 United States Court of Appeals for the Federal Circuit


                                       05-1393



                  MICHAEL W. WYNNE, Secretary of the Air Force,

                                                      Appellant,

                                           v.


                     UNITED TECHNOLOGIES CORPORATION,

                                                      Appellee.




       James W. Poirier, Attorney, Commercial Litigation Branch, Civil Division, United
States Department of Justice, of Washington, DC, argued for appellant. With him on
the brief were Peter D. Keisler, Assistant Attorney General, David M. Cohen, Director,
and Donald E. Kinner, Assistant Director. Of counsel on the brief was Bryan R.
O’Boyle, Senior Trial Attorney, Air Force Legal Services Agency, of Arlington, Virginia.
Of counsel was Robert P. Balcerek, AFMCLO/JAB, of Wright Patterson Air Force Base,
Ohio.

       W. Stanfield Johnson, Crowell & Moring LLP, of Washington, DC, argued for
appellee. With him on the brief was David Z. Bodenheimer.


Appealed from: United States Armed Services Board of Contract Appeals

Administrative Judge Jack Delman
 United States Court of Appeals for the Federal Circuit


                                         05-1393



                   MICHAEL W. WYNNE, Secretary of the Air Force,


                                                                      Appellant,

                                            v.

                      UNITED TECHNOLOGIES CORPORATION,

                                                                      Appellee.


                            ___________________________

                            DECIDED: August 28, 2006
                            ___________________________


Before NEWMAN, Circuit Judge, CLEVENGER, Senior Circuit Judge, and SCHALL,
Circuit Judge.

CLEVENGER, Senior Circuit Judge.

       The Secretary of the Air Force (Air Force) appeals from the reconsideration

decision of the Armed Services Board of Contract Appeals (Board) denying the Air

Force's claim for a contract price reduction for a six-year, multi-billion dollar contract

with United Technologies Corporation, Pratt & Whitney (UTech). See In re United

Techs. Corp., ASBCA Nos. 51410, 53089, 53349, 05-1 BCA ¶ 32,860 (Jan. 19, 2005)

(Reconsideration Decision). The Air Force claims that UTech furnished defective cost

or pricing data in connection with both its initial price proposal and its Best and Final

Offer (BAFO) for the contract, such that the Air Force was entitled to a contract price
reduction under the Truth in Negotiations Act (TINA), 10 U.S.C. § 2306(f) (1983).1

Because we agree with the Board that the Air Force did not establish that it relied upon

the defective cost or pricing data to its detriment, we affirm.

                                                  I

       TINA requires that when a government contract is expected to exceed a certain

value, a contractor must submit "cost or pricing data . . . [and] certify that, to the best of

his knowledge and belief, the cost or pricing data he submitted was accurate, complete

and current . . . ." 10 U.S.C. § 2306(f)(1). In addition, TINA requires that a contract

price be "adjusted to exclude any significant sums by which it may be determined . . .

that such price was increased because the contractor . . . furnished cost or pricing data

which . . . was inaccurate, incomplete, or noncurrent." § 2306(f)(2). In other words, the

government will be awarded a contract price adjustment when the government proves

that a contractor furnished defective cost or pricing data and "the [g]overnment relied on

the overstated costs to its detriment." Singer Co., Librascope Div. v. United States,

576 F.2d 905, 914 (Ct. Cl. 1978).2 When it is determined that a contractor furnished

defective data, there is a rebuttable presumption that the defective data resulted in "an

overstated negotiated contract price . . . . for it is reasonable to assume that the



       1
               TINA has undergone revision and recodification since 1984, as discussed
infra. Therefore, unless otherwise indicated, we will refer to the version of TINA
effective in 1983, when UTech offered the initial price proposal and the BAFO.

       2
             In Singer, our predecessor court assessed a TINA claim under the 1970
version of the act. 576 F.2d at 908. That version of TINA is identical to the 1983
version of the act in all ways material to this case. See 10 U.S.C. § 2306(f)(1) (1970)
("A prime contractor . . . shall be required to submit cost or pricing data . . . and shall be
required to certify that, to the best of his knowledge and belief, the cost or pricing data
he submitted was accurate, complete and current . . . .").



05-1393                                   2
government negotiators relied upon the data supplied by the contractor and that this

data affected the negotiations." Sylvania Elec. Pros., Inc. v. United States, 479 F.2d

1342, 1349 (Ct. Cl. 1973). However, if that presumption of causation is rebutted, the

government can only prevail upon proof that it relied upon the defective data to its

detriment in agreeing to the contract price.

       In the instant case, the Air Force sought a contract price reduction in the amount

of roughly $300 million, claiming that UTech furnished defective cost or pricing data in

connection with both the initial price proposal, which was made on August 17, 1983,

and the BAFO, which was made on December 5, 1983. In an initial decision, the Board

determined that although certain of the Air Force claims did not constitute defective cost

or pricing data, UTech had made a number of undisclosed mistakes which did constitute

defective cost or pricing data. Appeals of United Techs. Corp., ASBCA Nos. 51410,

53089, 53349, 04-1 BCA ¶ 32,556 (Feb. 27, 2004) (Initial Decision). The Board further

determined that the Air Force had relied on this defective data to its detriment.

However, the Board found that although the defective data had caused an increase in

the contract price in some instances, it had caused a decrease in the contract price in

other instances and that the contract price reductions to which the Air Force was

entitled were exceeded by the offsets to which UTech was entitled. Consequently, the

Board found that the Air Force did not prove "that it is entitled to an affirmative recovery

due to appellant's defective cost or pricing data." Id., slip op. at 39.

       Upon reconsideration, UTech challenged the Board's Initial Decision, arguing that

the Board's reliance analysis improperly focused on the Air Force's audit of the data

submitted with the initial price proposal.     Reconsideration Decision, slip op. at 2-3.




05-1393                                    3
UTech argued that the Air Force did not accept UTech's initial price proposal, dated

August 17, 1983. Rather, the Air Force accepted UTech's BAFO, dated December 5,

1983, for the base year of the contract, Fiscal Year 1985 (FY 85), and accepted revised

versions of that offer for the subsequent years of the contract, Fiscal Years 1986 - 1990

(FYs 86-90). Because each of the Air Force's claims were based upon its acceptance

of the BAFO and subsequent revised offers, UTech argued that the Board's "inquiry as

to causation should properly focus on whether the [Air Force] relied on the defective

BAFO cost or pricing data to award the contract and to determine that the offered prices

were fair and reasonable." Id., slip op. at 2.

       The Board agreed with UTech, finding that it had misplaced its analysis in the

Initial Decision, and that under the correct analysis the Air Force's claims failed. The

Board found that the Air Force was entitled to a presumption that "the natural and

probable consequence of defective cost or pricing data is to cause an overstated price."

Id. slip op. at 3. However, the Board found that UTech had rebutted this presumption by

demonstrating that the Air Force did not rely upon the allegedly defective cost or pricing

data in agreeing to any contract price and that the Air Force had failed to meet its

burden of proof, as the claimant, of showing that the defective cost or pricing data

caused an increase in the contract price.

       With respect to the contract price for FY 85, which was based upon the BAFO,

the Board found as a matter of fact that "neither the Defense Contract Audit Agency

(DCAA), the [Air Force] price analyst, the contracting officer (CO) nor the cost panel

reviewed the BAFO cost or pricing data prior to award." Id. The Board found that the

language in the Record of Acquisition Action (RAA) and attachments, which allegedly




05-1393                                   4
showed reliance on the defective cost or pricing data, was "seriously undercut by the

concession of the RAA author . . . that he did not recall reviewing any of appellant's

BAFO cost or pricing data." Id. The Board also found that the RAA did not discuss any

specific BAFO cost or pricing data relied upon by the Air Force price analyst or the cost

panel.    In addition, the Board found that the Air Force failed to provide evidence

indicating that the BAFO data was reviewed by any government person prior to award.

Although the Air Force price analyst and the CO testified that they relied on the fact that

the BAFO data furnished by appellant were current, accurate, and complete, the Board

found that "this testimony--given roughly 17 years after the fact--was lacking in

specificity and was unpersuasive." Id. Noting that "[w]e are hard pressed to understand

how the AF could have relied on BAFO cost or pricing data--defective or otherwise--that

no one reviewed[,]" the Board concluded that the Air Force had not shown reliance upon

the defective cost or pricing data, and that "it failed to show that appellant's defective

BAFO cost or pricing data caused an increase in contract price for the base year of the

contract." Id.

         With respect to the contract price for FYs 86-90, the Board noted that the Air

Force did not exercise its contract options under the same terms and conditions

contained within the BAFO, but instead sought more advantageous offers from UTech

and a competitor each year. For each of these years, the CO stated in a memorandum

that that UTech's revised offer was "the most fair and reasonable" based on "a market

test between the competitors." Id., slip op. at 4 (internal quotations omitted). Further,

the Board noted that the CO for FYs 86-90 did not review the BAFO cost or pricing data

at any time, but rather relied on the predecessor CO and the RAA, which the Board had




05-1393                                  5
already found did not rely on the defective cost or pricing data. Thus, the Board found

that "competitive forces, rather than the defective 1983 BAFO cost or pricing data were

relied upon to make the awards and to exercise the options for additional purchases for

FYs 86-90," such that the Air Force "failed to show that appellant's defective data

caused an increase in the contract price for these years." Id., slip op. at 5.

       Thus, the Board held that the Air Force could not recover on any of its TINA

claims, as it failed to establish reliance upon the allegedly defective cost or pricing data.

As a result, the Board declined to address the Air Force's motion for reconsideration on

its denied claims, in which the Air Force alleged that the Board erred in the Initial

Decision when it found that certain of its claims did not constitute defective cost or

pricing data. Id., slip op. at 5-6 n.3.

       The Air Force appeals the Reconsideration Decision, and we have jurisdiction

pursuant to 28 U.S.C. § 1295(a)(10) (2000).

                                              II

       The Contract Disputes Act ("CDA"), 41 U.S.C. § 609(b) (2000), governs this

court's review of Board decisions. While the CDA provides for nondeferential review of

the Board's legal conclusions, it specifies that the Board's factual findings shall be final

and conclusive unless they are "fraudulent, or arbitrary, or capricious, or so grossly

erroneous as to necessarily imply bad faith, or if such decision is not supported by

substantial evidence."     Id.; see Campbell Plastics Eng'g & Mfg., Inc. v. Brownlee,

389 F.3d 1243, 1246 (Fed. Cir. 2004).

       The issue before this court is whether the Board erred in the Reconsideration

Decision.    On appeal, the Air Force does not contest any of the factual findings




05-1393                                   6
underlying the Reconsideration Decision, but instead claims that the Board applied the

law incorrectly. In particular, the Air Force argues that it is never necessary to establish

that it relied upon the defective cost or pricing data to its detriment, as it is sufficient to

establish that the contract price offered by UTech was calculated using the defective

cost or pricing data.

       We disagree. Section 2306(f) of Title 10 requires modification of a contract price

where "such [contract] price was increased because the contractor . . . furnished cost

and pricing data which . . . was inaccurate, incomplete, or noncurrent." As we noted in

Singer, "[t]he ultimate question . . . is whether [the contractor] adequately disclosed to

the Government the ‘accurate, complete, and current’ . . . costs . . . . [and] whether the

Government relied on the overstated costs to its detriment." 576 F.2d at 914 (emphasis

added). In other words, a contract price has been increased by defective cost or pricing

data when the government relied on the defective data to its detriment in agreeing to the

contract price.

       That reliance on defective data is a necessary element of a TINA claim was

reinforced by this court's decision in Universal Restoration, Inc. v. United States, in

which we found that the government could not recover on its TINA claim, even though

the contract price was calculated using defective data. 798 F.2d 1400, 1402, 1406

(Fed. Cir. 1986) (holding that government could not recover under TINA even though

billings were "calculated on the basis of the 115% markup for overhead" and the court

"[a]ccept[ed] as correct that Universal's overhead rate was in fact lower than 115%"). In

that case, we held that the presumption that defective cost or pricing data caused an

increase in contract price was rebutted when the contractor demonstrated that it would




05-1393                                    7
not have accepted a lower contract price than the price calculated using the defective

data. Id. at 1406 ("If Universal would accept no less . . . there would have been no

contract, not a contract at a lower price.      The conclusion is inescapable that [the

defective data] . . . did not affect the agreed-upon contract price."). Much like the Air

Force in the instant case, the government "relied solely on the presumption that

nondisclosure resulted in an overstated contract price . . . ." Id. Once the presumption

of causation had been rebutted, the government failed to furnish additional arguments

or evidence showing that it relied upon the defective cost or pricing data to its detriment.

As a result, its TINA claim failed. Id.

       The Air Force cites to Sylvania and Lockheed Aircraft Corp., Lockheed-Georgia

Co. Division v. United States, 432 F.2d 801, 806 (Ct. Cl. 1970), for the proposition that

"the causation element of TINA may be established merely by demonstrating a causal

link between the defective data and the final contract price."3 Appellant's Br. at 45-46.

However, in Sylvania, we found that this causal link was established because the

contractor failed to rebut the presumption that "the government negotiators relied upon

the data supplied by the contractor and that this data affected the negotiations."

479 F.2d at 1349. Thus, we affirmed the Board's factual finding that the government

relied upon the inaccurate data. Id. Similarly, in Lockheed, we found that the requisite

causal link existed because, in agreeing to the contract price, the government had relied



       3
             The Air Force also cites to M-R-S Manufacturing Co. v. United States,
492 F.2d 835, 841 (Ct. Cl. 1974), in support of its argument. However, M-R-S
Manufacturing does not address whether reliance upon defective data is a necessary
element of a TINA claim. Instead, it discusses what data must be disclosed to the
government and whether the government may waive such disclosure. Here, UTech
argues not that the Air Force waived the disclosure requirements, but rather that the Air
Force has not established that any failure to disclose actually caused it harm.


05-1393                                   8
upon its own audit, which had in turn relied upon the defective pricing. 432 F.2d at 806

("Whether the Air Force thus relied on its own audit, as opposed to Midwestern's

records, is immaterial. . . . [The] Air Force audit was based on the information in the

Kardex file, which we have found to be deficient when measured against the

requirements of the Defective Pricing Clause . . . .").4    Thus, in both Sylvania and

Lockheed, this court found that the government had relied upon the defective cost or

pricing data at issue.

       Indeed, in 1986, Congress considered and rejected amendments to TINA that

would have eliminated the reliance requirement. The legislative history of the 1986

amendments recognized that, as the law stood, the government could not recover on a

TINA claim if it did not rely on the allegedly defective cost or pricing data to its

detriment:

       Existing law has been interpreted to require that, in order to recover under
       TINA, the contractors' failure to disclose must have resulted in the
       government's being misled into agreeing to a price greater than it would
       have agreed to had the correct information been provided. Accordingly, if
       a contractor proves that the government did not rely on the cost and
       pricing data submitted by the contractor or that, even if it had known the
       correct information, the government would not have been able to negotiate
       a better price, the government could not recover.

H.R. Rep. No. 99-718, at 260 (1986) (emphases added). The proposed bill would have

changed the rebuttable presumption of reliance upon defective pricing data into a

conclusive presumption of reliance. Acquisition Reform - 1986: Hearing on H.R. 4548




       4
              Although the Air Force audited UTech's initial price proposal, the Air Force
did not demonstrate any causal link between the BAFO and the initial price proposal.
Indeed, the Air Force does not challenge the Board's factual finding that the BAFO was
accepted without regard to the allegedly defective cost or pricing data. Reconsideration
Decision, slip op. at 4-5.


05-1393                                 9
Before the H. Acquisition and Procurement Policy Panel of the Armed Servs. Comm.,

99th Cong. 444-45 (1986) (statement of Mr. Vander Schaaf, Deputy Inspector General,

Department of Defense) (proposing changing TINA to read that "[i]t shall be conclusively

presumed that the Government relied on all cost or pricing data furnished by the

contractor . . . .") (emphasis added).

       However, Congress rejected the proposed amendment; rather than altering TINA

to create a conclusive presumption of reliance, Congress codified the reliance

requirement as a defense to a TINA claim. National Defense Authorization Act for

Fiscal Year 1987, Pub. L. No. 99-661, § 952, 100 Stat 3816, 3945-49 (codified at

10 U.S.C. § 2306a(d)(2) (1986)). Thus, as of 1986, TINA explicitly stated that "[i]n

determining for purposes of a contract price adjustment . . . whether, and to what extent,

a contract price was increased because the contractor (or a subcontractor) submitted

defective cost or pricing data, it shall be a defense that the United States did not rely on

the    defective    data     submitted    by    the     contractor    or    subcontractor."

10 U.S.C. § 2306a(d)(2) (1986) (current version at 10 U.S.C. § 2306a(e)(2)).

       In short, the Air Force was entitled to a rebuttable presumption that any defective

cost or pricing data affected its agreement to the contract price and thus actually caused

an increase in the contract price. However, once UTech rebutted this presumption of

causation, the Air Force was required to establish that it actually relied on the defective

data to its detriment. The Air Force did not assert any additional evidence or arguments

establishing such reliance before either the Board or this court.               Thus, the

Reconsideration Decision was not in error.




05-1393                                  10
      Finally, the Air Force argues that the Board erred in finding that UTech had

rebutted the presumption that the defective data caused an increase in the contract

price. However, the Air Force does not attack the factual underpinnings of the Board's

decision, and the Air Force does not argue that it did rely upon the defective cost or

pricing data when it accepted the BAFO or any subsequent offers. Rather, the Air

Force argues that the presumption cannot be rebutted in an instance in which the

allegedly defective data was used in calculating the contract price. That argument is

foreclosed by Universal Restoration, where we found the presumption of causation

rebutted even though the defective data was used in calculating the contract price. 798

F.2d at 1402, 1406. Thus, the Air Force has not demonstrated that the Board erred in

finding that UTech successfully rebutted the presumption of causation.

      The Board's Reconsideration Decision is affirmed.



                                      AFFIRMED




05-1393                                11
