Case Studies
During the review of a client's forward pricing rate package that supported the proposed indirect cost rates on several outstanding proposals, government auditors questioned the allowability of several hundred thousand dollars of costs in indirect cost pools on the basis of reasonableness and allocability. The questioned costs lowered indirect cost rates by over a percentage point and since the client performed only cost justified defense contracts, it had a significant effect on the client's proposed contract prices.
While the government's arguments had intuitive appeal, they were contrary to applicable cost principles and regulations. We prepared an authoritatively supported narrative justifying the allowability of the costs in accordance with the applicable cost principles and regulations and explained the errors in the government’s reasoning. As a result, the costs were accepted as allowable as were the client’s forward pricing rates.
A very large program proposal by a top 10 defense contractor contained questioned costs as a result of an alleged CAS 401 noncompliance. The allegation stalled the client’s progress on proposal negotiations until the increased costs were removed.
We recognized the issue as an estimating technique and not a cost accounting practice. As such the contractor's quantification method was not a CAS 401 violation.
We prepared an opinion with relevant citations and justifications explaining why the methodology was an estimating technique and not a cost accounting practice. The questioned costs were withdrawn and negotiations moved forward.
The solicitation instructions for a multi-year indefinite quantity contract required the contractor to provide an automated pricing model where each incremental increase in quantity reflected changes in variable costs only.
We employed analytical techniques to measure and quantify behaviors of the client's fixed and variable costs. We then developed algorithms and created software that used these algorithms for computing unit prices at any quantity level within the solicitation's requirement range and so that the client could negotiate a contract in the manner requested by the government.
A Defense 100 contractor was selected for review of its Material Management and Accounting System (MMAS). We performed a compliance review to evaluate weaknesses in the contractor's current systems, policies and procedures. We then prepared and executed a plan for updating policies and procedures and working with key personnel to eliminate the weaknesses uncovered.
We prepared and presented the system demonstration in order to obtain interim approval and received that approval pending further government audit and analysis. We then participated in the subsequent system review and audit to answer questions and demonstrate system compliance with regulatory requirements. Government acceptance of the contractor system was achieved.
A first-tier subcontractor received a multi-million dollar, Not-to-Exceed (NTE) contract to manufacture certain hardware pending final negotiation of a fixed price contract. By contract completion an agreement still had not been reached on the final contract value.
When the client’s customer performed its incurred cost audit in preparation of final negotiations, the customer’s auditors took exception to various cost elements and allocation methods claimed by the client and concluded that the manufactured costs were less than half of the NTE value.
We recognized errors in the auditor's assessment of cost allowability. We employed accepted quantitative techniques for evaluating the adequacy of the allocation methods. We were able to use these results with regulatory requirements to show that the client's claimed costs and allocation methods were appropriate and that the actual costs incurred were slightly higher than the NTE value and negotiate a final contract value at the full NTE price.
When a Fortune 500 defense manufacturer had the requirements for its fixed price development contract constructively changed the resulting development effort was increased and the related manufacturing efforts were delayed by three years. Remarkably, the most significant of the many design changes, transformed the hardware's qualification requirements from state-of-the-art to beyond state-of-the-art and commercially impractical.
We proved that the changed requirements were not part of the original fixed price development effort and that the changes were the cause of the three year increase to the design effort and delay to the related manufacturing effort. We quantified the consequence of the increased design effort at over $6 million and the related manufacturing delay damages as high as $36 million. The engineering design changes were settled at around $6 million and the related manufacturing delay was settled at around $18 million with specification relief and customer acceptance of the achieved hardware performance as is.
A Defense 10 contractor had its Cost Plus Award Fee (CPAF) contract terminated for convenience after three years of performance but after only achieving the first milestone award. Since the contract was cost reimbursement the contractor had already been paid all of their costs and since the award fee was back loaded on contract performance, which is typically done, the first milestone award fee had been minimal and without completing the contract the contractor’s chance to recover more award fee was foreclosed.
We were one of several firms selected for a presentation to management about the best approach to maximizing the contractor’s recovery as a result of the termination. Our approach was very different than the other presenters but then we were the only presenter who knew that recent court decisions on terminated award fee contracts were contrary to the approaches proposed by the other presenters.
We recognized that the project had been delayed about three years as a result of government directed design changes and delinquent deliveries of government furnished information, specifically design data. The changes and delinquent customer deliveries entitled the contractor to equitable adjustments in the contract price and schedule under various contract adjustment clauses.
We quantified the amount of delay damages under the Eichleay formula to be about $2 million. Because of the nature of delays, these costs would not have been recovered in the contractor’s normal cost based billings. So, in addition to additional profit from the equitable adjustment the contractor was also entitled to additional costs.
With respect to the changed work itself, while the contractor had received the costs for the various design changes as part of the reimbursable cost of the cost plus award fee contract, the contractor had not been compensated for any fee that would be part of that equitable adjustment. We quantified the additional fee on the changed work at about another $2 million.
With respect to the termination itself, in keeping with accepted quantification methods, we identified about another $2 million of unamortized indirect fixed costs and included those as settlement expenses.
With a termination settlement proposal exceeding $6 million, including undefinitized constructive changes, the client was able to settle its proposal for several million dollars which was considerably more than the client had expected after receiving its termination notice.
A Fortune 500 defense manufacturer had seen its fixed price development and production contract switch from a profitable position to a loss position at around the midpoint of performance when an engineering design review had also occurred. We traced the triggering event to be a design review where the contractor’s customer provided more than 11,000 review comments to the contractor’s design. The customer’s review effort was so extensive that they even issued a stop-work-order to give themselves time to review the design and provide the more than 11,000 review comments, since the period of time in the contract’s schedule was much less than the time they actually consumed. When the stop-work-order was lifted the customer did not provide any time extension to the contractor’s schedule. Furthermore, they ordered a resequencing of the work so that manufacture and delivery of the end items could occur when originally planned even though qualification testing of the product design had not been completed. Any changes required to the delivered items in order to meet qualification requirements would made in the field.
Using statistical methods, we determined that over 90 percent of the customer’s review comments exceeded the inspection standards applicable to the product at that point in the development cycle. The result of the excessive inspection increased the contractor's engineering effort to review and formally disposition the comments and represented a constructive change to the contract’s inspection standards. The customer’s failure to grant time extensions for its stop-work-order and constructive change to the inspection standards was a constructive acceleration. The increased manufacturing effort to correct the fielded units after qualification acceptance was achieved was part of the disruption consequences flowing from the constructively changed inspection standards and constructive acceleration.
We quantified the consequence of these constructive changes and their related delays, disruptions and inefficiencies at around $13 million for which the client negotiated a substantial settlement at around $8 million.
In a Federal False Claims case involving about 100 million prescription fills and refills by a pharmacy benefits manager traditional analysis methods had proved ineffective at finding instances of non-compliance. We advised counsel about how computerized auditing techniques could be used to perform a hundred percent audit and find the non-compliant transactions without having to use the defendant's software or duplicate its computer systems. In the process we advised counsel on the forms of ESI that would be required and how such data should be described and requested in Rule 34 production requests for electronic data.
While the defendant had claimed its compliance errors were few and amounted to only about $8,000 in penalties, our computerized audit uncovered several hundred thousand compliance failures that resulted in a settlement of over $150 million, which, at that time, was one of the ten largest healthcare recoveries under the False Claims Act.
The remediation contractor at an EPA Superfund cleanup site produced quantification schedules and other data supporting more than 250 alleged directed changes from a computerized database. We devised a means to use the contractor’s ESI claims data to perform a 100 percent audit of their claim quantification. The computerized audit identified claimed costs that were considered unallowable by the contract terms. The audit also reconciled costs claimed to actual costs incurred and corrected for costs that were "double counted". We also noticed that costs allocated to the base contract work were not work related at all. Instead, the base contract had simply become the cost objective to which unallowable administrative costs had been allocated--presumably under the notion that since base contract effort was not in dispute it would never be analyzed. So, the contractor had essentially characterized allowable costs, even for unchanged work, as changed work while characterizing unallowable administrative costs as base contract in order to sustain a higher claim recovery when only the type of costs were considered.
As a result of our computerized audit work, the contractor's claim was reduced from 60 to 20 million dollars before consideration of liability and causation issues. The contractor's claim was settled for less than $20 million.
A real estate developer encountered a differing site condition when constructing a building under a 20 year lease agreement with the government. The developer had prepared and submitted a Request for Equitable Adjustment (REA) but had not been unable to have much success in negotiating an acceptable settlement because the government's auditors had questioned considerable portions of the REA as unsupported or as unallowable costs.
We reworked the developer's proposal narrative and quantification into a fully supported and allowable package that was considerably more than the developer had even claimed. Although the government struggled mightily to avoid its obligations under the lease and even mischaracterized and misrepresented contract and regulatory requirements, we were able to defeat those attempts and support the methodologies we used and the amounts we developed with authoritaitive support from both accepted treatises and federal common law decisions. Despite the government's efforts, the developer, with our expertise, was able to negotiate a settlement that was more than their own quantification.
A large business contractor performing fully CAS covered contracts reorganized and merged the business unit performing fully CAS covered contracts with other existing defense segments as well as newly acquired non-government, commercial type business segments.
We developed the post reorganization and merger cost structure in a fashion that would prevent cost associated with cost justified government operations from being misallocated to segments performing commercial business contracts or other segments performing government type business that was more commercial price justified. We also revised the CAS Disclosure Statement including various home office Disclosure Statement portions and prepared the requisite cost impact proposal showing a zero cost impact to CAS covered contracts.
The updated Disclosure Statements with updated cost accounting practices and associated cost impact proposal was reviewed and approved by DCAA without significant edits or any cost impacts. Although the auditors had questions about the compliance of certain cost accounting practices and whether some of the changes represented cost accounting practice changes, we were able to demonstrate that the accounting practices were CAS compliant and did not represent cost accounting practice changes.
Starting a few days after contract award, a subcontractor was hindered by a defective specification and delinquency of customer furnished material and information. All of these customer failures caused considerable disruption to contract performance and delay of overall contract completion by two years.
While the subcontractor was able to mitigate damages from unabsorbed overhead, it incurred substantial additional project management costs related to mitigation of the changed conditions on its own operations as well as those of its supply chain. In addition, the subcontractor incurred substantial costs developing resolutions to the constructive changes with its own customer.
We were able to develop a parametric approach for allocating actual costs incurred to the changed condition and prepare a well documented and authoritatively supported REA. The REA was quantified around $4.5 million and settled at around $3.5 million.
A highly diversified and multi segmented contractor was wanting to maximize asset utilization by increasing intracompany sales without having to forgo margins and transfer materials at cost only as is commonly preferred. The FAR's transfer at cost requirement tends to discourage intracompany sales, since there is no incentive for the transferring unit to sell internally.
We realized that there are a number of ways that the intracompany transfer at cost requirement of FAR 31.205-26 can be avoided. We developed a procedure utilizing and maximizing the various exemptions to the transfer at cost requirement that the client could use to achieve its operational objective and encourage intracompany sales.
A small business contractor who was leasing office space to the government had their lease agreement terminated for default less than two years into the ten year lease term. The contractor relied on its normal outside counsel for assistance in resolving the termination. The government expressed no interest in negotiating a resolution to the termination and insisted that the termination was proper.
When we were consulted about three years later, we recognized that the default termination was a government claim and the termination letter was a Contracting Officer’s Final Decision even though it did not identify itself as such. We also recognized that the contractor could have missed its opportunity to appeal the termination decision because the time period allowed for appealing a final decision had long passed. We also recognized, however, that the termination did not include the required notice of the contractor’s appeal rights and the contractor was prejudiced by that deficiency.
We prepared an adjustment proposal to challenge the government’s improper default termination and convert the default termination to a convenience termination, since not only had the government not proved that the contractor had not provided the space in accordance with the lease terms the government did not even know the cause for the condition it found objectionable and whether the cause for the condition was the fault of the contractor or the government itself. Furthermore, the contractor had outside testing consultants conduct considerable environmental testing over the period of government’s occupancy. That testing always showed that the conditions of the space were better than those required by the lease agreement and the government never provided any of its own testing that showed otherwise.
The government claimed that too much time had passed to consider the contractor’s proposal. The Board, however, agreed with our analysis that the Contracting Officer’s final decision was defective, the contractor had been prejudiced by the lack of the required appeal rights and that the time clock had not been started. Thus, the contractor’s adjustment proposal was timely submitted.
A client became suspicious that their network had been hacked and someone was accessing and reviewing confidential information. Fordham confirmed that someone was indeed accessing their network. There was no malware, however. Rather, Fordham tracked the activity to a particular user account and removed it. During subsequent activity monitoring the account came back, however. The activity monitoring revealed that the account was being created through a trust that existed between the client’s domain and another domain. The trusted access was being used to re-access the network and re-create the user account even after the account had been removed and deleted. The trust had been created during a prior period domain migration. It had never been broken and was now being used by a former employee for mischief.
An employee e-mailed Personally Identifiable Information (PII) about customers to their home e-mail address just prior to their departure for a new job. Fordham reviewed their historical computer activity including e-mail, attached devices and other data transfer and storage methods and determined that this instance was the only one that had occurred and that the amount of PII that was being sent was too large for the e-mail system and that it had become hung without ever leaving the client's network.
The network of a doctor’s office was left unprotected and was thought to have been hacked by an outside entity based on unusual system activity. Fordham was asked to review the network and determine whether the net-work had been hacked and whether Protected Health Information (PHI) had been compromised. While Fordham was able to confirm the system had been breached there was no indication that PHI had been compromised.
As the re-competition for a large, multi-year government contract approached, an ambitious competitor enticed the incumbent's program manager to switch companies. Fordham examined the computer of the former employee and found that four thumb drives had been used to copy pricing data along with other staffing and management plans of the incumbent for the follow-on contract. Web based e-mail communications were also retrieved from the Windows swap file that revealed weeks of exchanges between the former employee and management at the new employer regarding the re-compete and a presentation meeting about the recompete's capture strategy that was planned a few days after the departure of the former employee. After examining imaged hard drives of the new employer's management team, Fordham determined that files of interest had been shared on several other thumb drives between the former employee and the new company management. Fordham was also able to determine that critical media such as personal computers of key personnel, external storage media like hard drives and the shared thumb drives, and network servers containing files of interest had not been preserved despite specific and expressed instructions in a preservation letter. The jury awarded our client all of its requested trade secret damages.
An AMLAW top 50 firm involved the FBI and retained West Coast forensic talent in a case portrayed as an employee theft of thousands of sensitive trade secret documents worth billions of dollars. Based on the schedules and exhibits in the complaint alone, Fordham realized that the sensitive documents claimed to have been taken were not even available to be taken at the time and in the manner described in the complaint. After reviewing an image of the former employee's hard drive Fordham's assessment of the Plaintiff's case was that it was severely overblown. Not only were there timing issues as initially observed, Fordham's forensic analysis determined that the method of the theft claimed by the Plaintiff's did not exist nor did other methods that they subsequently advanced. In addition, the absence of other indicators and evidential artifacts was substantial, since there was not one single artifact evidencing the existence, access or use of the sensitive documents from anywhere other than the former employee's computer.
In a trade secrets case Fordham was selected as the neutral e-discovery and forensic expert. In that capacity he collected, preserved and searched the ESI of both parties on about 40 machines that equaled about 6 tera-bytes of data. The search was conducted in accordance with a consent order formalizing the search protocol that included active and deleted space as well as all document types. Unsearchable files were converted to a searchable format and protected files were unprotected so that they could be searched. After filtering the search results to exclude unlikely document types, he produced over 100,000 documents and e-mails for each side. The documents converted to about 3 million TIFF image pages. The image files, native files, extracted text, extracted metadata and various other attributes were produced in Summation load files.
Over a weekend Fordham examined nearly 200 devices using proprietary programs that cataloged file system metadata and file hashes of each machine's contents. Those results were then compared to a library of nearly 200,000 documents of the former employer. The process identified about 20 machines, including servers, of the new employer that contained thousands of instances of the former employer’s documents. Those machines were then imaged and subjected to more comprehensive forensic analysis revealing that the matches were comprised of both proprietary and non-proprietary documents of the former employer. Interestingly, even the non-proprietary documents were stored in file paths matching those of the former employer that included unique folder names like clients, completed projects and current employee names of the former employer.
In a securities fraud matter, Fordham was retained to review the computer systems of the securities firm and assess those worthy of preservation and likely containing responsive data. The secure nature of preserved data required extensive identification and decryption of encrypted files and e-mail attachments so that they could be searched for documents responsive to agreed protocol criteria. In addition, there were very tight schedule limitations that were challenged by slow performing, third party appliances on which the securities firm has stored its data to meet SEC data retention requirements.
In what started as a tortious interference case, Fordham confirmed that the Plaintiff, a departed former employee, had taken trade secret data and then destroyed the data prior to surrendering computer devices for inspection despite Plaintiff’s prior denials and representations. As a result, the Court dismissed the Plaintiff’s claims with prejudice and granted a default judgment in favor of the Defendant’s counterclaim..
Prior to hiring a new employee, the Defendant took steps to have their devices cleaned of all documents related to the prior employer's business by a forensic expert. Fordham took exception to the methods and identified several flaws. Upon review of the devices in accordance with Fordham's proposed protocol, more than 30,000 of the former employer's documents were found buried in what had been represented as personal documents like family photos and household related documents. In addition, procedures claimed to have been followed by the expert to prevent previously deleted documents from being recovered were shown not to have been performed on all devices.
Flash drives requested by Plaintiff counsel were produced. Prior to forwarding them to their forensic expert, Plaintiff counsel spent several months examining them on their own. After reviewing Plaintiff's expert report and copies of the device images, Fordham noticed that the devices and their contents had been significantly altered while being examined by Plaintiff's counsel but prior to imaging by the Plaintiff's forensic expert. Fordham showed where files had been altered, new files created and then copied from the flash drives, and even the file system metadata date stamps reflected dates after production of the devices on more than 99.4 percent of still active files. In short, the devices were no longer authentic and the damage so extensive that they had no evidentiary value other than for spoliation.
After examining the hard drive of a laptop used by a former employee at its new employer, Fordham detected that a key pricing model of the former employer existed on a USB flash drive and had been viewed from the new employer's laptop.When the flash drive was produced it was completely filled with vacation photos. Fordham was able to confirm that, while taken several years before, the photos had been placed on the flash drive in the time between the device's production request and its actual production. In addition, when other computers were produced, Fordham was able to confirm that the same USB flash drive had been used on those computers as well and the pricing model that had existed on the drive had been viewed. Most important was that while the new employer had developed its own pricing model, the timing of the former employee's view of the former employer's pricing model was while developing bids on new projects while using the new employer's pricing model. The former employer's pricing model was being used to validate the new employer's bids on new projects.
In a construction claim involving power generation, the Plaintiff detected omissions in the owner’s document production. Fordham was retained by the owner to review the originally collected electronic data, the Concordance database and production efforts performed by the owner’s e-discovery vendor, including processing logic and production tools, to identify document omissions. Any shortcomings were then cross referenced against the Plaintiff's productions as well as those by third parties in order to identify those omissions that actually could have resulted in prejudice. Hash comparisons of omitted documents to produced documents were widely used as a basis to differentiate substantive omissions from non-substantive omissions. We even developed software that could be used by the owner to evaluate for relevance and privilege document ranges identified by the Plaintiff as containing potentially missing documents.
In a trade secrets case the former employer's expert had opined that the former employee had created CDs of company proprietary data prior to returning the computer. Fordham reviewed the expert's report and the evidence he had considered. Fordham determined that the expert had misinterpreted the CD drive activity and that other artifacts related to the files in question actually confirmed that the files had not been copied at all. At deposition and when questioned about the meaning of the other artifacts and the meaning of CD drive activity, the expert withdrew his opinions.
In a wrongful termination case the terminated employee developed a counter claim for uncompensated overtime for work performed at home on his personal computer. The employee was asked to deliver his computer for forensic examination in order to validate his claims. Fordham detected numerous anomalies in the hard drive artifacts that suggested a recently constructed device with a prepared presentation. At deposition the former employee was questioned about Fordham's findings. With each explanation subsequent anomalies became harder and harder for the terminated employee to explain. Finally, the employee admitted that the produced drive was not the original drive on which he had performed his work. In fact, he had been so concerned about what the forensic examination would reveal that the original drive had been physically mutilated, deformed and then melted with a blow torch by the terminated employee.
In a trade secrets case, the Court granted Fordham 90 days to access more than 13 terabytes of the defendant’s computerized data to search and produce evidence of purloined trade secrets. In that effort Fordham forensically imaged 20 computer hard drives, restored 80 backup tapes and then searched and examined millions of documents and over 9 million e-mails with attachments for active, deleted and modified versions of trade secret documents and information that had been retained and used despite the defendant’s representations to the contrary.
An opposing expert was asked by opposing counsel to examine application metadata of certain electronic documents and opine that their create dates post dated the expiration of a former employee's non-compete and intellectual property ownership agreement. While the create dates confirmed their creation after expiration of the non-compete and intellectual property ownership agreement, Fordham noticed that other metadata indicated that the documents had actually been inherited from ones covered by the non-compete and intellectual property ownership agreements. In other words, when creating the documents in question the former employee had started with these earlier documents, made changes to them and then saved the results in a new document name. At his deposition the opposing expert was not familiar with the significance of the other application metadata that revealed the historical lineage of the documents. He had been asked by opposing counsel for an opinion with a very limited scope, which he claimed was all that he was providing. As a result of the weaknesses in the opposing expert's findings and since the data used in his analysis was actually supportive of our client's claims, the opposing expert’s report was never used by opposing counsel and he never testified at trial.
A childcare worker faced both criminal and civil liability for claims of alleged child abuse. Investigations had pinpointed the alleged abuse to a twenty minute window during nap time. Fordham examined the nap room computer and determined that the childcare worker was on-line shopping during the twenty minute window, which was what the childcare worker had claimed. After Fordham provided his analysis and supporting data to both criminal prosecutors and civil plaintiffs both cases against the childcare worker were dropped.