[00:00:00] Speaker 01:
Our final case for argument today is 21-2304, Secretary of Defense versus Raytheon.

[00:00:08] Speaker 01:
Mr. Volk, please proceed.

[00:00:11] Speaker 04:
Thank you, Your Honor.

[00:00:12] Speaker 04:
May it please the Court?

[00:00:13] Speaker 04:
Raytheon charged the government for about half the salaries of its in-house lobbyists and acquisition and divestiture team based on the absence

[00:00:26] Speaker 04:
of documentation showing that they spent the entirety of their time on those expressly unlawful activities.

[00:00:35] Speaker 04:
The inadequacy of Ray Theon's record-keeping policy is dispositive of this entire case.

[00:00:43] Speaker 00:
Wait a minute.

[00:00:44] Speaker 00:
I'm confused a little.

[00:00:45] Speaker 00:
I thought the main argument and issue joined with respect to lobbying was their use of this 40-hour, but it can only start at 8 a.m.

[00:00:54] Speaker 00:
and end at 5 PM so you can't.

[00:00:57] Speaker 00:
And that's sort of different than what you said.

[00:00:59] Speaker 00:
The issue you raised was quite global.

[00:01:02] Speaker 00:
And I thought the real nuts and bolts of the lobbying issue was the legal question that was presented in the briefs that I stated about the timing.

[00:01:13] Speaker 04:
Your Honor, in the briefs we present, it's really three questions and we write them down at the first page of our reply in a very clear way I think.

[00:01:22] Speaker 04:
And the first question is the record keeping and the adequacy on a global basis as to both lobbying and the acquisition team, the record keeping, the way in which it's done, whether that in itself is satisfactory either for lobbying or the acquisition and divestiture.

[00:01:41] Speaker 03:
point one on the first page of your reply brief, and I think the way that you started the argument was not limited to the lobbying and acquisition of divestiture records.

[00:01:58] Speaker 03:
seemed rather broad that record keeping requires affirmatively records that affirmatively address each allowable cost and that one cannot say our outfit does two things we're going to keep one permissible one

[00:02:19] Speaker 03:
I mean, one allowable, one not.

[00:02:20] Speaker 03:
We're going to keep records of the unallowable ones.

[00:02:22] Speaker 03:
And by definition, by subtraction, the allowable ones have just been documented, but not affirmatively.

[00:02:29] Speaker 03:
And that seems... Are you making that broader point?

[00:02:33] Speaker 03:
Yes.

[00:02:33] Speaker 03:
Yes.

[00:02:34] Speaker 03:
This appeal is only... Why would that follow from the requirement of one of the early FAR provisions that you cite that just says you need adequate records?

[00:02:44] Speaker 03:
Sometimes, you know, subtracting a small thing is

[00:02:49] Speaker 03:
perfect proof of the large thing that you're not individually accounting.

[00:02:53] Speaker 04:
So there's three record-keeping provisions that we raise, starting with the first one, the general record-keeping requirement in FAR 31.201-2D.

[00:03:04] Speaker 04:
This is for all costs.

[00:03:07] Speaker 04:
There needs to be adequate documentation to show that the costs are in compliance with the allowability rules.

[00:03:15] Speaker 04:
And so what that means is that you need

[00:03:17] Speaker 04:
records that show that these charges are allowable charges to the government.

[00:03:22] Speaker 04:
Raytheon only has records here to show what everyone agrees is not allowable.

[00:03:29] Speaker 04:
Raytheon has records of the lobbyists performing lobbying.

[00:03:33] Speaker 04:
It does not have any records.

[00:03:35] Speaker 01:
But their argument and response is, okay, well we kept the negative and therefore everything else is the positive.

[00:03:43] Speaker 04:
That's not a permissible inference because the regulations require records, not only the general record.

[00:03:48] Speaker 00:
But it's clear that the burden is on the government and not on Raytheon.

[00:03:52] Speaker 00:
And that seems to throw what you've stated as an unassailable proposition up in the air.

[00:03:59] Speaker 04:
But the government meets its burden by showing that there's noncompliance with the regulations.

[00:04:06] Speaker 04:
So that starts with the record keeping by itself.

[00:04:09] Speaker 04:
If the government shows that the records that are required under the regulations aren't there, the government meets its burden.

[00:04:16] Speaker 00:
The board misses.

[00:04:17] Speaker 00:
And what kind of records are we missing here?

[00:04:19] Speaker 00:
I mean, I get that they were excluding anything that was done before 8 AM and after 5 PM.

[00:04:28] Speaker 00:
Are those the records that are missing?

[00:04:31] Speaker 04:
No, that's not it, but that's really a separate problem.

[00:04:35] Speaker 04:
The records that are missing are the records that these lobbyists did something other than the unallowable lobbying.

[00:04:41] Speaker 04:
Raytheon is saying they do other things, but there are no records.

[00:04:45] Speaker 04:
Raytheon cannot point the court to a single record of any of these lobbyists doing some specific activity for some particular period of time.

[00:04:55] Speaker 04:
They're charging the government about half the salaries of their lobbyists based on an inference that if the time was not accounted for by the lobbyist, it must be something for which the breakdown is allowed to charge the government for.

[00:05:11] Speaker 04:
There's no basis for that inference, and the regulations prohibit using an inference in place of the documentation that they require.

[00:05:20] Speaker 04:
Consider the lobbying specific.

[00:05:23] Speaker 04:
record-keeping provision, which refers to both allowable and unallowable.

[00:05:29] Speaker 04:
If Raytheon wants to charge the government for some of the salary of its lobbyists based on the contention that they do work other than the unallowable lobbying, it needs to keep records to show and allow audit verification on the CAS 405 to show that these individuals are doing something.

[00:05:48] Speaker 04:
Unaccounted for time doesn't mean that it's allowable.

[00:05:51] Speaker 04:
Raytheon needs a record to show that there's an allowable basis to charge the government for some of these lobbyists' time, and it has no such record.

[00:06:02] Speaker 04:
Even if it could rely on inferences instead of records.

[00:06:06] Speaker 04:
The records that Raytheon kept are meaningless because its own policies regarding after-hours lobbying and what it calls the bright line acquisition and divestiture thresholds

[00:06:19] Speaker 04:
Those gave the employees the wrong instructions as to how to decide whether to record an out or not.

[00:06:26] Speaker 00:
Can I ask you, just more standing back here, this case is maybe unusual.

[00:06:31] Speaker 00:
I hope it is, because this case has been going on for 15 years, right?

[00:06:36] Speaker 00:
And I assume, but I don't know, was Raytheon, do we know whether Raytheon was committing, dealing with the same practices even before 2007?

[00:06:45] Speaker 04:
Yes.

[00:06:46] Speaker 00:
And they're doing it afterwards.

[00:06:48] Speaker 00:
So we've got, I mean, if you were to prevail on any of your issues, we've got an insurmountable record problem.

[00:06:57] Speaker 00:
And certainly, they were not noticed.

[00:06:59] Speaker 00:
They won below.

[00:07:00] Speaker 00:
So they were not noticed to necessarily change their practice.

[00:07:04] Speaker 00:
But they're just going to lose everything, right?

[00:07:07] Speaker 00:
Because there are no records.

[00:07:08] Speaker 00:
And we're talking about 15 years looking backwards.

[00:07:11] Speaker 04:
they're not going to be able to get from the government lobbying or acquisition salaries if they don't have a record.

[00:07:18] Speaker 04:
And that is my understanding that for all these years, even though the audits, even though they understood the government's position all these years, Raytheon has maintained the policy where by design,

[00:07:28] Speaker 04:
It tells these employees.

[00:07:30] Speaker 04:
I'm sorry, what did you say?

[00:07:32] Speaker 03:
Raytheon's not going to be able to get from the government.

[00:07:34] Speaker 03:
What?

[00:07:35] Speaker 03:
Lobbying and acquisition salaries.

[00:07:37] Speaker 03:
Right, but I thought your broader position is Raytheon's not going to be able to get from the government anything of any of the salaries in the government relations or A&D department because they don't have records of the non-lobbying, non-A&D.

[00:07:54] Speaker 03:
That's right.

[00:07:55] Speaker 03:
Okay, that's a much broader proposition.

[00:07:58] Speaker 04:
I think that's the proposition, I was explaining that, that if they don't have a record, then it's not an allowable charge.

[00:08:07] Speaker 04:
It's never an allowable charge without a record.

[00:08:09] Speaker 04:
And it's not as though we have no idea what these costs are.

[00:08:12] Speaker 04:
There's salaries for lobbyists and acquisition personnel.

[00:08:16] Speaker 00:
Well, it's government relations.

[00:08:17] Speaker 00:
And government relations can be broader than lobbying.

[00:08:20] Speaker 00:
You're right.

[00:08:21] Speaker 00:
Maybe it smells like it's an unallowable cost, because they're lobbyists.

[00:08:26] Speaker 00:
But government relations can be broader.

[00:08:28] Speaker 00:
And certainly, they're getting these contracts from the government.

[00:08:32] Speaker 00:
They're dealing with people on the Hill with respect to matters involving their contracts.

[00:08:36] Speaker 00:
Those would be allowable costs, correct?

[00:08:40] Speaker 04:
there are no allowable costs we see with the records that exist.

[00:08:44] Speaker 04:
So take the goals and accomplishments that they prepare each year that are in the appendix that describe what they're trying to accomplish, what they did accomplish that year.

[00:08:53] Speaker 04:
We do not see any allowable activities in those records.

[00:08:58] Speaker 04:
So I go back to the point is that there's not a total absence of records here.

[00:09:02] Speaker 04:
There are records, but all of the records are with respect to the costs

[00:09:07] Speaker 04:
that they cannot charge the government for.

[00:09:09] Speaker 04:
The records they keep to support the costs that they do charge the government for are records of what they say, what everyone agrees cannot be charged the government for.

[00:09:18] Speaker 03:
So let's use the term record to mean a document that gives some evidence of something.

[00:09:25] Speaker 03:
Why are the documents that explain the variety of tasks that a government relations office employee does not adequate records

[00:09:41] Speaker 03:
even though they keep no time for particular activities, but if they do keep time for the particular unallowable ones, the legislative lobbying, not executive branch lobbying or anything else, that's not prohibited.

[00:09:56] Speaker 03:
And by subtraction,

[00:09:58] Speaker 03:
there is a question, is there adequate proof that the remaining piece is allowable, even though there are no task-specific time-defining records?

[00:10:12] Speaker 03:
Why is that not within FAR 31.2012D?

[00:10:17] Speaker 04:
Because there is no record.

[00:10:19] Speaker 04:
The only record that's there is what can't be charged.

[00:10:23] Speaker 03:
You don't have a record that says we did this and this is allowed.

[00:10:26] Speaker 03:
I keep hearing a play on the term record.

[00:10:30] Speaker 03:
I don't mean timesheets.

[00:10:32] Speaker 03:
There is a set of employee job responsibilities which have material in it that are outside the lobbying activity, for example.

[00:10:44] Speaker 03:
No, no, I don't.

[00:10:46] Speaker 04:
We when we retake, for example, the job descriptions that appendix 3262 or the goals and accomplishments that appendix 3494 look at the organizational goals for that lobbying for that government relations office.

[00:11:01] Speaker 04:
We do not find anything in there.

[00:11:03] Speaker 04:
that discusses a cost for which it's proper to charge the government for.

[00:11:08] Speaker 04:
And with respect to the breadth of our claim, that's a key point.

[00:11:12] Speaker 04:
If this is some other office, if this is the accounting department where you have general records showing these people are hired to do accounting work, then yes, just recording the exceptions could be reasonable.

[00:11:25] Speaker 03:
But we have a situation in which these records are- So for the accounting department, I'm sorry, you're willing to pay

[00:11:33] Speaker 03:
for the salaries of the accounting people, even if there are not time-specific records of their doing accounting.

[00:11:41] Speaker 03:
That's right, because there are records.

[00:11:43] Speaker 04:
They have general records that say, this person was hired to do accounting work.

[00:11:47] Speaker 04:
This person is doing accounting work.

[00:11:49] Speaker 04:
There are records to show that.

[00:11:51] Speaker 04:
Those are the records on which those charges... Wait, let me just clarify.

[00:11:54] Speaker 00:
So are you saying if you're in a department or you have a particular job and that job allows clearly on its face for unallowable as well as allowable costs, then it's okay to do the subtracting the unallowable costs.

[00:12:10] Speaker 00:
But if there's nothing on the face that deals with anything other than the unallowable costs,

[00:12:16] Speaker 00:
then you're going to have to make a showing.

[00:12:18] Speaker 00:
I'm just trying to see.

[00:12:19] Speaker 04:
I think it's more complicated if you say the mixed department, where there's both unallowable and unallowable happening in the same department.

[00:12:25] Speaker 04:
In that case, I think you do need a record to say what the allowable activities are that the person is doing.

[00:12:32] Speaker 00:
This goes back to Judge Taranto's question.

[00:12:34] Speaker 00:
But if the government relations, if their mantra says we do these six things, and those six things include three things that are allowable and three things that aren't,

[00:12:45] Speaker 00:
Why can't you arrive at what's unallowable by subtracting the unallowable as opposed to necessarily computing the allowable?

[00:12:54] Speaker 04:
There's no way to review that.

[00:12:56] Speaker 04:
We do not know what they did.

[00:12:58] Speaker 04:
They throw out all of these examples of what could have been, might have been done years ago.

[00:13:02] Speaker 04:
There's absolutely no way for the government to do anything.

[00:13:05] Speaker 00:
Can I ask you, before your time runs out, because I know the chief is going to cut us off, what about the second category?

[00:13:10] Speaker 00:
We've just been talking about lobbying.

[00:13:12] Speaker 00:
What about your argument with

[00:13:15] Speaker 00:
development or whatever it's called.

[00:13:17] Speaker 04:
The record-keeping there is exactly the same.

[00:13:20] Speaker 04:
What's different there is what Raytheon calls these bright line rules.

[00:13:24] Speaker 04:
And if you read FAR 31.205-27, we think it says unequivocally that merger and acquisition expenditures are not allowable.

[00:13:35] Speaker 00:
So if we were hypothetically to agree with your assessment of the bright line rule, does that allied all of the questions you're raising here with respect to

[00:13:45] Speaker 00:
record-keeping?

[00:13:46] Speaker 00:
Is that the focus?

[00:13:47] Speaker 04:
It wouldn't in that department, because if those are meaningless numbers, then they also, there are independent reasons why they don't support the charges that were made.

[00:13:57] Speaker 04:
If the thresholds, if the instructions that were given to the employees as to when to write down the number or not, are not correct.

[00:14:04] Speaker 04:
then those nondescript tallies of hours or days don't mean anything, and that obviates the records issue for that department.

[00:14:13] Speaker 03:
And the same thing is true for... And the net result of that bit of reasoning would be the government is not going to pay for any of the A&E department and any of the government relations department.

[00:14:27] Speaker 03:
I'm not sounding skeptical.

[00:14:29] Speaker 01:
That's right.

[00:14:30] Speaker 01:
Okay, we'll save the rest of your time for a bottle.

[00:14:35] Speaker 01:
Mr. Chesley.

[00:14:36] Speaker 01:
Is it Chesley?

[00:14:38] Speaker 01:
Mr. Chesley, please proceed.

[00:14:44] Speaker 02:
I have three key points, which I think will underlie all the judges' questioning, and then I want to come directly to the records questioning.

[00:14:53] Speaker 02:
But the three key points are, we found kept records that were adequate and complied with the applicable FAR and CASH regulations to the two... Oh, that's just the conclusion.

[00:15:05] Speaker 01:
That's not a point.

[00:15:07] Speaker 01:
That's just fine for us.

[00:15:09] Speaker 02:
And we're going to go to directly judge to 201-2 and address that issue.

[00:15:14] Speaker 02:
But I do want to set this standard right.

[00:15:16] Speaker 02:
These are not just the time of lobbyists or lobbying or M&A professionals.

[00:15:20] Speaker 02:
These are two different offices that were below.

[00:15:24] Speaker 01:
Where is the evidence of what these individuals did that would have been in the allowable category?

[00:15:34] Speaker 02:
We can take it, I can start with, we ended on corporate development, so I can start there.

[00:15:38] Speaker 02:
So the government calls refers to this as the M&A office.

[00:15:42] Speaker 02:
That is not what the finding of Judge Scott was below.

[00:15:47] Speaker 02:
What Judge Scott said below, and I direct the court to Appendix 40, is that the primary role of that office was not murder and acquisition, but rather, quote, working with business units and strategic development and growth opportunities.

[00:16:03] Speaker 02:
So the paradigm, as found by the board, and this is going to be my third point, is that the government proceeds as if there was no trial below and that there isn't substantial evidence.

[00:16:12] Speaker 00:
Well, can you make that point with respect to the lobbying?

[00:16:16] Speaker 00:
What did the district, what did the board find?

[00:16:19] Speaker 00:
What findings did they make with respect to the scope of activities performed by this government

[00:16:28] Speaker 02:
I believe it actually fed right into your honor's question, which is these are Washington professionals, which yes, they do do lobbying and they withdrew that time, but they also are there in an advisory capacity.

[00:16:42] Speaker 02:
Where is the evidence?

[00:16:45] Speaker 02:
Pages of the appendix 23 to 26 of the appendix.

[00:16:51] Speaker 02:
is looking for these pages.

[00:16:53] Speaker 02:
But the board, and 26 is actually the summary page weight.

[00:16:58] Speaker 02:
So 23 to 26 is generally set for the testimony.

[00:17:01] Speaker 02:
And then 26 is where they make the conclusions based on that testimony.

[00:17:05] Speaker 00:
Yeah, it seems to me.

[00:17:06] Speaker 00:
Well, I don't know.

[00:17:07] Speaker 00:
Maybe I'll have to read it again, because it seems to me this is a lot about the PAC activities and the stuff they were doing.

[00:17:14] Speaker 00:
So I'm not finding right now what it has to do with non-love.

[00:17:20] Speaker 02:
So the evidence that was presented by the board as credited on page 26 is that there was gathering Washington or Pentagon.

[00:17:31] Speaker 00:
You want to give me a paragraph number?

[00:17:32] Speaker 00:
I'm sorry.

[00:17:33] Speaker 02:
Sure.

[00:17:34] Speaker 00:
It's a very dense narrative here.

[00:17:37] Speaker 02:
Paragraph 47, government relations personnel engaged in some allowable non-lobbing activity.

[00:17:43] Speaker 02:
Whether an activity was lobby or non-lobbing would be situationally dependent and evaluated on a case-by-case basis.

[00:17:51] Speaker 02:
And that paragraph continues to show

[00:17:53] Speaker 02:
that if the professionals were gathering information about what was happening on the hill and they're communicating that back out to leadership and explaining perhaps... And this was based on documentation in the record as to how much time these employees spent doing what they're

[00:18:14] Speaker 00:
said to have been doing in paragraph 47?

[00:18:17] Speaker 02:
If I could pivot that and answer your question as well as the points Judge Toronto was asking earlier about the records, because it really comes down to a math equation.

[00:18:25] Speaker 02:
A plus B equals C. The costs that are at issue here are not in dispute.

[00:18:31] Speaker 02:
It's the allocation of those costs.

[00:18:32] Speaker 02:
But these are salary costs for indirect employees and the indirect cost pools.

[00:18:36] Speaker 02:
So the salaries are the cost.

[00:18:39] Speaker 02:
That's C. If you know either A or B, you know the other.

[00:18:44] Speaker 02:
So what Raytheon did was account for the unallowable time.

[00:18:47] Speaker 00:
Yeah, but that doesn't answer my question.

[00:18:50] Speaker 00:
Sorry about that.

[00:18:51] Speaker 00:
In 47, is there documentation in the record with respect to what these employees did and how much time they spent doing it with respect to these allowable?

[00:19:03] Speaker 02:
There was a testimony.

[00:19:06] Speaker 02:
And the judge credited this testimony of four different corporate, I'm sorry, Washington office professionals.

[00:19:13] Speaker 02:
And as this court knows, credibility findings are almost impenetrable on appeal.

[00:19:19] Speaker 02:
The judge had oversaw two weeks of testimony, 30 witnesses, about 10 minutes.

[00:19:24] Speaker 00:
So they didn't keep the records.

[00:19:27] Speaker 00:
You're relying on the testimony that came out after the challenge just here in the litigation.

[00:19:34] Speaker 02:
And contemporaneously, the timesheets were supported from 23 to 26.

[00:19:41] Speaker 02:
Each one of the professionals who testified testified to keeping their time contemporaneously using their date planners, their calendar, their emails.

[00:19:52] Speaker 03:
Did the timesheets comprehensively cover both

[00:19:58] Speaker 03:
of all of each employee's activities or just or the timesheets limited to recording the unallowable ones?

[00:20:09] Speaker 02:
It was limited to reporting the unallowable.

[00:20:11] Speaker 02:
And so if we go back to our math equation, so if you have B and C. Pardon me.

[00:20:16] Speaker 03:
So Mr. Volk has, I think, a couple of different arguments.

[00:20:20] Speaker 03:
One is if you were wrong about the eight to five policy, then B is so unknown

[00:20:28] Speaker 03:
You get nothing because you don't know what to subtract.

[00:20:33] Speaker 03:
And same thing on the A&E side.

[00:20:36] Speaker 03:
But he also has the point, not perhaps so much on the corporate development, I'm not sure, but at least as to the government relations, that we don't even have a record describing, not in a time-specific way, but describing a set of allowable activities.

[00:20:57] Speaker 02:
So I do believe that the records do show a lot.

[00:21:01] Speaker 03:
Record here, I think, does not mean testimony.

[00:21:04] Speaker 02:
Right.

[00:21:05] Speaker 02:
But one of the record problems we have here is that these records were kept in real time.

[00:21:10] Speaker 02:
And to Judge Prost's question earlier, this had been a recurring practice.

[00:21:15] Speaker 02:
These offices are audited every year.

[00:21:17] Speaker 02:
In fact, this court presided over a different Raytheon lobbying case in 2019.

[00:21:24] Speaker 02:
And that was only about the withdrawn lobbying portion.

[00:21:29] Speaker 02:
And there was an allocation approach there.

[00:21:31] Speaker 02:
So this, it had been the practice for years and years and years that they would only keep the time in this way.

[00:21:37] Speaker 02:
So DCAA did not collect the records that would have supported the time sheets, that would have underlined the time sheets.

[00:21:43] Speaker 00:
And when you say in this way, meaning that they don't, that they, individual employees only at some point in time say, this is what I did that was lobbying that shouldn't have been a lot.

[00:21:55] Speaker 00:
And no further record-keeping as to how much time they devoted or what they devoted their other time to.

[00:22:01] Speaker 02:
But that's what's required under the farm of the cats.

[00:22:04] Speaker 00:
And it's his question.

[00:22:04] Speaker 00:
Yeah, yeah.

[00:22:05] Speaker 02:
No, no.

[00:22:06] Speaker 02:
What they did was exactly what is required under the farm of the cats.

[00:22:10] Speaker 01:
Here's one of my problems.

[00:22:11] Speaker 01:
And Judge Chappros tried to bring this up with Mr. Volk, and he kind of shut it down, which I didn't understand.

[00:22:17] Speaker 01:
One of the arguments that I found quite persuasive

[00:22:19] Speaker 01:
is that your lobbyists, like for example Mr. Neal on page 42, you don't have to pull it up because I'm just going to say something you're not going to object to, he testified that his job definitely was not limited to 8 to 5 and that he did lots of lobbying activities outside the 8 to 5 time period and here I will read to you now from his testimony that he considered the functions he attended before 8 a.m.

[00:22:42] Speaker 01:
or after 5 p.m.

[00:22:43] Speaker 01:
to be part of his regular work duties.

[00:22:46] Speaker 01:
That's not objectionable, right?

[00:22:47] Speaker 01:
You agree that's what this record shows.

[00:22:48] Speaker 02:
I don't have standing to object to your honor.

[00:22:51] Speaker 02:
But I agree that the total time of counting issue is a little bit separate, but if I could come back so far.

[00:22:58] Speaker 01:
No, I think that's my question.

[00:22:58] Speaker 02:
You don't get to come back.

[00:23:00] Speaker 01:
So my question is, if somebody has a 40 hour hourly salary, 40 hours and they're paid by the hour, you can keep track

[00:23:12] Speaker 01:
If they're only working 40 hours, you can keep track, oh, I spent 27 hours doing lobbying, so I'll just charge the government for 13 hours, and 13 hours, divide by 40, figure out their hourly rate, that's the amount of money the government has to pay.

[00:23:28] Speaker 01:
But what you have clearly established on this record are salaried lobbyists who consider a regular part of their job to be more than a 40-hour work week.

[00:23:39] Speaker 01:
to be before 8 a.m.

[00:23:42] Speaker 01:
and after 5 p.m.

[00:23:44] Speaker 01:
Yet, all you had them keep track of was the number of lobbying hours they performed between 8 and 5.

[00:23:50] Speaker 01:
You then took a percentage of their salary, excluding the fact that their salary actually encompasses all of the work they do after hours, which you didn't have them record.

[00:24:00] Speaker 01:
And so you overcharged the government by a lot.

[00:24:04] Speaker 01:
You overcharged them because you assessed their hourly rate based on a 40-hour work week.

[00:24:09] Speaker 01:
But these men and women testified that they don't work 40-hour work week.

[00:24:13] Speaker 01:
They work beyond 5 PM and prior to 8 AM.

[00:24:18] Speaker 01:
And yet, you didn't figure out how many hours they worked to ensure the percentage of their salary that you were going to pass along to the government accurately reflected only allowable costs.

[00:24:28] Speaker 02:
So I want to object, but I will respectfully disagree.

[00:24:31] Speaker 02:
So there are two options for accounting for time under the FAR and the CAST.

[00:24:35] Speaker 02:
There's what we call total time accounting, and then there's time paid accounting.

[00:24:40] Speaker 02:
The FAR, nor the CAF, prescribed a particular one.

[00:24:44] Speaker 02:
Contractors were left with the option.

[00:24:46] Speaker 01:
Raytheon elected... You were required by the FAR to keep records that demonstrate how much time is spent on allowable costs, and you can only hand that cost off to the government.

[00:24:59] Speaker 01:
Is that correct?

[00:25:01] Speaker 02:
Yes, but the finding was that there was no cost for this after-hours time.

[00:25:05] Speaker 02:
That's a factual finding by the board at pages 20 and 26.

[00:25:08] Speaker 03:
What does that even mean?

[00:25:10] Speaker 03:
It means that- You're taking an actual percentage of the salary, and you're splitting it into a lobbying portion and a non-lobbying portion, and you're not accurately measuring the lobbying portion.

[00:25:26] Speaker 03:
We are accurately measuring because- You're ignoring a bunch of lobbying activity that's a portion of the employee's work.

[00:25:35] Speaker 02:
that they are paid based on the 40-hour work week, and that's an accounting judgment that is not specific to this office.

[00:25:39] Speaker 00:
But they're paid based on the job that they do, and the job that they do regularly includes these after-hours events and attendance.

[00:25:48] Speaker 00:
That's part of their job responsibility.

[00:25:50] Speaker 00:
That's what they get measured for.

[00:25:52] Speaker 00:
If they break a leg on their way there, it's the employer's libel, because they are your employee, and they're working on your stuff.

[00:26:02] Speaker 00:
So you decided, and I don't know why you picked eight to five as opposed to nine to six or whatever, but you all decided to create this fictitious, maybe that's a little strong, construct that only the stuff that they do within those hours matter, even though their jobs require as a regular part of their duties.

[00:26:22] Speaker 00:
do things outside of those hours.

[00:26:24] Speaker 02:
If I could respond in two ways.

[00:26:26] Speaker 02:
One is that Raytheon had to keep its time this way because it disclosed to the government in its cast disclosure statements that it used tiny paid accounting.

[00:26:35] Speaker 01:
Raytheon didn't have to keep its time this way.

[00:26:37] Speaker 01:
Raytheon could have complied in a direct manner.

[00:26:39] Speaker 01:
with the FAR and recorded the things they did and the hours spent on them that were in fact allowable.

[00:26:45] Speaker 01:
Raytheon instead chose an indirect recording system and this is a consequence of it is your indirect recording system has resulted in

[00:26:55] Speaker 01:
an inability to truly assess what percentage of their salary should have been charged to the government because what percentage of their time truly involved allowable activity.

[00:27:05] Speaker 02:
If I can address, Your Honor, to the regulatory history between FAR 31205-22 and its cited in the briefs, it is

[00:27:13] Speaker 02:
49 Federal Register 18260.

[00:27:17] Speaker 02:
This issue came up in 1984 when the ONB was considering the cost principle.

[00:27:23] Speaker 02:
And what this court will see in looking at that is there was a comment as to a different, there was a part of the rule that is no longer part of the rule.

[00:27:33] Speaker 02:
It had to do with 25%, there was a different record keeping requirement based on when 25% of your time was spent on lobbying.

[00:27:40] Speaker 02:
The OMB got a comment saying, is that 25% based on the 40-hour work week or the actual hours worked?

[00:27:49] Speaker 02:
And in response to that, the OMB changed the initial regulation to say 25% of compensated hours of employment.

[00:27:58] Speaker 02:
So OMB, in passing this regulation, considered this total time accounting versus time paid and said that you base the allocation

[00:28:06] Speaker 02:
on the 30-hour work week.

[00:28:08] Speaker 00:
What Raytheon did is consistent.

[00:28:10] Speaker 00:
I've just been unclear on this.

[00:28:11] Speaker 00:
I really don't know the answer.

[00:28:13] Speaker 00:
Are all employees required to be at their desk at 8 o'clock and leave at 5?

[00:28:17] Speaker 00:
I mean, how do we know that these people who did a lot of evening work

[00:28:21] Speaker 00:
were coming in at 1 PM.

[00:28:23] Speaker 00:
Did they punch a clock there?

[00:28:25] Speaker 02:
The testimony before the board was that the hours weren't as important as much as the regular work day.

[00:28:31] Speaker 02:
And so it could be 9 to 6.

[00:28:33] Speaker 02:
It could be 10 to 7.

[00:28:36] Speaker 01:
Do you guys see how squirrely this sounds?

[00:28:40] Speaker 02:
Your Honor, the board looked at this issue.

[00:28:42] Speaker 02:
And the government's case was exactly that.

[00:28:45] Speaker 01:
Whether it's clear error or substantial evidence, which neither of you seem to understand the meaning of,

[00:28:49] Speaker 01:
It seems wrong to me.

[00:28:51] Speaker 00:
Can I just ask you one question?

[00:28:54] Speaker 00:
Time runs out, and I'm going to ask the government this when it stands up, which is, assuming, hypothetically, we disagree with what the board said about the lobbying hours, and we disagree with Raytheon's Brightline rule and think that was improper, is there anything left of this case?

[00:29:13] Speaker 00:
I mean, my real practical question is, do we have to get involved

[00:29:17] Speaker 00:
in the government's arguments about insufficient record keeping?

[00:29:21] Speaker 00:
Or does finding reversing the board on those two matters just blow up the case and it's over and we're done?

[00:29:27] Speaker 02:
Well, what this court would have to find is that the board was wrong in finding that there was no unallowable cost charge to the government.

[00:29:35] Speaker 02:
May I have a moment to talk about corporate development?

[00:29:39] Speaker 01:
Like one minute or less.

[00:29:40] Speaker 02:
OK.

[00:29:40] Speaker 02:
So corporate development is very different on the facts.

[00:29:44] Speaker 02:
So what the paradigm found by the board, and this goes to pages 40 and 41 of the appendix,

[00:29:50] Speaker 02:
is that corporate development is not an M&A shop.

[00:29:54] Speaker 02:
They were a strategy shop where they would work with the businesses to find out where the businesses are today and where their customers would be five years from now.

[00:30:03] Speaker 01:
The bottom line is FAR does not exempt early stage A&D planning.

[00:30:07] Speaker 01:
It explicitly encompasses

[00:30:08] Speaker 01:
reorganization planning.

[00:30:10] Speaker 01:
So I don't see how you don't lose on this issue.

[00:30:12] Speaker 01:
I'll cut your 40 for your one minute down to 10 seconds.

[00:30:15] Speaker 01:
Go ahead.

[00:30:16] Speaker 01:
How do you not lose?

[00:30:16] Speaker 01:
I mean the FAR is clear.

[00:30:18] Speaker 01:
The language of the FAR clearly encompasses this.

[00:30:21] Speaker 02:
No, because it's planning.

[00:30:22] Speaker 02:
If we look up Webster's definition of planning,

[00:30:25] Speaker 02:
Plan is a method to achieving an end.

[00:30:28] Speaker 02:
So what the board credited with the testimony is that we don't know what the end is until we get to the acquisition council.

[00:30:37] Speaker 02:
And the way that they cycle through things is everything is economic planning, which is the general market planning for the business, until you decide that you're going to go with an organizational outcome, which is the unallowable, dash 27.

[00:30:51] Speaker 02:
and Raytheon devoted incredible resources and foresight to addressing these issues in advance.

[00:30:58] Speaker 02:
And the board credited the fact that they brought lawyers, government accountants, corporate development professionals together to come up with these rules to deal with them.

[00:31:07] Speaker 01:
Does the FAR expressly exclude reorganization costs?

[00:31:10] Speaker 02:
Reorganization costs?

[00:31:11] Speaker 02:
Yes.

[00:31:12] Speaker 02:
Economic planning costs?

[00:31:13] Speaker 02:
No.

[00:31:13] Speaker 01:
OK.

[00:31:13] Speaker 01:
Well, you're out of time.

[00:31:15] Speaker 01:
Do you have anything?

[00:31:16] Speaker 01:
No.

[00:31:16] Speaker 01:
OK.

[00:31:17] Speaker 01:
Thank you.

[00:31:17] Speaker 01:
You have a little bit of rebuttal time, Mr. Volk.

[00:31:21] Speaker 01:
And he went over by about a minute, so we'll add a minute to your rebuttal time.

[00:31:25] Speaker 00:
But before you get bombed up in what you're going to say, could you just answer my question?

[00:31:30] Speaker 00:
This case, some of the stuff that the board found was not appealed.

[00:31:35] Speaker 00:
So that's law.

[00:31:37] Speaker 00:
And if we were to agree with the points that you know what I'm talking about, is there anything left of this case?

[00:31:43] Speaker 00:
Do we have to get into this record-keeping issue on what FAR requires and doesn't require?

[00:31:47] Speaker 04:
No.

[00:31:48] Speaker 04:
There is independent basis.

[00:31:49] Speaker 04:
That's a very good answer.

[00:31:50] Speaker 00:
For reversal.

[00:31:51] Speaker 04:
Anything else?

[00:31:53] Speaker 04:
If the court decides that the after hours policy and the bright line M&A policy is wrong, that's the end of the case.

[00:31:58] Speaker 04:
The court can stop there.

[00:31:59] Speaker 04:
There's two independent issues.

[00:32:01] Speaker 04:
One is they're not writing down all the unallowables.

[00:32:04] Speaker 04:
That's the after hours and the threshold for M&A.

[00:32:08] Speaker 04:
The second is they're not writing down any of the allowables.

[00:32:11] Speaker 04:
That's the record keeping issue.

[00:32:15] Speaker 04:
deal with one or the other, it doesn't have to do both.

[00:32:18] Speaker 04:
I do want to make the point though that both of these issues lead to the same end point.

[00:32:25] Speaker 04:
And that is that if these policies are accepted, the government cannot review the cost.

[00:32:32] Speaker 04:
They just have to accept them.

[00:32:34] Speaker 04:
They don't get to review what is claimed is available.

[00:32:37] Speaker 04:
There's no meaningful ability to determine how much of it was actually

[00:32:42] Speaker 04:
the unallowable, they just have to accept what these employees decided on their own.

[00:32:46] Speaker 04:
And that's not how this is supposed to work.

[00:32:49] Speaker 04:
The point of having these records is so that they can be reviewed and if there are disagreements on the application of the FAR rules, then they can be decided, but not if there aren't any records.

[00:33:01] Speaker 04:
We want the court

[00:33:03] Speaker 04:
to review the policies.

[00:33:05] Speaker 04:
That's why we're here.

[00:33:06] Speaker 04:
These policies are not consistent with the law, and the court should reverse on the basis of the policies not being consistent with the regulations.

[00:33:13] Speaker 01:
I thank both counsel.

[00:33:14] Speaker 01:
This case is taken on our submission.