 2009 audit were summarized as
follows:
                                                   Unsupported
                           Proposed    Questioned      Costs     Difference
Element of Cost              Costs       Costs       (Note 2)     (Note 1)            Notes
Enhancements (Labor)      $ 255,319   $            $             $ 255,319              3
Other Direct Costs:
  Original Investment      1,276,608    911,727                     364,881             4
  Third Party Software       287,776                    31,617      256,159             5
  Hardware Refresh           586,177                    43,136      543,041             5
Material                     543,746                  543,746                           6
Overhead                     168,766                                168,766             7
Subtotal                  $3,118,392  $ 911,727    $ 618,499     $1,588,166
Product Line Works-Civil      28,321     10,029                      18,292             8
Total Cost Input          $3,146,713  $ 921,756    $ 618,499     $1,606,458
G&A                           171,275        62,877                         108,398     9
Total Costs                $3,317,988     $ 9842633      $ 618A92        $127142856
Profit                        300,272                                                   10
Total Price (FFP)          $326182260


(R4, tab 29 at 272) There are differences between the numbers in the transition proposal,
part 3 (finding 12), and the above table that are not explained in the record. We use the
numbers in the audit, which we consider the most accurate.

        17. Ms. Clark, DCAA lead auditor (tr. 11210), explained that "[q]uestioned
costs" are costs that DCAA received evidence for, but not enough for DCAA to "say
[the] costs were okay" (tr. 11221). Unsupported costs are costs for which DCAA did not
receive any supporting evidence (id.).

       18. Exhibit Bis LMSI's cost proposal that was audited by DCAA (tr. 1186-87).
Exhibit B includes an amortization table that identifies monthly payments totaling
$2,300,624 spread over June 2005 through November 2011 charged to project code




                                          10
DFFROD 4 (gov't ex.Bat 2155). Mr. Jablonowski testified that the $2,300,624 "was the
original cost of RAPID done by the Hanford site" (tr. 1/73). The monthly amortization
amounts between June 2005 and November 2011 were payments out ofLMSI's profit on
Contract 0002 to pay for the $2,300,624 original development cost of RAPID done at
Hanford (tr. 1/73-74; gov't ex.Bat 2155). The $1,276,607.89 listed in the audit was
calculated by subtracting the $1,024,016 value of items "that were not in service and use in
operation" from the $2,300,624 original cost of RAPID (tr. 1/75; gov't ex.Bat 2003).

        19. Ms. Clark testified she looked at the labor charged to RAPID between 2004
and 2009 that is summarized on exhibit Bat page 2134 (tr. 1/223). Contrary to
Ms. Clark's testimony, Mr. Jablonowski testified that the labor data seen on exhibit B, at
page 2134, was for all Hanford labor for 2004 to 2009 regardless of scope, not just for
RAPID (tr. 1/78-79). Hanford did all of the work developing and enhancing RAPID
(tr. 1/38, 71), but that was not the only work Hanford did. Exhibit B identifies
$1,021,276.41 in Hanford labor costs 5 from 2004 to 2009 (tr. 2/29-30; gov't ex.Bat
2134). Hanford estimated that 25% of that labor was for enhancements to RAPID
(tr. 1/79-80). The $255,319 enhancement labor in the DCAA audit is based on 25% of
$1,021,276.41 (.25 x $1,021,276 = $255,319) (tr. 1/225, 2/20-21). Mr. Jablonowski
verified that the $255,319 was for labor at Hanford relating to enhancements of RAPID
(tr. 1/71-72; gov't ex.Bat 2001). Ms. Clark testified that because the $255,319 was
calculated based on a 25%6 estimate DCAA could not audit the actual number and
therefore questioned the entire amount (tr. 1/226).

        20. Mr. Zeuke also worked on the 20 November 2009 audit (tr. 2/62).
He evaluated the Other Direct Costs/Original Investment amount of $1,276,608
(tr. 2/63-64). He agreed with Mr. Jablonowski that the $1,276,608 was calculated using
the amortization table for the RAPID (R4, tab 55 at 684) and LMSI's "shelved or no
longer used or a future use value cost associated with the original investment"
(tr. 2/64-65). The amortization table shows amortization of$2,300,624 for RAPID
(tr. 2/65; R4, tab 55 at 684). The value of the shelved items was $1,024,016 (tr. 2/66;
gov't ex.Bat 2002-03). Therefore, $2,300,624 - $1,024,016 = $1,276,608 is the number
for original investment on the summary table in the audit (tr. 2/66). Note 4 in the audit
explains why DCAA questioned the $911,727, "we question $911,727 of the contractor's
$1,276,608 RAPID Original Investment amount, based on a recalculation of the asset's
book value at the date of the start of the period of performance for this task order/contract"
(R4, tab 29 at 274). Mr. Zeuke explained that the $911,727 in Questioned Costs

4
    DFFROD is a code associated with Contract 0002 (tr. 2/106-97; R4, tab 29 at 6).
5   Ms. Clark testified that they verified that LMSI was charging the correct labor
        rates-DCAA did not find any discrepancies to what they were charging based
        on their books and records (tr. 1/227).
6
    There is no labor code for RAPID™ enhancement which is why they used an
        engineering estimate of 25% for enhancement labor (tr. 1/121-22).

                                            11
"represents the amount of the original investment that would have been amortized and
charged to the contract up until the period of performance begins for the new proposal
which was February of 2010"7 (tr. 2/67; R4, tab 29 at 272, 274). The $364,881 was the
unamortized remainder. Mr. Zeuke agreed that he did not question that LMSI actually
incurred the $911,727 (tr. 2/68).

       21. Mr. Zeuke testified that he believed that LMSI had been paid for RAPID's
"original investment" cost:

               In the case of the original investment, that was a business
               decision by Lockheed to develop this system to meet the
               requirements of their fixed price contract and it was
               considered as part of their pricing.

(Tr. 2/84)

LMSI 's Position on H 10

       22. Although it is unclear from the record what LMSI was responding to, by
email dated 31 December 2009 to CO Minnich, Mr. Vittori presented LMSI's position on
Clause H.10 and RAPID. Mr. Vittori took the position that H.10 did not apply to RAPID
because DFAS had never paid LMSI for the development of RAPID, had never modified
the contract to incorporate RAPID into the contract and because RAPID was a
commercial product. (Tr. 1/146-47; R4, tab 99 at 1570-71)

        23. By email dated 21January2010 to Mr. Vittori, CO Minnich stated, "While we
agree that a price agreement was reached at $2.6M, I have to have an adequate basis for
the award, technical support could not provide support for the agreed to price, and for all
the reasons we previously discussed H.10 applied to RAPID" (R4, tab 36 at 322;
tr. 1/165-66).

LMSl's Certification

       24. By email dated 9 December 2009 to CO Minnich, Mr. Vittori stated, "An
area of audit concern seems to be the $91 lK of 'questioned' costs. As I stated
yesterday, we can certify that all costs have not been charged or claimed since that is
the basis as to why DCAA challenged that amount." (R4, tab 33 at 295; tr. 1/156-57)
Mr. Vittori recalled that CO Minnich agreed that LMSI incurred the $911,727; his
concern was that they had somehow been paid that amount (tr. 1/158-59).

7   The $911,727 was calculated by multiplying $1,276,608 by the ratio of the
        accumulated depreciation for February 2010 ($1,643,058.58) to the total
        depreciation ($2,300,624) (see R4, tab 55 at 684).

                                            12
        25. By email dated 26 January 2010 to CO Minnich, Mr. Vittori provided a draft
certification with attached financial data (amortization table) that he offered to sign to
support the fact that LMSI had not been paid the $911, 727 questioned in the DCAA audit
(tr. 1/170-72; R4, tab 37). Mr. Vittori ultimately signed8 the certification and submitted it
to DCAA on 30 June 2010 (tr. 1/176; R4, tab 9; gov't ex.Cat 2332-35). The certification
reads:

                In response to DCAA Exception Note 4 of audit report No.
                6271-2009B21000015 [November 20, 2009], LM has
                reviewed the $911,727 of costs and these costs are in
                relation to the original RAPID™ investment baseline
                installed in 2004. These costs were charged to an internal
                account to capture costs that are non-reimbursable (code
                DFFROD). We have verified that this specific account
                code is one that does not generate an invoice and have
                confirmed that these costs have not been previously billed
                or charged to DFAS or other US Government entity.

                Based on the above analysis, LM certifies that, to the best
                of our knowledge and belief, the cost data submitted in
                support of the Lockheed Martin Proposal for RAPID™
                [dated August 5, 2009] was based on actual incurred costs,
                accrued and booked in the Lockheed Martin Services, Inc.
                accounting system and although they may not reflect all
                costs incurred toward the product support and
                development, they are current, accurate and complete
                regarding the LM internal project RAPID™ in accordance
                with FAR Part 15. [Brackets in original]

(R4, tab 9)

Modification No. P00089

        26. On 8 January 2010, CO Minnich issued unilateral Modification No. P00089
(R4, tab 3 at 15; tr. 1/123). In his transmittal letter to LMSI he stated that LMSI was
entitled to just compensation under H. l 0 for RAPID cost, which was included in the
modification, based upon the amount the DCAA audit substantiated. He noted that LMSI
could seek different terms through a request for equitable adjustment or the contract's
disputes provisions. (R4, tab 35 at 301-02)

8
    The certification date of 5 August 2009 is incorrect because the certification states it
        is in response to the 20 November 2009 audit (R4, tab 9).

                                              13
       27. Unilateral Modification No. P00089 paid LMSI a total of $1,459,537.44 as
follows:

               User License: $779,089.39
               Hardware:     $485,626.09
               Software:     $194,821.96
               Total:      $1,459,537.44

(R4, tab 3 at 16) The $1,459,537.44 was calculated by reducing the $1,714,856 in the
audit's Total Costs "Difference" column by the audit's "Enhancements (Labor)" of
$255,319 because this was based on a 25% estimate (tr. 2/132-33; R4, tab 29 at 272;
ex. A, column A). The $485,626.09 was calculated by "straight line ten year"
depreciation ($57,415) of the $543,041 in the audit's Hardware Refresh "Difference"
column (tr. 2/131-32; R4, tab 29 at 272; ex. A, block Cl I). The $194,821.96 was
calculated by reducing the audit's $256,159 in the Third Party Software "Difference"
column by $61,337 for software not in use (tr. 2/132; R4, tab 29 at 272; ex. A, block C12).
The $779,089.39 User License is simply the difference between Total Costs and the sum
of depreciated Hardware Refresh and adjusted Third Party Software: $1,459,537.44 -
($485,626.09 + $194,821.96) = $779,089.39 (tr. 2/133; ex. A, column B) Profit was not
paid because CO Minnich interpreted Clause H.10 to preclude profit (tr. 2/134).

       28. Unilateral Modification No. P00089 9 added DFAS Local Clause 2010-01,
Price Redetermination-RAPID, which provided for either an increase in the contract
amount or a decrease and repayment to the government. The clause stated in part:

               (a) General. The total price stated in this contract may be
               redetermined in accordance with this clause and clause
               H-10 ... but in no event shall the total amount paid under
               this contract exceed $2,600,000.00.



               (c) Data Submission ...




9   Effective 19 February 2010 Modification No. P00089 was replaced in its entirety by
        unilateral Modification No. P00091, executed by CO Miller. The modifications
        are identical except for the name of the contractor. (R4, tab 4 at 38 et seq.) We
        will use P00089 in this decision.

                                            14
             .. .If it is later determined that the Government has overpaid
             the Contractor, the excess shall be repaid to the
             Government immediately.

             (d) Price determination. Upon the Contracting Officer's
             receipt of the certified cost and pricing data required by
             paragraph (c) of this section, the Contracting Officer and
             the Contractor shall promptly negotiate to redetermine fair
             and reasonable prices for supplies delivered and services
             performed by the Contractor under this contract.



             (g) Disagreements. If the Contractor and the Contracting
             Officer fail to agree upon redetermined prices ... the
             Contracting Officer shall promptly issue a decision in
             accordance with the Disputes clause.

(R4, tab 35 at 304-05)

      29. By email dated 21January2010 to Mr. Vittori, CO Minnich writes:

             While we agree that a price agreement was reached at
             $2.6M, I have to have an adequate basis for the award,
             technical support could not provide support for the agreed
             to price, and for all the reasons we previously discussed
             H.10 applied to RAPID .

             ... The $91 lK has not been adequately documented. The
             statement you provided in supporting the $91 lK affirms
             the position that these charges were not billable, but your
             statement does not rise to a level of cost or pricing data
             certification as proscribed in FAR 15.406. I still do not
             understand the basis for the $911 K. Also beyond meeting
             the specific issue identified by the Audit, I also have to
             overcome the overall remark by the auditor that they found
             the proposal unsuitable for a basis for negotiations.

(R4, tab 36 at 322-23)

       30. By email dated 26 January 2010 to CO Minnich, Mr. Vittori submitted
"support for DFFROD" in the form of an amortization table and profit and loss statement
(R4, tab 55). The amortization table shows that the $2,300,624 original expense was


                                          15
amortized each month from June 2005 through November 2011 in the amount of
$27,582.06 (June 2005 to July 2008) and $31,312.64 (August 2008 to November 2011)
(tr. 2/104-05; R4, tab 55 at 684). On 7 April 2010 CO Minnich forwarded the documents
to CO Miller stating, "Here is additional documentation showing that the LM investment
for RAPID against non-chargeable accounts meets and exceeds the amount of the agreed
to value/cost of RAPID" (R4, tab 55 at 682).

The License Agreement

        31. Mr. Vittori and CO Minnich signed a software license agreement for RAPID on
27 and 28 January 2010 respectively (tr. 2/124; R4, tab 38 at 337). The license granted
DFAS a "perpetual, irrevocable, non-exclusive, world-wide, royalty-free license to install,
use, reproduce, modify and integrate the Product [RAPID] into your DFAS proprietary and
licensed systems" (R4, tab 38 at 333; tr. 1/54-55). Mr. Vittori and CO Minnich did not put
in a price for the license because they did not agree on the amount (tr. 1/203; R4, tab 38 at
334). The payment clause (paragraph 6) simply directs that DFAS agrees to pay the fee
specified in Modification No. P00089 (R4, tab 38 at 334).

       32. Mr. Vittori recalled attending an "in-person" meeting in Cherry Hill,
New Jersey, on 3 August 2010 with DCAA to discuss RAPID (tr. 1/191-92). The record
contains a "Summary Rapid Meeting 8-3-10" in bullet format apparently written by
Ms. Clark, 10 DCAA (R4, tab 44). One bullet reads, "We questioned how LMSI paid for
RAPID since it was not a part of the original bid - they claimed to have borrowed profit
& that they amortized it over time, RAPID was paid over time with LMSI' s profit" (id.).

Certified Claim

        33. On 19 July 2011, LMSI submitted 11 a certified claim to CO Miller requesting
that the contract price be raised pursuant to the price redetermination clause from the
$1,459,537.44 authorized by Modification No. P00089 to the full capped amount of
$2,600,000, for a claimed amount of $1,140,462.56 (R4, tab 53 at 587, 601).

       34. By final decision dated 21December2011, CO Miller denied LMSI's
claim (R4, tab 63). The decision reads in part:

                      IV. Contracting Officer's Decision:
                      Clause H. l 0 requires LMSI to provide DFAS a
                      "perpetual, irrevocable, non-exclusive, world-wide,
                      royalty-free license" to "install, use, copy, modify

10
     A box on the bottom of the document indicated "Auditor JLC" and one of the
        attendees was Jamie Clark ofDCAA (R4, tab 44).
11
     Sent by email (R4, tab 53 at 587).

                                            16
                    and incorporate" RAPID into DFAS' s systems "at
                    no additional cost." Therefore, LMSI must provide
                    the license to DFAS for an amount equal to LMSI's
                    actual costs to develop RAPID. LMSI has argued
                    that its actual costs to develop RAPID exceed
                    $2,600,000.00, so DFAS should increase CLIN
                    0065 to the not-to-exceed amount of$2,600,000.
                    However, DFAS is unable to validate LMSI's
                    claimed costs because LMSI did not properly
                    account for the development costs at the time the
                    costs were incurred. Therefore, the DFAS
                    Contracting Officer has determined that the original
                    obligated price of $1,459,537.44, based on and
                    supported by the DCAA audit, is the final purchase
                    price for the RAPID license, and will not increase
                    the price to the not-to-exceed amount of $2,600,000
                    as LMSI has demanded in its certified claim.

(R4, tab 63 at 856-57)

      35. On 15 March 2012 LMSI appealed the 21December2011 final decision to
the ASBCA. On the same day the Board docketed the appeal as ASBCA No. 58028.

DFAS 's Motion for Partial Summary Judgment

        36. On 1October2012, DFAS filed a motion for partial summary judgment
asking the Board to decide that LMSI was not entitled to any license fee for its use of
RAPID. On 20 February 2013 the Board issued its decision finding that since there was
no final decision demanding the return of the license fee of $779,089.39 the Board lacked
jurisdiction to consider the motion. Lockheed Martin Services, Inc., ASBCA No. 58028,
 13 BCA ~ 35,244.

DFAS Demands the License Fee Back

       37. Unilateral Modification No. P00092, signed by CO Minnich on 6 May 2013,
was issued to "correct modification P00091" (we use P00089 in this decision) to reduce
the $779,089.39 license fee to zero and stated that LMSI was indebted to DFAS in that
amount (supp. R4, tab 124 at 1690). Modification No. P00092 did not change
Modification No. P00089's allowance of $485,626.09 for hardware and $194,821.96 for
software. CO Minnich previously interpreted H.10 to allow him to pay for the cost of
RAPID since Mr. Vittori insisted that LMSI had not been paid for RAPID (tr. 2/117-18,
120). However, CO Minnich now believes that he was mistaken because RAPID was a
"replacement" for GFE/MIRORS and that it does fall within H.10 (tr. 2/121-22,


                                          17
2/180-81). Modification No. P00092 was issued in final decision format with appropriate
appeal rights stated (supp. R4, tab 124 at 1692).

       38. On 18 July 2013, LMSI appealed the final decision to the ASBCA. On
25 July 2013 the Board docketed LMSI's appeal as ASBCA No. 58794.

                                       DECISION

      LMSI replaced DRAS AIS (MIRORS) with RAPID which it developed and
enhanced at its own expense. DFAS now performs DRAS work using LMSI's RAPID
system but for the reasons discussed herein contends it is not obligated to pay for it. In its
appeals LMSI asks that this Board require DFAS to pay it $1,140,462.56 for RAPID, the
unpaid amount remaining in the $2.6M cap it agreed to and reflected in Modification
No. P00089.

        Resolution of this appeal requires the Board to interpret clauses in contract Sections
C (PWS), H, and J. DFAS relies on section J.4.3.1, Replacement of Government-
Fumished Equipment, for the proposition, "There can be no question that Appellant's
replacement ofMIRORS with RAPID was the replacement ofGFE, which was to be done
as part of the Contract price" (gov't br. at 17-18). DFAS assumes, without any analysis of
contract language, that the DRAS AIS is GFE. DFAS interprets H.10 Vendor Proprietary
Technology, to require LMSI to provide it with a license to use RAPID at no additional
cost (gov't br. at 18-19). LMSI chooses to focus on Modification No. P00089 arguing that
DFAS is attempting to improperly rescind its agreement to pay for RAPID (app. br. at
14-18). We disagree with both parties' arguments.

DRAS AIS is Not GFE

        PWS paragraph 7 .1.4, with respect to GFE, states that the GFE for the contract is as
listed in section J.4 of the contract (finding 2). Section J.4.3 does not list the GFE but
instead states that the specific items of GFE shall be as stated in the contractor's proposal
(finding 4). The contractor's proposal does not list any specific items of GFE (fn. 1).
Moreover, section J .4.6 identifies the item that the government now alleges is GFE as GFP
(finding 4). It is clear that the contract distinguishes between GFE, GFP and GFS (finding
4). We cannot accept the government's interpretation. Alternatively, because there is
some confusion in terminology in the contract, if we were to continue to interpret the
various relevant clauses in the contract the result would not be different. We consider
PWS, paragraph 7, Government-Furnished Property and Services (finding 2). We take
particular notice of which subparagraphs of PWS paragraph 7 refer to contract section J.4,
Government-Furnished Property and Services. 12 Paragraph 7.1, Government-Furnished
Property and Services, states that the government "will provide the property, facilities,

12
     We note that WBS paragraph 7 and contract section J.4 share the same title.

                                            18
materials, and services described in Section J-4" (id.). Subparagraph 7.1.2, Defense
Retired/Annuitant Pay (DRAS) Automated Information System (AIS), states that ifthe
contractor uses "Government-furnished DRAS AIS" that it will return the updated data
files to DFAS at the end of the contract. Importantly, this subparagraph does not refer to
contract section J.4. (Id.) Subparagraph 7.1.3., Facilities, states that the "government will
provide the facilities described in Section J.4 and proposed by the contractor in the current
'where-is/as is' configuration" (id.). Subparagraph 7 .1.4, Equipment, states that the
government "will provide the 'where-is/as-is' equipment listed in Section J-4" (id.). It is
significant that DRAS AIS in paragraph 7 .1.2 is separate and distinct from "Equipment" in
subparagraph 7.1.4. We conclude from this that DRAS AIS is not "equipment."

        Now we tum to contract section J, List of Documents, Exhibits, and Other
Attachments. Subparagraph J.4.3., Government-Furnished Equipment (GFE), states that
the government will furnish GFE "in an 'as is, where is' condition" (finding 4).
Subparagraph J.4.3.1., Replacement of Government-Furnished Equipment, states that
replacement of government-furnished equipment is the contractor's responsibility at no
cost to the government (id.). This is the provision DFAS relies upon to support its
argument it should receive RAPID at no cost. Subparagraph J.4.3.2., GFE Inventories,
states that GFE will be ''jointly inventoried" (id.). Subparagraph J.4.3.3., GFE
Maintenance, again provides that GFE is provided "as is, where is" and that maintenance is
the responsibility of the contractor (id.). Subparagraph J.4.3 .4., Replacement of GFE, 13
again states that GFE is provided "as is, where is" and any required replacement is the
responsibility of the contractor at no cost to the government (id.). Significant is the total
absence of any mention of DRAS AIS in subparagraph J.4.3. Also, subparagraph J.4.5.,
Use of GFE, GFP, and GFS, makes a distinction between "GFE," "GFP" and "GFS" (id.).
The contract defines "GFE" as "government-furnished equipment" and "GFP" as
"government-furnished property" but curiously does not define "GFS" 14 (id.). In
interpreting contract language we must read the contract as a whole. NVT Technologies,
Inc. v. United States, 370 F.3d 1153 at 1159 (Fed. Cir. 2004) (When interpreting the
contract, the document must be considered as a whole and interpreted so as to harmonize
and give reasonable meaning to all of its parts.). We therefore read PWS section 7 in
harmony with contract section J.4.3 to reach our interpretation. Because (1) DRAS is listed
as GFP in paragraph J.4.6.; (2) DRAS AIS in PWS paragraph 7.1 is not "equipment";
(3) PWS subparagraph 7.1.2, Defense Retired/Annuitant Pay (DRAS) Automated
Information System (AIS), does not refer to contract section J.4.; and (4) the DRAS AIS is
not referenced in contract section J.4.3., Government-Furnished Equipment (GFE), we
conclude that DRAS AIS is not GFE. Therefore, DFAS' argument that DRAS AIS is GFE
and must be replaced at no cost is unpersuasive.

13
     This appears to be a duplicate of paragraph J.4.3.1.
14
     Since section J.4 refers to government furnished property and services, we surmise
         the "GFS" stands for government-furnished services but have no way of
         determining if "GFS" includes MIRORS.

                                            19
Contract Clause H.10 Does Not Require LMSI to Give DFAS a No-Cost License

        Next we consider the proper interpretation of contract clauses H.8, H.10 and PWS
8.0 (findings 2, 3). Initially CO Minnich interpreted H.10 to allow for reimbursement of
the cost of developing RAPID. However, he interpreted H.10 standing alone; he did not
consider the relationship between H.8, PWS 8.0 and H.10. (Finding 14) We consider
CO Minnich's initial interpretation to be correct.

        Clause H.8 requires that the contractor start performance using DRAS: "If the
contractor proposes the Defense Retired/Annuitant Pay System (DRAS) to perform the
requirements" (finding 3). DRAS is MIRORS (finding 5). Next H.8 deals with the
situation where during performance the contractor decides DRAS needs to be "refreshed"
to "change the system configuration" (finding 3). Clause H.8 envisions the contractor
submitting a proposal for the change to DF AS and the parties would "negotiate the terms
and conditions" of a contract modification if DFAS allows LMSI to "change the system
configuration" (id.). We interpret "negotiate the terms and conditions" to mean that LMSI
would be paid for said change.

       PWS 8.0 applies when "the contractor uses an AIS other than DRAS" (finding 2).
We interpret this to mean the replacement ofDRAS AIS. PWS 8.0 envisions a paid
license for the new AIS, "[s]uch license shall be made available at the most favorable
terms, prices, and conditions provided to any other customer of the contractor" (finding 2).
The difference between H.8 and PWS 8.0 is that H.8 provides for an unspecified payment
and PWS 8.0 provides for a paid license. We conclude that PWS 8.0 and H.8 do not
conflict because H.8 does not prohibit payment from taking the form of a license. Both,
however, envision payment for a replacement ofDRAS AIS.

       Clause H.10 requires LMSI to provide "at no additional cost" a license ifDFAS
gives LMSI "written approval" to use "contractor or third party proprietary technology to
perform the services" (finding 3). The free license afforded by H.lO(b) "will not apply to
software, code or modifications which are generally commercially available on reasonable
terms" (id.). RAPID is a combination of DOE owned E-STARS software and LMSI owned
derivative software (finding 13). Mr. Vittori testified that RAPID had not been sold
commercially (finding 11). We conclude that RAPID is not "generally commercially
available on reasonable terms" and the exclusion in H.10 does not apply.

       We again follow the well known rules of contract interpretation that require us to
favor an interpretation that gives meaning to all parts of the contract. NVT Technologies,
370 F.3d at 1159 (An interpretation that gives meaning to all parts of the contract is to be
preferred over one that leaves a portion of the contract useless, inexplicable, void, or
superfluous.). Ifwe were to interpret H.10 to require a free license to use RAPID as
DFAS argues, we create a direct conflict between H.8, PWS 8.0 and H.10. H.8 provides


                                           20
that DFAS would pay LMSI for RAPID, whereas H.10, according to DFAS, gives DFAS
the right to a free license to use RAPID. There is obviously no reason for DFAS to pay
for RAPID if it had the right to use it for free. DFAS' interpretation renders H.8
superfluous. PWS 8.0 provides for a paid license whereas H.10, according to DFAS,
provides for a free license - a direct conflict rendering PWS 8.0 superfluous if we adopt
DFAS' interpretation.

        To avoid conflicts and give reasonable meaning to H.8, PWS 8.0 and H.10, we
interpret H.8 to allow payment for the replacement of the existing DRAS and H.10 to apply
to (1) the introduction of "proprietary technology" but while still using DRAS AIS
(MIRORS) or (2) to a replacement AIS paid for under H.8. The words in H.10 "at no
additional cost," are consistent with our interpretation that DFAS would pay for RAPID
under H.8. and then receive a free license under H.10. PWS 8.0 fills in the gap and provides
for a paid license ifDFAS has not paid for RAPID under H.8. This interpretation avoids the
conflicts discussed above, harmonizes H.8, PWS 8.0 and H.10, is reasonable and does not
render H.8 or PWS 8 superfluous. FSEC, Inc., ASBCA No. 49509, 99-2 BCA if 30,512 at
150,665 (an interpretation which gives a reasonable meaning to all parts of an instrument
will be preferred to one which leaves a portion of it useless, inexplicable, inoperative, void,
insignificant, meaningless, or superfluous, nor should any provision be construed as being
in conflict with another unless no other reasonable interpretation is possible). Since we
interpret H.10 to apply in situations where the DRAS is not replaced or a replacement is
paid for under H.8, it does not apply to RAPID. Under this interpretation, DFAS is not
entitled to a free license to use RAPID.

Modification No. P00089 and the $2. 6 Million Cap

       DFAS allowed LMSI to develop and implement RAPID, but did not exercise its
discretion to negotiate payment under H.8 15 (findings 5-9). Clause H.8 bestows upon
DFAS the discretion to do this, ''the contractor shall submit a proposal to the contracting
officer for consideration" (finding 3) (emphasis added). It is clear from the record that
MIRORS was obsolete and needed replacement (findings 9, 10). LMSI made the decision
to replace MIRORS at its own expense in order to successfully perform the contract
(finding 8). RAPID was implemented commencing in December 2004 (finding 11).
LMSI performed the contract using RAPID for five years until DFAS decided to bring the
work back in-house (finding 12).

        After DFAS decided to bring DRAS back in-house in 2009, LMSI submitted a
transition proposal in the amount of$3,074,514.15 comprised of: RAPID Third Party
Software $341,094.04; RAPID Hardware-Refresh $694,781.22; RAPID Baseline Value

15
     The first notice by ACS that it intended to replace MIRORS invoked H.8 as
        authority for negotiation of "terms," including ownership of the replacement
        system at contract termination (finding 6).

                                           21
$1,513,132.92; and Enhancements to Base $525,505.97 (finding 12). DCAA conducted
an audit ofLMSI's proposal (findings 14, 16-20). At this time CO Minnich interpreted
H.10 to allow DFAS to pay for the cost of developing RAPID (findings 14, 26).
CO Minnich and LMSI reached tentative agreement on a payment for the cost of
development of RAPID of $2.6 million subject to support that the amount was fair and
reasonable (findings 23, 29).

        CO Minnich issued unilateral Modification No. P00089 agreeing to pay LMSI
$1,459,537.44 for RAPID (finding 27). The modification included the $2.6 million cap
(id.). The $1,459,537.44 was the amount substantiated by the DCAA audit and adjusted
downward by DFAS (finding 16). Modification No. P00089 allowed: Software
$194,821.96; Hardware $485,626.09; and User License $779,089.39 (findings 28, 34).
Modification No. P00089 provided that the $1,459,537.44 could be redetermined 16 to
allow up to the full $2.6 million cap or a repayment ifLMSI was found to have been
overpaid (findings 27, 28). After Modification No. P00089, LMSI and DFAS entered
into a license for RAPID (finding 31). The license did not include the license fee because
the parties did not agree on what that fee would ultimately be (id.).

The $779,089.39 Was Not an Overpayment

        In 2013 CO Minnich changed his interpretation of H.10. He now believes that he
was mistaken because RAPID was a "replacement" for DRAS and pursuant to H.10
DFAS was entitled to a free license (finding 37). On 6 May 2013, CO Minnich issued
unilateral Modification No. P00092, to recoup the $779,089.39 license fee for RAPID he
allowed in unilateral Modification No. P00089 (id.). Modification No. P00092 recited
that it was issued to "correct modification P00091" (P00089) (id.).

        The correctness of Modification No. P00092 hinges on ifthe $779,089.39 was an
overpayment. It was not. DFAS' overpayment argument is based on its belief that it is
entitled to a royalty free license for RAPID pursuant to H.10. Our interpretation discussed
above concluded that H.10 does not apply to RAPID. Therefore, the government is not
entitled to the $779,089.39 demanded in Modification No. P00092.

LMSI has not been Paid for RAPID

      DFAS agreed to pay up to $2.6 million for RAPID in Modification No. P00089;
LMSI accepted that cap on its recovery (finding 28). LMSI's certified claim for
$1,140,462.56 (finding 33) is the difference between the $1,459,537.44 paid in

16
     In its argument that DFAS cannot "rescind" Modification No. P00089 to recover
          the $779,089.39 license fee LMSI overlooks this provision that allows the
          government to reopen Modification No. P00089 to make corrections for
          overpayments (app. br. at 16-18).

                                           22
Modification No. P00089 and $2.6 million cap. In his final decision denying LMSI's
claim, CO Minnich stated that while the $1,459,537.44 was supported by the DCAA audit,
the audit did not support an additional payment and "DF AS is unable to validate LMSI' s
claimed costs because LMSI did not properly account for the development costs at the time
the costs were incurred" (finding 34). The issues for the Board to decide are did LMSI
incur up to the additional $1,140,462.56 to develop and enhance RAPID and if so, has it
been paid?

        MIRORS was obsolete and required replacement (findings 7, 9-10). LMSI's
Hanford organization did all of the development and enhancement work on RAPID
(findings 19, 20). The development work was performed before December 2009 when
RAPID was deployed (finding 11). The costs to develop RAPID were allocated to project
code DFFROD that was a non-reimbursable account (findings 17, 25, 30). The original
development cost of RAPID was $2,300,624 (findings 18-20). LMSI paid Hanford the
$2,300,624 out of its Contract 0002 profits. This was done on a monthly basis between
June 2005 and November 2011 that is documented on an amortization table. (Finding 30)
The amortization table is important because DFAS used it to question development costs
in its audit (finding 20 n.6). DFAS does not contest that LMSI incurred the $2,300,624
(findings 19-20).

       The original investment number in the DCAA audit summary is $1,276,608. This
was arrived at by subtracting $1,024,016 for out-of-service items from the $2,300,624
original investment (findings 19-20). Since both appellant's witness, Mr. Jablonowski
(finding 18), and the government's witness, Mr. Zeuke (finding 20), accepted this
reduction as correct, we accept it.

        In its audit, DCAA questioned $911,727 of the $1,276,608 original investment
(findings 16, 20). The $911,727 was the amount of the $1,276,608 amortized through
February 2010 (finding 20 n.6). DCAA found that LMSI incurred the $911,727 (id.).
DCAA questioned the costs because it believed that the amortized costs had been charged
to Contract 0002 (findings 20-21). The basis for DCAA's belief that the amortized
amount of $911, 727 was charged to the contract is not explained in the record. If it is
based on DFAS' position that DRAS AIS is GFE and contract clause J.4.3.1. required
LMSI to replace GFE at no cost to DFAS (gov't br. at 17-18), we found that
interpretation to be wrong above. Mr. Zeuke also testified that the original investment of
RAPID "was a business decision by Lockheed to develop this system to meet the
requirements of their fixed price contract and it was considered as part of their pricing"
(finding 21). Mr. Zeuke's testimony is unsupported by the record and based on a legal
interpretation ofH.10 that Mr. Zeuke is not competent to offer. LMSI submitted a signed
certification to DCAA on 30 June 2010 stating that the $911, 727 had never been billed to
the government or otherwise paid by the government (finding 25). This certification is
unrebutted by DF AS. We conclude that LMSI has not been paid the development costs
for RAPID.


                                          23
         The record contains a listing of labor costs at Hanford from 2004 through 2009 in
 the amount of $1,021,276.41 (findings 19-20). Ms. Clark audited these costs and verified
 their accuracy (id.). The $255,319 enhancement cost was based on Hanford's estimate
 that 25% of its work after RAPID was deployed was for enhancement (finding 20). The
 $255,319 was not "questioned" in the audit summary, but was subtracted from the
 amount paid to LMSI by Modification No. P00089 because DCAA could not audit an
 estimate (findings 16, 19). The validity of the 25% estimate is unrebutted by DFAS. We
 see no reason why Hanford cannot reasonably estimate the labor it spent on
 enhancements to RAPID and we accept the 25% and the $255,319 as the amount incurred
 by LMSI for enhancements to RAPID. Under these circumstances, this amount should
 not have been subtracted from the $1,714,856 in the DCAA audit that was used by DFAS
 to justify payment in Modification No. P00089.

        The difference between the $2.6 million cap and what LMSI was paid in
 Modification No. P00089 is $1,140,462.56 (findings 15, 23, 27). The sum of the
 improperly questioned $911,727.00 in original investment cost and improperly excluded
 $255,319.00 enhancement cost is $1,167,046.00. This amount is greater than the
 $1,140,462.56 remaining in the $2.6 million cap. Therefore, LMSI has proven its
 entitlement to the remainder of the capped amount.

                                    CONCLUSION

       LMSI's appeals in ASBCA Nos. 58028 and 58794 are sustained in the amount of
 $1,140,462.56 with CDA interest running from 19 July 2011 the date its certified claim was
 submitted to the CO.

       Dated: 8 December 2015


                                                 CRAIG S. LARKE
                                                 Administra ·ve Judge
                                                 Armed Services Board
                                                 of Contract Appeals

 I concur                                        I concur

~~ .,/k-/·H-                                442\
 STEMPL~
/ MARK N.
  Administrative Judge
                                                             .
                                                 RICHARD SHACKLEFORD
                                                 Administrative Judge
  Acting Chairman                                Vice Chairman
  Armed Services Board                           Armed Services Board
  of Contract Appeals                            of Contract Appeals


                                           24
     I certify that the foregoing is a true copy of the Opinion and Decision of the
Armed Services Board of Contract Appeals in ASBCA Nos. 58028, 58794, Appeals of
Lockheed Martin Services, Inc., rendered in conformance with the Board's Charter.

      Dated:



                                              JEFFREY D. GARDIN
                                              Recorder, Armed Services
                                              Board of Contract Appeals




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