It was July, 2012, when Judge Firestone of the Court of Federal Claims (CoFC) gave Raytheon a huge victory in its quest to have the government make it whole from pension plan deficits calculated at the time of segment closing. We told you all about the CoFC decision right here.

Last Friday the U.S. Court of Appeals, Federal Circuit, affirmed Judge Firestone's decision in all respects.

Importantly, the Appellate Judges disposed of the Government's argument that, in order to be allowable, Raytheon had to fund its segment closing pension plan deficits in accordance with the FAR Cost Principle at 31.205-6(j). The Judges wrote-

The Government's assertion that FAR 31.205-6(j) clearly defines a segment closing adjustment as a 'pension cost' subject to the provision's timely funding requirement is incorrect. First, the Government ignores that neither CAS 412 nor CAS 413 treat a segment closing adjustment as a 'pension cost' for purposes of the annual timely funding provision. CAS 412 specifically defines the four components of a pension cost, none of which include segment closing adjustments … CAS 413 refers to segment closing adjustments as 'adjustment[s] of previously-determined pension costs,' which suggests that the segment closing adjustment is not itself a pension cost. … The Preamble to CAS 413 further states that a segment closing adjustment 'is not an actuarial gain or loss as defined in the Standard' and that the 'the purpose of this provision is to serve as a basis for recognizing and adjusting costs previously allocated to the segment being terminated.' ….

Second, the Government argues that 'the dispositive issue is not whether the CAS 413 segment closing adjustment is a 'pension cost' for purposes of the

CAS ... [but] whether it is a 'pension cost' for purposes of the binding FAR regulation that governs the allowability of pension cost.' This argument confuses the relationship between the CAS and the FAR's cost principles. Although the Government is correct that the FAR governs all matters of cost allowability, the CAS has exclusive authority over the measurement, assignment, and allocation of costs. ….

While the CAS governs issues of measurement, assignment, and allocability, 'it does not determine the allowability of categories or individual items of cost.' … Allowability is instead governed by the cost principles set forth in the FAR. … Allowability reflects a policy judgment that a particular cost incurred by the contractor should be paid by the Government. … These same costs may nevertheless be allocable to the contract.

'We have specifically held that, if there is any conflict between the CAS and the FAR as to an issue of allocability, the CAS governs.' … The CAS's authority over 'measurement of a cost' includes 'defining the components of costs, determining the basis for cost measurement, and establishing the criteria for use of alternative cost measurement techniques.' … The CAS therefore has the exclusive authority to define the components of a pension cost, while the FAR determines whether that cost -- as defined by the CAS - is allowable and will be reimbursed by the Government. …

Nothing in the text of FAR 31.205-6(j) suggests that segment closing adjustments are subject to the provision's timely funding requirement. Accordingly, we hold that segment closing adjustments pursuant to CAS 413 are not subject to the timely funding provisions of FAR 31.205-6(j), and Raytheon was not required to fund its pension deficits within the same year as the segment closings.

In addition, the Court went into some detail discussing which party bore the burden of proof. We have commented before on how the Government - particularly DCAA - likes to flip the burden of proof to lie on the contractor, rather than the Government. But see the following:

Here, the Government bears the burden of showing that Raytheon did, in fact, fail to follow the terms of its contracts (i.e., that Raytheon's segment closing calculations do not comply with CAS 413). We therefore hold that the Government bears the burden to prove that a contractor's segment closing adjustment does not comply with the CAS, even if the adjustment is asserted in a claim brought by the contractor.

All in all, a nice victory for Raytheon and its external counsel, Karen Manos. And a good read for those interested in CAS litigation, even those who feel that CAS 412 and 413 should be treated like pariahs and be left alone.