[00:00:00] Speaker 00:
The final case for argument this morning is 23-1190, ACLR versus United States.

[00:00:09] Speaker 00:
Mr. Bonnello, ready?

[00:00:11] Speaker 00:
Whenever you are.

[00:00:12] Speaker 04:
Good morning, Your Honors.

[00:00:14] Speaker 04:
John Bonnello on behalf of the appellant, ACLR LLC.

[00:00:21] Speaker 04:
This case is an appeal of the Court of Federal Claims' rulings on the motions for summary judgment.

[00:00:28] Speaker 04:
The ultimate issue in this case is whether a retroactive constructive termination for convenience can be applied given the underlying facts in this case.

[00:00:39] Speaker 00:
Can you just outline for me at the outset what the issues are because I'm confused, either because of waiver or because some things were ruled on and some weren't?

[00:00:49] Speaker 00:
So you've got the constructive termination issue.

[00:00:51] Speaker 00:
Yes.

[00:00:52] Speaker 00:
The bad faith breach of contract is only preserved with respect to the 2007 audit.

[00:00:59] Speaker 00:
Is that correct on that?

[00:01:01] Speaker 04:
And the 2010 plan year audit.

[00:01:04] Speaker 04:
You've applied.

[00:01:05] Speaker 04:
You've appealed.

[00:01:07] Speaker 04:
Yes.

[00:01:08] Speaker 04:
So what we're asking for is there's the two audits that issue.

[00:01:12] Speaker 04:
There's the plan year 2007 audit.

[00:01:14] Speaker 00:
And are those implicated both on the case involving the constructive termination

[00:01:21] Speaker 00:
and the breach of contract?

[00:01:22] Speaker 00:
Yes.

[00:01:23] Speaker 00:
I thought you would only appeal.

[00:01:24] Speaker 00:
But anyway, I'll ask the government about that.

[00:01:27] Speaker 00:
OK.

[00:01:27] Speaker 00:
And then where are we with respect to damages?

[00:01:29] Speaker 00:
What's appealed?

[00:01:30] Speaker 00:
What's preserved?

[00:01:31] Speaker 04:
With respect to the damage, we're seeking obviously a reversal on the breach of contract with respect to the 2007 duplicate payment audit.

[00:01:40] Speaker 04:
And then we ask for damages.

[00:01:42] Speaker 00:
OK, well, actually, can you stop that?

[00:01:43] Speaker 00:
Because that's what I was trying to get to.

[00:01:45] Speaker 00:
I did understand that.

[00:01:46] Speaker 00:
I didn't understand that you were also appealing the breach of contract on the 2010.

[00:01:51] Speaker 04:
Yes, we are.

[00:01:52] Speaker 04:
But for that, we're simply seeking a reversal on that, not necessarily a ruling in our favor on that.

[00:02:01] Speaker 04:
We think that should be remanded for consideration.

[00:02:05] Speaker 00:
All right.

[00:02:05] Speaker 00:
Anyway, on damages then, you're seeking what?

[00:02:08] Speaker 04:
We're seeking 7.5% of the $313 million that ACLR identified in duplicate payments for plan year 2007.

[00:02:21] Speaker 04:
Anything beyond that?

[00:02:24] Speaker 04:
What if you lose on that?

[00:02:26] Speaker 04:
If we lose on that, then we'd be seeking the percentage on the

[00:02:31] Speaker 04:
But we would have a remand on the 2010 duplicate payment audit.

[00:02:37] Speaker 04:
So we'd be proving up what our damages would be on that for a breach of contract or a breach of duty of good faith and fair dealing.

[00:02:45] Speaker 02:
And what about, sorry to make the word complicated, on 2007, if you don't win on the termination point, are you seeking a remand

[00:02:56] Speaker 02:
for the termination of the reasonable costs resulting from the termination on 2007?

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

[00:03:03] Speaker 02:
Yes, we would.

[00:03:05] Speaker 00:
So that's an issue before us.

[00:03:07] Speaker 00:
I'm not seeing a remand on that.

[00:03:10] Speaker 00:
You're seeing a reversal, I guess.

[00:03:11] Speaker 00:
I mean, the Court of Federal Claims judge ruled on that.

[00:03:15] Speaker 04:
Yes.

[00:03:16] Speaker 04:
Yes, the Court of Federal Claims ruled on.

[00:03:18] Speaker 04:
So once you get past the breach of contract and do good faith and fair dealing, then you get into the cost issue.

[00:03:25] Speaker 04:
As we stand here before the court, there has been nothing awarded for ACLR's work on the 2007 and 2010 duplicate payment.

[00:03:33] Speaker 00:
Well, I thought there had been some adjudication.

[00:03:36] Speaker 00:
And it was a conclusion that you only proved up like 159,000 or 157,000, and everything else was rejected.

[00:03:43] Speaker 04:
That was the contracting officers on our claim.

[00:03:48] Speaker 04:
They said on the 2010 audit, ACLR was entitled to approximately $157,000.

[00:03:55] Speaker 04:
We then proceeded because we didn't agree with the contracting officer's determination.

[00:04:01] Speaker 04:
Those and the contracting officer rejected all damages.

[00:04:04] Speaker 00:
What did the Court of Federal Claims do with that?

[00:04:06] Speaker 04:
The Court of Federal Claims, we then

[00:04:09] Speaker 04:
We filed a motion for summary judgment.

[00:04:11] Speaker 03:
Did they give you that 159 or they didn't give you anything?

[00:04:15] Speaker 04:
They denied our motion for summary judgment.

[00:04:19] Speaker 04:
And then as we were proceeding to trial, the Court of Federal Claims offered the government opportunity to file a motion for summary judgment on the standard record-keeping system.

[00:04:32] Speaker 04:
ACLR, in response to the motion, articulated these are what we believe

[00:04:37] Speaker 04:
is our standard record-keeping system.

[00:04:39] Speaker 04:
So we had filed a motion for summary judgment.

[00:04:42] Speaker 03:
Did you preserve an argument that if you lost on what you were seeking, you still wanted $159,000?

[00:04:48] Speaker 03:
I don't recall.

[00:04:50] Speaker 04:
I don't recall if that argument was specifically made or not.

[00:04:54] Speaker 00:
OK.

[00:04:54] Speaker 00:
Well, it's the nature of this case that it took us five minutes just to divine what the issues were.

[00:05:00] Speaker 00:
But please proceed.

[00:05:01] Speaker 04:
Right.

[00:05:02] Speaker 04:
It's an extremely complex case because of all the variety of motions that transpire.

[00:05:08] Speaker 04:
But in a nutshell, what prompted this all is the Affordable Care Act's requirement.

[00:05:14] Speaker 00:
We understand the history.

[00:05:16] Speaker 00:
So let's start with the 2007 audit.

[00:05:19] Speaker 00:
Why is it not?

[00:05:20] Speaker 00:
I mean, the government realizes that there's the system, this PWS or whatever it's called.

[00:05:25] Speaker 00:
You come to the government, you say you want to do this.

[00:05:28] Speaker 00:
And they say, no, don't do it.

[00:05:30] Speaker 00:
right they ACLL was prepared to issue the letters to the plan sponsors that would recoup the funds that was in November and they were not allowed to tell you not to do it or they had to have a reason to tell you not to do it and you you did 20 up there were 20 audits during this five-year period and performed seven I guess 11 you didn't perform but they're not an issue well issue only these two these two are issue although I respectfully say in fact there is only

[00:05:58] Speaker 04:
three audits that were approved.

[00:06:00] Speaker 04:
When we group them by years, sure there's a few more audits, but in terms of specific audits on issues like duplicate payments.

[00:06:12] Speaker 00:
How many employees were working on these audits?

[00:06:15] Speaker 04:
I believe in the beginning, I couldn't say a number, but there was

[00:06:19] Speaker 04:
Again, I think it was in the range of 15 to 20 in the beginning in the first year, and then that was cut back, and then ultimately scaled back.

[00:06:29] Speaker 00:
And were these employees working at the same time on a variety of audits, or were there particular employees assigned for the duration of one audit to that audit?

[00:06:39] Speaker 04:
In the beginning, if we talk about what happened in 2011 for the plan year 2007, duplicate payment audit, the focus was to

[00:06:49] Speaker 04:
pursue the duplicate payment audit.

[00:06:51] Speaker 04:
So I would say, although there was development of infrastructure and other things, you need to have security systems, et cetera, in place.

[00:06:58] Speaker 00:
So you had like 20 people working on this one audit.

[00:07:01] Speaker 00:
I think that was about the range.

[00:07:02] Speaker 00:
Again, I'm not quoting.

[00:07:03] Speaker 00:
OK, but you spent a week, came to the government saying, we want to issue demand lenders.

[00:07:09] Speaker 00:
And the government said, wait off.

[00:07:11] Speaker 00:
Don't do it.

[00:07:11] Speaker 00:
We don't want you to do it.

[00:07:13] Speaker 00:
And then you proceeded to do it anyway.

[00:07:18] Speaker 00:
The audit was never completed, but because you came up with a number of $333 million or whatever it was, you're seeking, in this case, 7.5% as a contingency fee for that entire amount?

[00:07:32] Speaker 04:
Correct.

[00:07:32] Speaker 04:
And just to elaborate on that.

[00:07:34] Speaker 00:
After the government had already told you not to seek it.

[00:07:37] Speaker 04:
They had told us in November of 2011 they didn't want the letters issued to the plan sponsors.

[00:07:43] Speaker 04:
Those letters would issue, then they would say, we want the repayment.

[00:07:48] Speaker 03:
The recruitment of the overpayments.

[00:07:49] Speaker 03:
Do you think the government was entitled to tell you not to go forward with these letters?

[00:07:54] Speaker 03:
No, I don't believe so.

[00:07:55] Speaker 04:
I believe the performance work statement, which outlined the structure of the recovery audit contract and provided that duplicate payments could be pursued.

[00:08:06] Speaker 04:
So ACLR had the opportunity to, that was the basis of the bargaining.

[00:08:10] Speaker 03:
Isn't that why the court then found it was a termination for convenience?

[00:08:15] Speaker 03:
Because the government clearly

[00:08:17] Speaker 03:
when they did this, when they said, whatever, let's just assume they had a problem with what you're doing, you probably have a different characterization.

[00:08:23] Speaker 03:
But if they come and look and say, oh, we don't want to go forward with this contract, the government has the right to terminate for convenience, right?

[00:08:31] Speaker 04:
It has a right to

[00:08:34] Speaker 04:
terminate for convenience in this situation, it's a little bit unique.

[00:08:39] Speaker 03:
No, no.

[00:08:40] Speaker 03:
But if they had come in officially when they said, don't do this audit and issued a document that says we're terminating this for convenience, they could have.

[00:08:49] Speaker 03:
Correct.

[00:08:49] Speaker 03:
And you could have sought T for C cost.

[00:08:50] Speaker 03:
Correct.

[00:08:51] Speaker 03:
Yes.

[00:08:52] Speaker 03:
And what the court of federal claims did is looked at this and said, this is functionally a termination for convenience, so T for C cost.

[00:08:58] Speaker 03:
What's wrong with that?

[00:08:59] Speaker 04:
Because the underlying facts show that there was no intent

[00:09:03] Speaker 04:
by the government to honor that PWS, to honor that RDRAM contract.

[00:09:07] Speaker 00:
So you would agree, the law is you would have to prove under those circumstances that there was some bad faith.

[00:09:12] Speaker 04:
That there was bad faith, that there was no intent to honor that contract.

[00:09:15] Speaker 00:
OK.

[00:09:15] Speaker 00:
And then just the Court of Federal Claims found that you didn't meet your burden on that day.

[00:09:20] Speaker 04:
I think if I read the Court of Federal Claims decision correctly, what it was saying was there was changed circumstances.

[00:09:27] Speaker 04:
that would justify the application of a retroactive construction.

[00:09:31] Speaker 03:
I mean, isn't it TPC not honoring the contract?

[00:09:33] Speaker 03:
Where's the line between choosing not to honor the contract and choosing to not go forward with it because circumstances have changed?

[00:09:42] Speaker 03:
I mean, that's what the government said here, isn't it?

[00:09:44] Speaker 03:
That we don't want you to do this.

[00:09:45] Speaker 03:
We have issues with this.

[00:09:47] Speaker 03:
So stop.

[00:09:48] Speaker 03:
Correct.

[00:09:49] Speaker 00:
And that seems to be borne out by the fact that you were working under this PWS, and the government was having problems with it.

[00:09:56] Speaker 00:
And in fact, they subsequently turned to this SOW, whatever these acronyms mean.

[00:10:01] Speaker 00:
And you agreed to that.

[00:10:03] Speaker 00:
And so going forward, there was an agreement by the parties that the SOW was the appropriate way to proceed, right?

[00:10:09] Speaker 04:
I think the retroactive constructive termination for convenience runs back to 2011.

[00:10:16] Speaker 04:
So I know the government's raised the argument

[00:10:19] Speaker 04:
that, well, you've now done away with the PWS, and for some reason that therefore justifies the PWS was never in effect.

[00:10:26] Speaker 04:
That's not true.

[00:10:27] Speaker 03:
You have to look at court.

[00:10:28] Speaker 03:
Well, the PWS was certainly in effect because they accepted it.

[00:10:31] Speaker 03:
Maybe they accepted it unwisely.

[00:10:32] Speaker 03:
But once they accepted it and then they look at it and say, oh, we didn't mean this is wrong.

[00:10:36] Speaker 03:
We don't want to go forward with that.

[00:10:38] Speaker 03:
Why is that bad faith, per se?

[00:10:40] Speaker 03:
Isn't that just a recognition of the government that this is not the way it wanted the contract to proceed?

[00:10:45] Speaker 04:
I think there's a distinction between saying there's something we don't want to do this, then they could have affected at that point in time a termination for convenience.

[00:10:54] Speaker 03:
But they did.

[00:10:55] Speaker 03:
They didn't do a formal termination for convenience, but they told you stop these audits.

[00:11:00] Speaker 03:
We don't want these letters to go out.

[00:11:02] Speaker 03:
That's what they did, yes.

[00:11:03] Speaker 03:
But they didn't terminate the contract.

[00:11:05] Speaker 03:
They said don't.

[00:11:06] Speaker 03:
That's why it's a constructive termination for convenience rather than an actual termination for convenience.

[00:11:12] Speaker 04:
We didn't have the opportunity.

[00:11:14] Speaker 04:
The court disregarded the fact that the government wasn't going to honor the contract.

[00:11:19] Speaker 03:
If they're saying, I understand that you keep saying the government is going to honor the contract.

[00:11:24] Speaker 03:
That's what happens when the government terminates a contract for convenience.

[00:11:29] Speaker 03:
They're saying, we're not going to honor the contract.

[00:11:31] Speaker 03:
We're terminating it.

[00:11:32] Speaker 03:
They have that right.

[00:11:34] Speaker 03:
In regular contract law, maybe that doesn't happen.

[00:11:36] Speaker 03:
But the government has the right.

[00:11:38] Speaker 03:
And your right is to seek allocable costs that you incurred up to the date of that termination for convenience, isn't it?

[00:11:45] Speaker 04:
Well, the issue here and why it's unique.

[00:11:47] Speaker 04:
And again, the Constructive Termination for Convenience is a issue made a doctrine.

[00:11:53] Speaker 04:
So what we have here is nine years later, the court coming in and saying, we're going to have a retroactive constructive termination for convenience.

[00:12:02] Speaker 04:
ACLR said, why don't you terminate the contract?

[00:12:04] Speaker 04:
And then at that point in time, in 2011,

[00:12:07] Speaker 04:
They could have recovered their costs.

[00:12:10] Speaker 00:
Will you continue to do other contracts after this 2007?

[00:12:15] Speaker 00:
Obviously, you did the 2010, but also, right?

[00:12:19] Speaker 00:
We were still on board.

[00:12:20] Speaker 00:
You agreed to do this new thing, this SOW, change of circumstances, that you agreed to.

[00:12:25] Speaker 00:
But let me ask you, going back to the damages, because we can't spend all morning here, is so first off, you're seeking, even though

[00:12:34] Speaker 00:
There was never any recruitment of payment.

[00:12:37] Speaker 00:
And after one week, the government stopped you before you even should have sent out the demand letters.

[00:12:44] Speaker 00:
You're seeking $23 million, which is what you say is 7.5% of the amount that the government could have recouped if it had gone forward.

[00:12:53] Speaker 00:
Correct.

[00:12:54] Speaker 00:
OK.

[00:12:54] Speaker 00:
I assume you have a backup plan for that.

[00:12:56] Speaker 00:
And that backup plan was that you're entitled to at least the damages incurred

[00:13:02] Speaker 00:
until there was, assuming there's constructive termination.

[00:13:07] Speaker 00:
Your alternative would be what?

[00:13:10] Speaker 00:
The damages that you incurred up until the termination, the constructive termination?

[00:13:17] Speaker 04:
Correct.

[00:13:17] Speaker 04:
And some of those lingered on because there wasn't an ability to adjust because we had to employ staff, et cetera.

[00:13:24] Speaker 04:
But be that as it may, yes.

[00:13:25] Speaker 00:
Well, yeah, I assume that's true because didn't you put in for the head of the

[00:13:30] Speaker 00:
your organization over 3,000 hours for that one week before.

[00:13:37] Speaker 00:
We put in for 3,000 hours for one individual.

[00:13:40] Speaker 04:
We did put in time for individuals that worked.

[00:13:44] Speaker 00:
Did you put in 3,023 hours for one individual?

[00:13:50] Speaker 00:
I believe we did, yes.

[00:13:51] Speaker 00:
And that couldn't have all been incurred the week.

[00:13:55] Speaker 00:
before the government told you to stop.

[00:13:58] Speaker 04:
Our position is that from the award of the contract in January of 2011 up until the time of approximately November of 2011 and then some lingering costs all relate to that duplicate payment audit because if there's a constructive termination for convenience that essentially ends the contract.

[00:14:18] Speaker 04:
That's what we're talking about.

[00:14:19] Speaker 04:
That duplicate payment audit was ended.

[00:14:21] Speaker 00:
So what if 2000 hours

[00:14:24] Speaker 00:
about what was the work done covering in those 3,000 hours?

[00:14:30] Speaker 04:
The work that was done was once you're awarded the contract, you have to set up, first of all, you have to do a hiring.

[00:14:35] Speaker 04:
We hired people.

[00:14:36] Speaker 04:
You have to put forth the infrastructure.

[00:14:40] Speaker 04:
These are PDEs.

[00:14:44] Speaker 04:
They're prescription drug records.

[00:14:47] Speaker 04:
So you have to have a secure infrastructure.

[00:14:49] Speaker 03:
So you have documents showing this person spent all this time on the 2007 audit.

[00:14:58] Speaker 04:
What we can do, because it's nine years later, we have to go back now.

[00:15:02] Speaker 04:
It could have probably been done a lot easier if it had happened in 2011.

[00:15:06] Speaker 03:
I mean, aren't you required to keep adequate?

[00:15:10] Speaker 03:
cost systems under all these federal procurement contracts?

[00:15:14] Speaker 04:
Not in a contingency fee contract, but we have, we're not requiring... Where you are if you're going to show termination for convenience costs.

[00:15:22] Speaker 04:
We can show the costs that we incur, but the standard that was articulated in the Court of Federal Claims ruling was that we needed to essentially have something that tracked the exact amount of time to the particular task.

[00:15:37] Speaker 03:
Well, I think that's what's required for termination for convenience cost.

[00:15:40] Speaker 04:
No, it's not.

[00:15:41] Speaker 04:
You don't have to have specific time tracking to prevent that argument.

[00:15:46] Speaker 00:
I thought that the Court of Federal Claims just said you need some method of contemporaneously tracking costs in a regular and organized manner.

[00:15:57] Speaker 00:
Do you have any problem with that standard?

[00:15:59] Speaker 04:
we we presented we thought we had presented sufficient evidence because we've got our W-2s those don't have a problem with that standard right I have this problem no I have a problem with because I think what what

[00:16:12] Speaker 04:
That sentence holds, and then what the actual ruling is, is that you needed to track specific time to a specific task.

[00:16:20] Speaker 04:
And looking nine years back, when you have a contingency fee contract, which doesn't require you to do that, if that was a rationale that's applied to fixed fee contracts, that means all fixed fee contracts, small businesses, have to put in place... Contingency fee contract with a termination for convenience clause in it, correct?

[00:16:40] Speaker 00:
it did have to do you have you you knew you were bearing a risk that you might end up in the termination for that convenience particularly when the government told you to stop working not send out the demand letters after one week so if you were going to ask for three thousand hours if you were spending three thousand hours in connection with that one two thousand seven contract with respect to one individual don't you think some sort of verification or validation would have been required i mean

[00:17:09] Speaker 00:
I think that might be the normal course.

[00:17:12] Speaker 00:
And we're dealing here with auditors.

[00:17:14] Speaker 00:
I mean, I think auditors are really good at tracking stuff.

[00:17:16] Speaker 00:
Presumably, that's why your client was hiring you in the first place.

[00:17:20] Speaker 04:
What we did was, again, when we presented this to the court, we said, we have W2s for the people that worked on this audit.

[00:17:30] Speaker 04:
We have estimates of time from the principal of ACR.

[00:17:34] Speaker 04:
We have accounting records, which reflect the costs that were incurred.

[00:17:38] Speaker 04:
We have a host of information.

[00:17:41] Speaker 04:
What the court did was to say, again, you don't have specific time records for specific tasks.

[00:17:49] Speaker 04:
Therefore, we're not going to accept that.

[00:17:52] Speaker 00:
I think it was reacting to the stuff that you were putting in for.

[00:17:56] Speaker 00:
For example, you were asking for 3,000 hours for this one individual.

[00:18:00] Speaker 00:
for a contract that was constructively terminated one week after it began.

[00:18:05] Speaker 00:
I think you asked for 5,000 hours for a contract that went on quite a while, the 2010 audit.

[00:18:12] Speaker 00:
So those numbers.

[00:18:13] Speaker 00:
And then at some point, you put in payment for the lease for the entire four-year period, I think.

[00:18:22] Speaker 00:
Wasn't that one of your requests for payment?

[00:18:24] Speaker 00:
That was, yes.

[00:18:25] Speaker 00:
OK, so you don't have to?

[00:18:28] Speaker 00:
Sorry.

[00:18:29] Speaker 00:
I mean, don't you have to allocate?

[00:18:31] Speaker 00:
I mean, you worked on however many audits.

[00:18:33] Speaker 00:
You saved confidence.

[00:18:35] Speaker 00:
But there were more than these two audits.

[00:18:38] Speaker 00:
Because these two audits, you didn't get paid for.

[00:18:40] Speaker 00:
And you made $3.4 million in this four-year period, right?

[00:18:44] Speaker 00:
And your contingency fees.

[00:18:45] Speaker 00:
So you must have done something else.

[00:18:47] Speaker 00:
So why would the entire cost of the lease for the entire period be allocated to the 2007 contract, which you were working on for a week?

[00:18:59] Speaker 04:
Because what transpired was you have the contracts awarded.

[00:19:05] Speaker 04:
ACLR does an assessment.

[00:19:06] Speaker 04:
OK, this is what we need to do.

[00:19:08] Speaker 04:
Remember, the amount of estimated overpayments in the year of 2007 was $2.4 billion.

[00:19:15] Speaker 04:
So this is an enormous undertaking to analyze and recoup these overpayments.

[00:19:22] Speaker 04:
So what they do then is they secure a lease for property so that they can have a secure facility to handle the technology.

[00:19:32] Speaker 00:
And what you just said is that the lease should at least be allocated

[00:19:38] Speaker 00:
2007 and 2010 didn't count for whatever billion dollars you just mentioned.

[00:19:45] Speaker 00:
So isn't there some sort of allocation required?

[00:19:48] Speaker 00:
I mean, I don't think in this case we have to define a standard for standardized record keeping.

[00:19:54] Speaker 00:
I just think under any standard, it's not clear to me that the information you submitted to try to recoup reasonable expenses was sufficient

[00:20:06] Speaker 00:
whatever the state, however standard record keeping necessity is applied.

[00:20:13] Speaker 04:
What we did was, the government had challenged, as we were proceeding to trial, the government said, you can't prove anything with respect to your costs.

[00:20:24] Speaker 04:
And we said, we can.

[00:20:25] Speaker 04:
We have a tremendous amount of records.

[00:20:27] Speaker 04:
When we have testimony from the individual.

[00:20:30] Speaker 00:
You mean about 100,000 pages of records, right?

[00:20:32] Speaker 04:
Because again, the challenge by the government was, you don't have anything.

[00:20:35] Speaker 02:
I think their challenge was you don't have a standard record keeping system.

[00:20:38] Speaker 02:
And when you dumped 100,000 pages on the court, the court agreed.

[00:20:44] Speaker 03:
It's not the court's job.

[00:20:45] Speaker 03:
It's not the government's job to figure out how to take these however many years of receipts you have and divide them up for two different contract years and exclude the costs that would have been allocable to the stuff you've completed.

[00:21:00] Speaker 03:
We were prepared to present that at trial.

[00:21:02] Speaker 03:
But you didn't present any evidence

[00:21:04] Speaker 03:
before the summary judgment motion that you could do that.

[00:21:07] Speaker 03:
But we did.

[00:21:08] Speaker 03:
We did.

[00:21:09] Speaker 03:
We put that... Where's the table that shows this guy spent 3,000 hours on the 2007 contract?

[00:21:16] Speaker 03:
We have tables of the time.

[00:21:18] Speaker 03:
They're in exhibits to... Does it show something contemporaneously that he actually devoted 3,000 hours to the 2007 contract?

[00:21:28] Speaker 03:
It shows we can prove that because we can put him on the witness stand.

[00:21:32] Speaker 03:
No, no, no, no.

[00:21:33] Speaker 03:
Do you have something that you gave to the court sufficient to create a tribal issue of fact that those 3000 hours were entirely attributable to the 2007 contract?

[00:21:44] Speaker 03:
Or do you just have W-2s and time and attendance records for the entire period?

[00:21:51] Speaker 04:
We have that information and we have.

[00:21:54] Speaker 04:
We have his emails to show what he was doing, what he was working on.

[00:21:57] Speaker 04:
We have his testimony.

[00:21:58] Speaker 04:
All that was ignored.

[00:21:59] Speaker 04:
The court said, I don't like your standard record-keeping system.

[00:22:04] Speaker 04:
You have to have some generic record-keeping system.

[00:22:07] Speaker 04:
The statute says it's standard record-keeping.

[00:22:09] Speaker 03:
I don't think it's a very high burden.

[00:22:11] Speaker 03:
And I think it's required in almost all of these cases that if you're going to recover termination for convenience costs, that the costs have to be eligible to the specific contract.

[00:22:21] Speaker 03:
And if you're claiming employee hours,

[00:22:23] Speaker 03:
You have to have things showing this person worked X hours on this contract.

[00:22:29] Speaker 03:
And you didn't have that, did you?

[00:22:31] Speaker 04:
I believe we have the opportunity to present that.

[00:22:35] Speaker 03:
I can't just throw stuff up and say we're going to prove it at trial.

[00:22:40] Speaker 03:
That's what you have to create.

[00:22:42] Speaker 00:
Did you submit an affidavit?

[00:22:44] Speaker 00:
We did.

[00:22:44] Speaker 04:
We submitted an affidavit.

[00:22:45] Speaker 00:
And did he describe what the time frames were and what the work he was doing during those time frames that added up to over 3,000 hours?

[00:22:54] Speaker 04:
In connection with the motion for summary judgment.

[00:22:56] Speaker 04:
In connection with one of the motions for summary judgment, yes.

[00:22:59] Speaker 03:
I also want to just- Did that declaration say, I spent all 3,000 of these hours on the 2007 and 2011 contracts or wherever you were trying to allocate them?

[00:23:11] Speaker 03:
I don't recall it's on my head.

[00:23:13] Speaker 03:
I believe it was.

[00:23:16] Speaker 03:
But again, we have to show that.

[00:23:19] Speaker 03:
You can't just generally say, oh, I worked a lot.

[00:23:22] Speaker 03:
No, that was the intent of the declaration say.

[00:23:25] Speaker 03:
I mean, I'm not going to belabor this because you clearly don't know the answer to what his declaration says or don't want to tell us that it didn't say, I worked 3,000 hours on the 2007 contract.

[00:23:36] Speaker 00:
And during the time period before the government terminated.

[00:23:39] Speaker 04:
I think there's a clarification on that point.

[00:23:43] Speaker 04:
The government's position is you only did the 2011 audit for a couple weeks, and that's it.

[00:23:48] Speaker 00:
2007.

[00:23:49] Speaker 00:
Right.

[00:23:50] Speaker 04:
The government's position, I believe, is you only did the 2007 duplicate payment audit for a couple weeks.

[00:23:56] Speaker 04:
That's not accurate.

[00:23:58] Speaker 04:
The duplicate payment audit starts with when the contract was awarded.

[00:24:02] Speaker 04:
The performance work statement says we're going to pursue duplicate payments.

[00:24:07] Speaker 04:
to start the infrastructure, to start the analysis that goes into doing that, it begins

[00:24:13] Speaker 04:
in January, February of 2011.

[00:24:16] Speaker 00:
And he outlined, this is where the 3,000 hours come from.

[00:24:20] Speaker 00:
Right.

[00:24:20] Speaker 00:
I started this in January, and I spent however many hours a week doing this.

[00:24:24] Speaker 04:
Right.

[00:24:25] Speaker 04:
It's not a one-week thing, as a government would have believed.

[00:24:28] Speaker 03:
But is that for just the 2007 time period, or is that the startup time period for all the potential option years going forward?

[00:24:38] Speaker 03:
Because it's the same thing with the lease.

[00:24:40] Speaker 03:
If he's doing general work that's going to be useful for the entirety of the contract, then you can't allocate it all to one year.

[00:24:47] Speaker 03:
You have to spread it out and allocate it across the several years, just like you have to allocate the lease across the several years instead of just dumping it into the first year.

[00:24:58] Speaker 04:
Well, I think given that you have the court enacting a retroactive constructive termination for convenience.

[00:25:04] Speaker 03:
That argument is not getting you anywhere with me because if you have a termination for convenience clause in your contract, you're on notice that the government can terminate it.

[00:25:14] Speaker 03:
And there are certain legal standards you have to meet to recover T for C costs.

[00:25:22] Speaker 03:
And those include having an accounting system where you can determine that the costs are properly allocated.

[00:25:29] Speaker 03:
So the fact that it was done nine years later doesn't excuse you of not having an appropriate accounting system from the start.

[00:25:36] Speaker 03:
Is that the law?

[00:25:37] Speaker 04:
I would say we did have an appropriate standard record-keeping system from the start that could show

[00:25:43] Speaker 04:
the cost that were incurred.

[00:25:46] Speaker 00:
How about the lease?

[00:25:47] Speaker 00:
How do you justify the lease?

[00:25:49] Speaker 00:
The lease cost for the entire period where you were working on 20 different audits and we plucked out two audits, one of which never was stopped after one week and you're attributing all of your rental payments to those two contracts as a reasonable cost?

[00:26:07] Speaker 04:
First I would just say there was only three audit issues that were allowed to proceed.

[00:26:12] Speaker 04:
not 12 or 20, there was three.

[00:26:15] Speaker 03:
Yes, but did you allocate any of the portion of the lease to the ones that were allowed to proceed, or are you seeking it all under these T for C damage clause?

[00:26:23] Speaker 04:
We're seeking it all because once the change, once it was clear that we weren't going to be able to pursue the duplicate payments, we had already locked in that lease.

[00:26:36] Speaker 04:
We then sought change in, we then sublet

[00:26:42] Speaker 03:
and got smaller, that's how much damage is, not T for C costs.

[00:26:48] Speaker 02:
All right.

[00:26:49] Speaker 02:
Going back to T for C, the law allows you to rebut that if you can show bad faith by the government.

[00:26:57] Speaker 02:
I think you're arguing or are you arguing that you adduced enough information, enough evidence that a reasonable fact finder could have found that the government acted in bad faith.

[00:27:07] Speaker 02:
Is that one of your arguments?

[00:27:08] Speaker 02:
Yes, it is.

[00:27:09] Speaker 02:
Could you just briefly summarize for me what that evidence is?

[00:27:13] Speaker 04:
Sure.

[00:27:14] Speaker 04:
We believe there's uncontroverted evidence that the government had no intent to honor the contract with respect to the 2007 plan year duplicate payment audit.

[00:27:23] Speaker 04:
So we have the evidence is there's an email in the record from July of 2011.

[00:27:30] Speaker 04:
CMS is going before Congress to testify about the Part D RAC contract.

[00:27:34] Speaker 02:
They're getting ready for the congressional testimony, and they say there's no payments in the first case.

[00:27:38] Speaker 02:
There's going to be no payments.

[00:27:39] Speaker 04:
They're internally talking.

[00:27:40] Speaker 02:
What else do you have?

[00:27:41] Speaker 04:
We have the hiring of the other contractor, Booz Allen Hamilton, that was engaged in January of 2011.

[00:27:48] Speaker 02:
And is it your contention it's reasonable to assume they were going to just pay Booz Allen and never pay you?

[00:27:53] Speaker 04:
No, that inhibited our ability to proceed because they were saying, we're having Booz Allen go ahead and implement the Part D RAC contract.

[00:28:01] Speaker 04:
The performance work statement was already in place that set forth, here's what we're going to do.

[00:28:05] Speaker 04:
Here's the process we're going to use.

[00:28:07] Speaker 02:
So again, as a contention, it would be reasonable to infer that they were only going to pay Booz Allen and not pay you to do this work?

[00:28:14] Speaker 04:
That they weren't going to allow us to proceed.

[00:28:17] Speaker 00:
When did they hire Booz Allen?

[00:28:19] Speaker 04:
It was at least as early as January of 2011.

[00:28:22] Speaker 02:
And what else besides the email and hiring of Booz Allen?

[00:28:27] Speaker 04:
We have the contracting officer's representative telling ACLR

[00:28:32] Speaker 04:
in November of 2011.

[00:28:34] Speaker 04:
Don't go forward.

[00:28:35] Speaker 04:
Right.

[00:28:36] Speaker 04:
Don't go forward, but also saying the performance work statement is a proposal.

[00:28:41] Speaker 04:
It's not a contract.

[00:28:43] Speaker 02:
It is.

[00:28:43] Speaker 02:
It's not.

[00:28:45] Speaker 04:
The performance work statement is part of the contract.

[00:28:47] Speaker 04:
It's part of the contract.

[00:28:48] Speaker 04:
Anything else?

[00:28:48] Speaker 04:
And then we have Cynthia Moreno, who's a division director for the program integrity.

[00:28:55] Speaker 04:
I testified that ACLR would not be able to recover improper payments or collect fees until the program had been implemented in a manner that was satisfactory to CMS.

[00:29:05] Speaker 04:
But the fact of the matter is, it was already implemented through the performance work statement.

[00:29:10] Speaker 02:
That's it, though, right?

[00:29:11] Speaker 02:
Just those four pieces of evidence?

[00:29:12] Speaker 04:
I can go on with a couple more if Your Honor would like to hear them.

[00:29:15] Speaker 02:
Do you think you've set it out in the brief?

[00:29:17] Speaker 04:
Anything else?

[00:29:18] Speaker 04:
I think it's set out in the brief.

[00:29:19] Speaker 04:
And I would say that in a motion for summary judgment, all

[00:29:24] Speaker 04:
the deference is given to the non-movement.

[00:29:27] Speaker 04:
We had moved for summary judgment, but then the government also moved for summary judgment.

[00:29:32] Speaker 04:
So the court's got to evaluate, in considering the government's motion for summary judgment, whether there's absolutely no evidence that would support a bad faith or an abuse of discretion.

[00:29:44] Speaker 02:
It's whether, taking it all in the lightmost variable to you, a reasonable fact finder could find clear and convincing evidence of the government's bad faith.

[00:29:51] Speaker 02:
That's the analysis, correct?

[00:29:53] Speaker 02:
That's right.

[00:29:54] Speaker 02:
Our argument on our motion for summary judgment.

[00:29:56] Speaker 02:
No, no.

[00:29:56] Speaker 02:
That's your argument in opposition to their.

[00:29:59] Speaker 02:
Your argument on your summary judgment motion is a reasonable fact writer could only find clear and convincing evidence of that faith.

[00:30:06] Speaker 04:
And our argument in response to theirs is you have to take our evidence in the light most favorable to the non-movement, which would preclude the summary judgment entry for the government.

[00:30:17] Speaker 04:
That was it.

[00:30:18] Speaker 00:
Thank you.

[00:30:18] Speaker 00:
Thank you.

[00:30:18] Speaker 00:
Thank you.

[00:30:19] Speaker 04:
It's here from the other side.

[00:30:32] Speaker 01:
Good morning.

[00:30:34] Speaker 01:
May it please the court.

[00:30:36] Speaker 01:
In this case, in granting summary judgment for the government, the trial court appropriately held first that the agency's cancellation of two audits constituted a constructive termination for convenience based upon the T for C clause in the contract.

[00:30:54] Speaker 03:
Second, why did you accept the PWS for the 2007 if you weren't going to let them do it?

[00:31:00] Speaker 03:
I'm sorry.

[00:31:01] Speaker 03:
Why did you accept the PWS for the 2007 if you weren't going to let them do it?

[00:31:09] Speaker 03:
Because, I mean, accepting it forms a contract, right?

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

[00:31:13] Speaker 01:
So the PWS at that time

[00:31:16] Speaker 01:
This would have been in January 2011.

[00:31:19] Speaker 03:
Are there facts suggesting that you knew you weren't going to let them do it when you accepted the PWS?

[00:31:25] Speaker 01:
Well, the PWS was drafted by ACLR, and as ACLR admits in its opening brief in footnote four,

[00:31:39] Speaker 01:
They do not disagree that CMS had concerns with the workability of the PWS.

[00:31:44] Speaker 03:
That's why I'm asking why you accepted it, if you had concerns.

[00:31:47] Speaker 03:
I mean, really, the ideal time to change the PWS is before you enter into a contract.

[00:31:57] Speaker 01:
That may be so, Your Honor.

[00:31:58] Speaker 01:
In retrospect, what occurred in fact here was, as it started early on,

[00:32:05] Speaker 01:
under the contract, there were problems with the workability of PWS.

[00:32:10] Speaker 01:
From the government's point of view, ACLR had a draft of this, did not understand some of the methodologies, but the two sides negotiated and came up with a replacement, which was the statement of work, the SOW.

[00:32:26] Speaker 03:
So after you accepted it and formed the contract, you realized that it wasn't going to work.

[00:32:31] Speaker 03:
That is correct.

[00:32:32] Speaker 03:
Is there any evidence showing that you knew it wasn't going to work before you accepted it?

[00:32:39] Speaker 01:
No, I'm not aware of that.

[00:32:43] Speaker 01:
But in terms of the court's decision, the court looked at this and looked at the arguments back and forth and noted these disagreements.

[00:32:56] Speaker 01:
But in effect, what's undisputed is that by

[00:33:02] Speaker 01:
bilateral modification executed by both ACLR and the government, they replaced the PWS with the SOW.

[00:33:11] Speaker 00:
Well, in your brief you say in the first year of contract performance, CMS found the PWS unworkable and sought to revise it.

[00:33:19] Speaker 00:
And then you cite pages in the appendix.

[00:33:22] Speaker 00:
Do you recall what those pages tell us?

[00:33:25] Speaker 00:
Because I've got too many volumes to find it right at this moment.

[00:33:29] Speaker 01:
Yeah.

[00:33:31] Speaker 01:
detailed, but from the government's perspective, there were problems with methodologies.

[00:33:38] Speaker 01:
One of the big problems with the PWS was that it was ambiguous and not clear on granting approval to perform an audit.

[00:33:51] Speaker 01:
That was later clarified in the statement of work that CMS had to approve

[00:33:58] Speaker 01:
an audit before it could be undertaken by the contractor.

[00:34:02] Speaker 01:
That was one of the things that was not clear in the PWS.

[00:34:05] Speaker 02:
Why is there not a triable issue of fact on whether the government acted here with bad faith or intent to harm?

[00:34:14] Speaker 01:
Well, what the trial court decided was that there's no dispute that CMS canceled

[00:34:28] Speaker 01:
the 2007 audit on November 30, 2011, during a conference call in ACR's words that killed the audit.

[00:34:37] Speaker 01:
And because of the questionable circumstances, the trial court held that this was a constructive termination for convenience.

[00:34:47] Speaker 02:
And under the standard- Why is there not a disputed fact as to whether or not they rebutted

[00:34:54] Speaker 02:
the availability of determination for convenience defense by inducing sufficient evidence that the government was actually acting in bad faith?

[00:35:04] Speaker 02:
And where does the trial court analyze that question?

[00:35:08] Speaker 01:
Well, ACLR didn't actually argue bad faith.

[00:35:14] Speaker 01:
What they argued was, as they did this morning, that the government had no intent to honor the contract, which is- Well, that'd be a form of bad faith, wouldn't it?

[00:35:27] Speaker 02:
to enter into a contract with no intention of entering?

[00:35:29] Speaker 01:
Yeah, that's the Torncello case.

[00:35:31] Speaker 03:
That's really belied by the facts in this case that, in fact, if at the time they entered into the contract, they had no intention of performing it, then that might be bad faith.

[00:35:44] Speaker 02:
If the government had that intent, right?

[00:35:49] Speaker 03:
The answer to that is, yes, it could possibly be evidence of bad faith.

[00:35:54] Speaker 03:
If the government knew at the time it entered into the contract,

[00:35:57] Speaker 03:
that it actually wasn't going to let them perform it.

[00:35:59] Speaker 03:
That could be a bad thing.

[00:36:01] Speaker 03:
Is there any evidence that they pointed to that construed in their favor suggests that?

[00:36:08] Speaker 03:
Or is all of their evidence after the PWS was awarded, and it all suggests it arises from the problems the government had once they finally sat down and did their due diligence and read the PWS?

[00:36:23] Speaker 01:
That's correct.

[00:36:23] Speaker 01:
There's nothing they pointed to that the government

[00:36:26] Speaker 01:
had no intent to honor that.

[00:36:28] Speaker 01:
It turned out, once they got started, it was not workable.

[00:36:32] Speaker 01:
They came up with an alternative.

[00:36:34] Speaker 01:
And in this case, this was a partial termination for convenience.

[00:36:42] Speaker 01:
Only two audits.

[00:36:45] Speaker 01:
But ACLR, I'm not clear where they're coming up with three.

[00:36:48] Speaker 01:
They performed seven.

[00:36:49] Speaker 01:
This is noted by the court.

[00:36:53] Speaker 01:
The contract was extended.

[00:36:55] Speaker 01:
Options were exercised.

[00:36:57] Speaker 01:
The base year was one year.

[00:36:59] Speaker 01:
They performed for four years.

[00:37:00] Speaker 01:
They worked on seven audits.

[00:37:02] Speaker 01:
They were paid over $3 million.

[00:37:05] Speaker 01:
There is no bad faith.

[00:37:16] Speaker 01:
Secondly, in the three decisions that the court issued, the last one

[00:37:22] Speaker 01:
The trial court correctly held that ACLR failed to satisfy the requirements of the Termination for Convenience Clause for a 52.214-4L because it lacked a standard record-keeping system, a key provision of the T4C clause.

[00:37:37] Speaker 01:
That is, ACLR lacked a regular, organized method for tracking relevant costs resulting from the two audits.

[00:37:48] Speaker 01:
ACLR, by its own admission,

[00:37:50] Speaker 01:
a self-professed, highly experienced accounting firm did not contemporaneously track its cost.

[00:37:58] Speaker 01:
This is in the affidavit of Mr. Muck.

[00:38:01] Speaker 00:
I guess one of their answers might be that these were contingency fees.

[00:38:06] Speaker 00:
So when you've got a contingency fee contract, it's not like your regular lawyer having to bill your hours and keep track of your hours.

[00:38:14] Speaker 00:
I'm not saying that I accept that, but that would be one of the arguments about that.

[00:38:20] Speaker 01:
Yes.

[00:38:21] Speaker 01:
That is correct.

[00:38:22] Speaker 01:
Under the contingency fee contract as a deliverable, they were not obligated to track their labor hours.

[00:38:29] Speaker 01:
But as Judge Hughes raised a point, if they're seeking termination for convenience costs, they were required to track their hours.

[00:38:39] Speaker 00:
Well, I would also think that somebody's got to track something, because they're paying employees.

[00:38:44] Speaker 00:
I don't know what their payment schedule was, if employees were getting a percentage of the contingency fee.

[00:38:50] Speaker 00:
And that was the payment.

[00:38:51] Speaker 00:
I suspect maybe these were salaried employees or hourly employees that were getting paid.

[00:38:56] Speaker 00:
I don't know.

[00:38:57] Speaker 01:
That is correct.

[00:38:59] Speaker 01:
And just one thing to point out.

[00:39:00] Speaker 00:
Do you know if the record reflects how the employees were paid?

[00:39:03] Speaker 00:
that they would play on an hourly basis?

[00:39:07] Speaker 01:
I don't believe.

[00:39:13] Speaker 01:
Mr. Muck, their CEO, in his affidavit, stated that he did not take a salary.

[00:39:21] Speaker 01:
As for the employees, the records that reflect they received wages and had taxes deducted were the W-2s.

[00:39:28] Speaker 01:
The problem with those W-2s

[00:39:32] Speaker 01:
I think they reflected some aid employees.

[00:39:34] Speaker 01:
And they claimed for the entire year of 2011, even though the 2007 audit started on the outside when CMS issued an email on August 25, 2011 to ACLR inviting them to propose, actually it was two audits, the duplicate payment audit

[00:39:58] Speaker 01:
and the excluded provider audit.

[00:40:00] Speaker 01:
And then ACLR started receiving PDE records from CMS on November 17, 2011.

[00:40:09] Speaker 01:
And then it was terminated in November 30.

[00:40:11] Speaker 01:
So at most, it's three months or less than two weeks.

[00:40:16] Speaker 03:
But yet they're claiming the entire year.

[00:40:18] Speaker 03:
So your point is that all they gave you was W-2 showing what these employees earned, but no statement that you should allocate

[00:40:28] Speaker 03:
quarter of this to the contract or all of it because it's all all the hours even though it was for One tax year were for the contract.

[00:40:37] Speaker 03:
There's no way to break it down.

[00:40:39] Speaker 01:
There's no way to break it down and in fact They don't reflect the two audits and in fact underlying This case ACLR was working on multiple multiple things and

[00:40:56] Speaker 01:
The trial court made findings that ACLR was working on the task order, which was common to all of the audits.

[00:41:05] Speaker 01:
As I pointed out.

[00:41:09] Speaker 01:
Did they get paid for that task order?

[00:41:14] Speaker 01:
No.

[00:41:15] Speaker 01:
They didn't get paid for the task order.

[00:41:16] Speaker 01:
They get paid for completed approved audits when improper payments are collected, only when they're collected.

[00:41:26] Speaker 01:
And for these two audits, ACLR identified improper payments.

[00:41:32] Speaker 01:
But the contingency fee clause makes clear.

[00:41:35] Speaker 03:
So that other task order, if they've been working under that task order, why shouldn't they get to allocate some of those costs to the 2007 and 2010, whatever we're talking about, if they were fairly in support of it?

[00:41:57] Speaker 01:
Well, first of all, ACLR never claimed that.

[00:42:02] Speaker 01:
And the specific findings of the court, ACLR claimed that in 2011, they only worked on the 2007 audit.

[00:42:08] Speaker 01:
That was a disputed fact.

[00:42:10] Speaker 01:
And the court said, that's just a bare assertion.

[00:42:12] Speaker 01:
Unless it's backed up with records from a standard record-keeping system, that's not a finding we can make on summary judgment.

[00:42:21] Speaker 01:
So in sum,

[00:42:27] Speaker 01:
ACLR had... They have no records.

[00:42:33] Speaker 02:
No documents showing... The amicus makes reference to FAR 12.403, which provides that a contractor may rely on its standard record-keeping system to demonstrate reasonable charges.

[00:42:45] Speaker 02:
Yes.

[00:42:45] Speaker 02:
Is that pertinent here?

[00:42:48] Speaker 01:
It is not.

[00:42:49] Speaker 01:
For several reasons.

[00:42:50] Speaker 01:
First,

[00:42:51] Speaker 01:
That's an argument made by amicus, not by ACLR specifically.

[00:42:56] Speaker 01:
Well, I'm concerned about it.

[00:42:57] Speaker 01:
Why should I not be concerned?

[00:42:59] Speaker 01:
Well, first of all, FAR 12.403 is guidance on the T for C clause.

[00:43:08] Speaker 01:
And 12.403 is not in the contract.

[00:43:13] Speaker 01:
The provisions that's in the contract is the actual FAR clause.

[00:43:17] Speaker 01:
And it does not use the word may.

[00:43:20] Speaker 02:
So clearly it's a- So that guidance has no applicability if you put the other provision in the contract itself.

[00:43:27] Speaker 00:
That is correct.

[00:43:28] Speaker 00:
So what is the government's position on what was required to be maintained in terms of records?

[00:43:34] Speaker 00:
And how is the contractor supposed to know that if it's not in the contract?

[00:43:39] Speaker 01:
So we believe that the trial court appropriately interpreted the regulation using dictionary definitions

[00:43:48] Speaker 01:
for the term standard, denoting a measure of commonist regularity, system indicating orderliness and organization, and held in some that a standard record-keeping system is a regular, organized method for tracking relevant costs relevant to a particular project.

[00:44:07] Speaker 01:
It doesn't have to be complicated.

[00:44:08] Speaker 01:
It doesn't have to be sophisticated.

[00:44:12] Speaker 01:
And they failed to do that.

[00:44:14] Speaker 01:
And this is reflected

[00:44:16] Speaker 01:
by their trial exhibits, by their evidence.

[00:44:19] Speaker 01:
So with ACLR, one can just look at any.

[00:44:24] Speaker 03:
It doesn't have to just be one kind of sophisticated accounting system, right?

[00:44:28] Speaker 03:
It just has to be something that shows we incurred this cost, whether it's wages, lease, paper clips, whatever.

[00:44:37] Speaker 03:
And this is how much it was, and it is attributed to this contract.

[00:44:44] Speaker 03:
Correct.

[00:44:45] Speaker 03:
If they have that, that's a record-keeping system.

[00:44:48] Speaker 03:
Correct.

[00:44:49] Speaker 03:
It does not have to be a particular form.

[00:44:52] Speaker 03:
And the problem here is they have a lot of receipts and WTUs and stuff showing how much money they went at, spent out.

[00:44:59] Speaker 03:
But at least as far as I can tell, there's nothing that connects those costs with contemporary evidence to the specific two years we're talking about.

[00:45:10] Speaker 01:
Not so much as a single document that we could find.

[00:45:14] Speaker 01:
They included receipts for flowers, for groceries, for alcohol, for gun ammunition.

[00:45:22] Speaker 01:
That is what their record keeping produced.

[00:45:26] Speaker 02:
Can I talk to you about settlement costs?

[00:45:29] Speaker 02:
Do you read the trial court opinions as saying settlement costs, to the extent that was part of the reasonable costs that they were trying to recover under the termination for convenience,

[00:45:42] Speaker 02:
that the lack of record keeping is the reason there is no longer a triable issue of fact as to the amount of their settlement costs?

[00:45:51] Speaker 02:
Because that was not at all clear to me from what the court of federal claims was saying.

[00:45:57] Speaker 01:
Well, in terms of talking about the last

[00:46:04] Speaker 02:
decision right because before that last decision the trial court made clear there's a there's a dispute of fact and we're going to trial yes and then after you move for summary judgment again suddenly there's no disputes of fact no trial but i don't know if settlement costs got any attention there and if i'm supposed to understand that the reason there's no longer a dispute of fact about settlement costs in particular is the lack of record-keeping

[00:46:34] Speaker 01:
Yeah.

[00:46:35] Speaker 01:
Really, the third decision didn't focus on settlement cops, per se.

[00:46:38] Speaker 01:
The prior decision, like termination for convenience, claim, proposal cost, is something that they could have got.

[00:46:47] Speaker 01:
They presented 168 pages of legal billies.

[00:46:50] Speaker 01:
They just never broke that down.

[00:46:51] Speaker 01:
But in terms of the last decision, what the court held was that the trial court set out several factors for them to meet.

[00:47:01] Speaker 01:
And it was the second one.

[00:47:04] Speaker 01:
that ACLR failed to prove an essential element of a case, that proving reasonable costs comports with the legal requirement of the regulation.

[00:47:13] Speaker 01:
So they just failed to meet the regulation.

[00:47:15] Speaker 02:
That was the hold.

[00:47:16] Speaker 02:
So that holding extends to the settlement cost?

[00:47:18] Speaker 01:
Yes, to all claim cost.

[00:47:21] Speaker 02:
Thank you.

[00:47:24] Speaker 01:
Subject to any further questions of the court, we respectfully request that the court affirm the decision of the trial court.

[00:47:31] Speaker 01:
Thank you.

[00:47:41] Speaker 00:
We'll give you three minutes for you.

[00:47:43] Speaker 00:
Okay, thank you.

[00:47:48] Speaker 04:
A couple quick points.

[00:47:51] Speaker 04:
We had some discussion about Mr. Muck's time.

[00:47:54] Speaker 04:
That's at appendix 5914, which is an allocation of his 3,000 hours over 2011 up until January of 2012.

[00:48:08] Speaker 00:
uh... the two so when did the government tell you not to go forward with the that was uh... november of twenty eleven so he's too and his car has three thousand hours that you're seeking go for another year no they could go up to january two thousand twelve so another on some months and months and a half uh... and that was three thousand hours in a month and a half or two months then that was three thousand hours from january of twenty eleven

[00:48:37] Speaker 04:
until January of 2012.

[00:48:40] Speaker 04:
So that's over a one-year time span.

[00:48:43] Speaker 04:
It was the 3,000 hours.

[00:48:44] Speaker 04:
When was the PWS awarded?

[00:48:47] Speaker 00:
January of 2011.

[00:48:50] Speaker 00:
And when was the 2007 audit inaugurated?

[00:48:58] Speaker 04:
Our position is it was right at the beginning of the contract the performance work statement said we're going to pursue duplicate payments So as part of what that was the only thing they were pursuing at that time It was in 2012 and they told you not to do any more in November 2011 Right in November of 2011 is when the government says you is that the records were sufficient to show that from January through

[00:49:25] Speaker 03:
January to January, he spent this much time, and that it was all allocable to the 2007 audit of the 2007 year.

[00:49:35] Speaker 04:
I can't say.

[00:49:36] Speaker 04:
I think the way to look at it is you have to do certain things in order to have a audit of PDE records.

[00:49:43] Speaker 04:
So they're setting up the infrastructure.

[00:49:46] Speaker 04:
They're doing a variety of things.

[00:49:48] Speaker 04:
You have to do some analysis.

[00:49:49] Speaker 03:
Well, that's a problem for you, because this is not a single year audit.

[00:49:52] Speaker 03:
This is a program that's going to have option years.

[00:49:55] Speaker 03:
So what he's doing in preparation can't be allocated to just one option here.

[00:50:02] Speaker 03:
It has to be allocated to all the option years that were performed.

[00:50:06] Speaker 03:
But I think if you're going to say that the contract is basic accounting principles, I think about how you allocate costs.

[00:50:17] Speaker 03:
I think it's a little bit.

[00:50:18] Speaker 03:
Sorry, I'm going to let you finish as soon as I finish.

[00:50:20] Speaker 03:
I mean, it's the same with the lease.

[00:50:23] Speaker 03:
You don't get to allocate.

[00:50:24] Speaker 03:
all the costs to the first year of a multi-year contract.

[00:50:28] Speaker 03:
They have to be spread.

[00:50:29] Speaker 03:
The fixed costs have to be spread out over the lifetime of the contract, don't they?

[00:50:34] Speaker 04:
I think from a legal scenario, when you impose a retroactive, constructive termination for a community, you can say, November 2011, you are done with this.

[00:50:45] Speaker 04:
That once they're done, they can recover those costs.

[00:50:48] Speaker 04:
Even if you said, OK, we can allocate over a period of time, that would still entitle HCLR to some cost.

[00:50:54] Speaker 04:
That's the other point I wanted to raise.

[00:50:55] Speaker 04:
On page nine of the government's brief, it has a chart which reflects the audits issues that were allowed.

[00:51:05] Speaker 04:
There's really three audit issues.

[00:51:07] Speaker 04:
It's excluded providers, unauthorized prescribers, and scheduled refills.

[00:51:12] Speaker 04:
There was three audits.

[00:51:14] Speaker 04:
The total of those recoveries were $18.7 million over a five-year span.

[00:51:23] Speaker 04:
in terms of its expenses that it incurred, even if you said, what were your expenses over the whole five years of the contract, were significantly more than the $3.3 million that it received under the contingency contract.

[00:51:36] Speaker 03:
But nobody said you couldn't recover them if you properly documented them.

[00:51:40] Speaker 03:
The basis is you didn't properly document them.

[00:51:44] Speaker 04:
From the Court of Federal Claims perspective, which said you need to track your time by the task and by the hour.

[00:51:52] Speaker 04:
If you want to impose that standard, that's a very challenging standard for a lot of contractors who have fixed fee contracts or contingency fee contracts.

[00:52:02] Speaker 04:
I'll note that in the court's decision, it says.

[00:52:06] Speaker 03:
Do you have any precedent that says you don't have to do that to justify T for C costs?

[00:52:15] Speaker 04:
I think the case law in our briefs supports that, that you don't have to have a specific

[00:52:21] Speaker 04:
system.

[00:52:22] Speaker 03:
If you look at the statute 52.

[00:52:24] Speaker 03:
The question I asked was not, did you have to have a specific system.

[00:52:29] Speaker 03:
The question I asked was, in a T for C claim where you're at the show cost, is there any precedent to show that you don't have to allocate them by whatever you're seeking, whether it's hours or lease costs or something, you don't have to show that they were actually incurred with regard to a specific contract.

[00:52:51] Speaker 04:
I think we were precluded from even doing it, because what we had was- No, no, no.

[00:52:55] Speaker 03:
That's not the answer.

[00:52:56] Speaker 03:
Is there any precedent that that's not what T for C requires?

[00:53:00] Speaker 03:
Isn't that what a T for C claim requires?

[00:53:03] Speaker 04:
You would have to show what the costs were and how they were allocated to a certain contract.

[00:53:09] Speaker 02:
And I think we have evidence that would show that.

[00:53:12] Speaker 02:
And where does the court of federal claims say that you need to allocate specific time

[00:53:18] Speaker 02:
specific employee to a specific contract.

[00:53:20] Speaker 02:
Where is that in the decision?

[00:53:26] Speaker 02:
Our argument was that- I don't want your argument.

[00:53:28] Speaker 02:
I want to know where the trial court held what you just told me it held.

[00:53:32] Speaker 04:
I think that's the only conclusion you could gather from that.

[00:53:36] Speaker 00:
OK, fine.

[00:53:37] Speaker 04:
Thank you.