Free Amended Complaint - District Court of Federal Claims - federal

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IN THE UNITED STATES COURT OF FEDERAL CLAIMS
) ) ) ) ) ) No. 05-448C
) Judge Firestone

RAYTHEON COMPANY,
Plaintiff,
v.

UNITED STATES OF AMERICA,
Defendant.

)

) )
)

FIRST AMENDED COMPLAINT
For its First Amended Complaint in this action, Plaintiff alleges as follows:

PARTIES
1. Plaintiff, Raytheon Company ("Raytheon"), is a corporation organzed and existing
under the laws of the State of Delaware, with its principal corporate offices in Waltham,
Massachusetts.
2. Defendant is the United States of America, acting through the Defense Contract

Management Agency ("DCMA").

JURISDICTION
3. Raytheon and the United States are paries to Contract No. N00024-00-C-5137 (the

"Contract"). Administration of the Contract and, in paricular, responsibility for Cost
Accounting Standards ("CAS") administration resides with DCMA. The Contract is subject to
the Contract Disputes Act of 1978,41 V.S.C. §§ 601-613, and full-CAS coverage.

4. By letter dated November 8, 2004, Raytheon submitted a certified claim for payment
of$13,816,382 for the "segment closing" adjustment required by CAS 413-50(c)(l2), 48 C.F.R.
§ 9904.413-50(c)(l2), as a result of the sale of Raytheon's Optical Systems segment (the

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"Optical Claim"). The cognizant Defense Corporate Executive ("DCE") denied Raytheon's

Optical Claim in its entirety in a contracting officer's final decision dated February 1,2005.

5. By separate letter dated November 8, 2004, Raytheon submitted a certified claim for
payment of $1,124,366 for the "segment closing" adjustment required by CAS 413-50(c)(12) as

a result of the sale of Raytheon's Printed Wire Fabrication segment (the "PWF Claim"). The
DCE denied Raytheon's PWF Claim in its entirety in a contracting officer's final decision dated

February 1,2005.
6. By letter dated Januar 24, 2005, Raytheon submitted a certified claim for payment of

$2,901,507 for the "segment closing" adjustment required by CAS 413-50(c)(l2) as a result of
the sale of Raytheon's Aerospace Division segment (the "Aerospace Claim"). The DCE denied
Raytheon's Aerospace Claim in its entirety in a contracting officer's final decision dated March

7,2005.
7. By separate letter dated Januar 24, 2005, Raytheon submitted a certified claim for
payment of

$68,570,448 for the "segment closing" adjustment required by CAS 413-50(c)(l2) as

a result of the sale of Raytheon's Aircraft Integrated Systems segment (the "AIS Claim"). The
DCE denied Raytheon's AIS Claim in its entirety in a contracting officer's final decision dated
March 7, 2005.

8. The Cour has jurisdiction over this action pursuant to section 10 of the Contract
Disputes Act, 41 U.S.C. § 609, and the Tucker Act, 28 U.S.C. § 1491(a).

SUMMARY OF FACTS

I. INTRODUCTION
9. Raytheon is an international high-technology company employing approximately
80,000 people worldwide. Raytheon is an industry leader in defense and governent electronics,

space, information technology, technical services, and business aviation and special mission

aircraft.

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10. Raytheon maintains and fuds a variety of defined benefit pension plans for its

employees. Under these pension plans, the employee benefits to be paid or the basis for
determining the benefits to be paid are established in advance, and Raytheon makes contributions

to the pension plans in amounts intended to provide the stated employee benefits. The assets for
Raytheon's pension plans are held in trust for the benefit of the beneficiares.

11. Raytheon also offers post-retirement benefits ("PRBs") to its employees. For
employee benefits puroses, Raytheon treats PRBs in the same maner as it treats pension
benefits. The eligibility requirements for Raytheon's PRBs are based upon the same conditions
that determine employee eligibility for pension benefits. Accordingly, precisely the same service
by Raytheon's employees gives rise to both pension costs and PRB costs. The PRBs are

considered by Raytheon and its employees as an integral par of the Raytheon pension benefits.

II. COST ACCOUNTING STANDARDS 412 AND 413
12. CAS 412 provides guidance for determining and measurng the components of
pension cost, and establishes the bases on which pension costs are assigned to cost accounting

periods and allocated to cost objectives. 48 C.F.R. § 9904.412-20. CAS 412-50(a)(7) provides

that "(i)f a pension plan is supplemented by a separately-fuded plan which provides retirement

benefits to all of the paricipants in the basic plan, the two plans shall be considered as a single
plan for puroses of this Standard." Id., § 9904.412-50(a)(7). CAS 412-30(a)(2) similarly

recognizes that additional benefits that do not otherwise meet the definition of pension benefits
may be provided as an integral par of a pension plan. Id., § 9904.412-30(a)(2).
13. CAS 413 provides "guidance for adjusting pension cost by measuring actuarial gains

and losses and assigning such gains and losses to cost accounting periods," and "provides the
bases on which pension cost shall be allocated to segments of an organization." 48 C.F.R.
§ 9904.413-20. In addition, CAS 413 provides guidance for making an adjustment of

previously

determined pension costs in the event of a segment closing. !d., § 9904.413-50(c)(l2). A

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"segment" is a division, product department, plant or other subdivision of an organization

reporting directly to home office. Id., § 9904.413-30(a)(l9). The term "segment closing"
includes, among other things, the sale of a segment. Id., § 9904.413-30(a)(20).
14. CAS 413-50(c)(12) requires that in the event of a segment closing, the contractor

shall determine the difference between the actuarial accrued liability for the segment and the

market value of the assets allocated to the segment. 48 C.F.R. § 9904. 413-50(c)(l2). The
difference between the actuarial accrued liability and the market value of the assets is referred to
as the "adjustment amount."
15. CAS 413-50(c)(l2)(vi) provides that the Governent's share of the adjustment

amount is the product of the adjustment amount and a fraction, the numerator of which is the
sum of the pension costs allocated to all CAS-covered contracts and subcontracts, including
Foreign Militar Sales, during a period of years representative of

the Governent's paricipation

in the pension plan; and the denominator of which is the total pension costs assigned to cost
accounting periods durng those same years. 48 C.F.R. § 9904.413-50(c)(l2)(vi). Subsection

(vi) goes on to provide that: "This amount shall represent an adjustment of contract prices or cost
allowances as appropriate. The adjustment may be recognized by modifying a single contract,

several but not all contracts, or all contracts, or by the use of any other suitable technique." Id.
16. CAS 413-50(c)(l2) concludes by stating that:
the Governent's share of the adjustment is allocable, without limit, as a credit or charge durng the cost accounting period in which the event The full amount of

occured and contract prices/costs will be adjusted accordingly. However, if the contractor continues to perform Governent contracts, the contracting paries may negotiate an amortization schedule, including interest adjustments. Any
amortization agreement shall consider the magnitude of the adjustment credit or charge, and the size and nature of the continuing contracts.
48 C.F.R. § 9904.413-50(c)(l2)(vii).

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III. THE CONTRACT
17. The Contract was awarded to Raytheon on December 30, 1999 by the Naval Sea
Systems Command. The Contract is a firm fixed price contract.
18. The Contract incorporates, among other clauses, Federal Acquisition Regulation

("FAR") 52.230-2, Cost Accounting Standards (Apr 1998).
19. Paragraph (a)(3) of

the Cost Accounting Standards clause requires the contractor to:

Comply with all CAS, including any modifications and interpretations indicated

thereto contained in 48 CFR Par 9904, in effect on the date of award of this contract or, if the Contractor has submitted cost or pricing data, on the date of
final agreement on price as shown on the Contractor's signed certificate of curent cost or pricing data. The Contractor shall also comply with any CAS (or

modifications to CAS) which hereafter become applicable to a contract or
subcontract of the Contractor. Such compliance shall be required prospectively

from the date of applicability to such contract or subcontract.
FAR 52.230-2.

iv. THE OPTICAL CLAIM
20. On March 1, 2001, Raytheon sold its Optical Systems segment to the B.F. Goodrich

Company. Under the terms of the asset purchase agreement, Raytheon retained all of the
pension plan assets and actuarial accrued liabilities for the closed Optical Systems segment.
Raytheon also retained all of the retiree medical plan liabilities.
21. As required by CAS 413-50(c)(12), Raytheon and its independent pension actuar

determined the difference between the actuaral accrued liability for the segment and the market
value of the assets allocated to the segment. Then, using the formula specified in CAS 41350(c)(12), Raytheon computed the Governent's share of

the adjustment amount.

22. Notwthstanding the unequivocal requirement of CAS 413-50(c)(l2), the DCE in a

letter dated September 30, 2004 informed Raytheon that the Governent did not intend to
paricipate in the Optical segment closing.

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23. Accordingly, Rayteon on November 8, 2004, submitted a certified claim, demanding
payment of $13,816,382. Raytheon computed, in accordance with CAS 413-50(c)(12)(vi), that
the Governent's share of

the pension adjustment amount for the Optical Systems segment was

$9,261,669 and the Governent's share of

the PRB adjustment amount for the Optical Systems

segment was $4,554,713.

24. The DCE denied Raytheon's Optical Claim in its entirety in a final decision dated
Februar 1,2005.

25. On November 30,2007, Raytheon submitted its Rebuttal Expert Report of Steven G.

Vernon in response to the Defendant's Expert Report of Mr. Colin England in this action. In
Raytheon's Rebuttal Expert Report, Mr. Vernon independently performed segment closing

calculations for the Optical Systems segment for the related pension and PRB plans as required

by CAS 413-50(c)(12). Then, using the formula specified in CAS 413-50(c)(12), Raytheon
recomputed the Governent's share of the adjustment amount.

26. In accordance with Raytheon's revised calculations, the Governent's share of the
pension adjustment amount for the Optical Systems segment, determined in accordance with

CAS 413-50(c)(12)(vi), is $10,405,470. However, because the Optical Systems segment's
pension plan is supplemented by the PRB plan, CAS 412-50(a)(7) requires that the two plans be
considered as a single plan. The Governent's share of the PRB adjustment amount, determined

in accordance with CAS 413-50(c)(12)(vi), is $4,557,762. Accordingly, the Governent's share
of

the combined pension and PRB adjustment amount is $14,963,231.

V. THE PWF CLAIM
27. On April 21, 2001, Raytheon sold its Printed Wire Fabrication segment to Tyco
Printed Circuit Group LP. Under the terms of the asset purchase agreement, Raytheon retained

all of the pension plan assets and actuarial accrued liabilities for the closed PWF segment.
Raytheon also retained all of the retiree medical plan liabilities.

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28. As required by CAS 413-50(c)(12), Rayteon and its independent pension actuar

determined the difference between the actuarial accrued liability for the segment and the market
value of the assets allocated to the segment. Then, using the formula specified in CAS 41350( c )(12), Raytheon computed the Governent's share of the adjustment amount.

29. Notwithstanding the unequivocal requirement of CAS 413-50(c)(12), the DCE in a

letter dated September 30, 2004 informed Raytheon that the Governent did not intend to
paricipate in the PWF segment closing.
30. Accordingly, Raytheon on November 8, 2004, submitted a certified claim, demanding
payment of $1,124,366. Raytheon computed, in accordance with CAS 413-50(c)(12)(vi), that
the Governent's share of

the pension adjustment amount for the PWF segment was $1,039,841
the PRB adjustment amount for the PWF segment was $84,525.

and the Governent's share of

31. The DCE denied Raytheon's PWF Claim in its entirety in a final decision dated
Februar 1, 2005.

32. On November 30, 2007, Raytheon submitted its Rebuttal Expert Report of Steven G.

Vernon in response to the Defendant's Expert Report of Mr. Colin England in this action. In
Raytheon's Rebuttal Expert Report, Mr. Vernon independently performed segment closing

calculations for the PWF segment for the related pension and PRB plans as required by CAS
413-50(c)(12). Then, using the formula specified in CAS 413-50(c)(12), Raytheon recomputed
the Governent's share of

the adjustment amount.

33. In accordance with Raytheon's revised calculations, the Governent's share of the
pension adjustment amount for the PWF segment, determined in accordance with CAS 413-

50(c)(12)(vi), is $1,174,014. However, because the PWF segment's pension plan is
supplemented by the PRB plan, CAS 412-50(a)(7) requires that the two plans be considered as a
single plan. The Governent's share of the PRB adjustment amount, determined in accordance

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with CAS 413-50(c)(12)(vi), is $(605,368). Accordingly, the Governent's share of the
combined pension and PRB adjustment amount is $568,646.

VI. THE AEROSPACE CLAIM
34. On June 8, 2001, Raytheon sold its Aerospace Division segment to Veritas CapitaL.
Under the terms ofthe asset purchase agreement, Raytheon retained all of

the pension plan assets

and actuarial accrued liabilities for the closed Aerospace segment.

35. As required by CAS 413-50(c)(12), Raytheon and its independent pension actuary
determined the difference between the actuarial accrued liability for the segment and the market
value of the assets allocated to the segment. Then, using the formula specified in CAS 41350(c)(12), Raytheon computed the Governent's share ofthe adjustment amount.

36. Notwithstanding the unequivocal requirement of CAS 413-50(c)(12), the DCE in a

letter dated September 30, 2004 informed Raytheon that the Governent did not intend to
paricipate in the Aerospace segment closing.
37. Accordingly, Raytheon on Januar 24, 2005, submitted a certified claim, demanding

payment of $2,901,507. Rayteon computed, in accordance with CAS 413-50(c)(12)(vi), that
the Governent's share of the pension adjustment amount for the Aerospace segment was

$2,901,507.

38. The DCE denied Rayteon's Aerospace Claim in its entirety in a final decision dated
March 7, 2005.

39. On November 30,2007, Raytheon submitted its Rebuttal Expert Report of Steven G.

Vernon in response to the Defendant's Expert Report of Mr. Colin England in this action. In
Raytheon's Rebuttal Expert Report, Mr. Vernon independently performed segment closing

calculations for the Aerospace segment for the related pension plans as required by CAS 41350(c)(12). Then, using the formula specified in CAS 413-50(c)(12), Raytheon recomputed the
Governent's share of

the adjustment amount.

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40. In accordance with Raytheon's revised calculations, the Governent's share of the

pension adjustment amount for the Aerospace segment, determined in accordance with CAS
413-50(c)(12)(vi), is $2,933,153.

VII. THE AIS CLAIM
41. On March 8, 2002, Raytheon sold its Aircraft Integrated Systems segment to L-3
Communications, Inc. Under the terms of the asset purchase agreement, Raytheon retained all of

the pension plan assets and actuaral accrued liabilities for the closed AIS segment. Raytheon
also retained all of the retiree medical plan liabilities.
42. As required by CAS 413-50(c)(12), Raytheon and its independent pension actuar

determined the difference between the actuaral accrued liability for the segment and the market
value of the assets allocated to the segment. Then, using the formula specified in CAS 41350(c)(12), Raytheon computed the Governent's share of

the adjustment amount.

43. Notwithstanding the unequivocal requirement of CAS 413-50(c)(12), the DCE in a

letter dated September 30, 2004 informed Raytheon that the Governent did not intend to
paricipate in the AIS segment closing.
44. Accordingly, Raytheon on Januar 24, 2005, submitted a certified claim, demanding

payment of $68,570,448. Raytheon computed, in accordance with CAS 413-50(c)(12)(vi), that
the Governent's share of

the pension adjustment amount for the AIS segment was $57,605,537

and the Governent's share of the PRB adjustment amount for the AIS segment was

$10,964,911.

45. The DCE denied Raytheon's AIS Claim in its entirety in a final decision dated March
7, 2005.

46. On November 30, 2007, Raytheon submitted its Rebuttal Expert Report of Steven G.

Vernon in response to the Defendant's Expert Report of Mr. Colin England in this action. In

Raytheon's Rebuttal Expert Report, Mr. Vernon independently performed segment closing
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calculations for the AIS segment for the related pension and PRB plans as required by CAS 413-

50(c)(12). Then, using the formula specified in CAS 413-50(c)(12), Raytheon recomputed the
Governent's share of

the adjustment amount.

47. In accordance with Raytheon's revised calculations, the Governent's share of the

pension adjustment amount for the AIS segment, determined in accordance with CAS 413-

50(c)(12)(vi), is $55,474,271. However, because the AIS segment's pension plan is
supplemented by the PRB plan, CAS 412-50(a)(7) requires that the two plans be considered as a
single plan. The Governent's share of

the PRB adjustment amount, determined in accordance

with CAS 413-50(c)(12)(vi), is $11,077,211. Accordingly, the Governent's share of the
combined pension and PRB adjustment amount is $66,551,482.

COUNT I
(Optical Claim)

48. Raytheon incorporates the allegations contained in paragraphs 1 through 43 of this
Complaint as though set forth fully herein.

49. The sale of Optical Systems was a segment closing within the meaning of 48 C.F.R.
§ 9904.413-50(c)(12).
50. The Governent's share of the segment closing adjustment amount, computed in

accordance with 48 C.F.R. § 9904.413-50(c)(12)(vi), is $14,963,231.

51. As required by 48 C.F.R. § 9904.413-50(c)(12)(vi), the full amount of the
Governent's share of the segment closing adjustment amount is allocable, without limit, as a
charge during the cost accounting period in which the sale occurred, and the price of the Contract
must be adjusted accordingly.

52. Raytheon is entitled to judgment in the amount of $14,963,231, plus Contract
Disputes Act interest from the date of submission of

the Optical Claim, November 8, 2004, until

payment is made.

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COUNT II
(PWF Claim)

53. Raytheon incorporates the allegations contained in paragraphs 1 through 43 of this
Complaint as though set forth fully herein.

54. The sale of Printed Wire Fabrication was a segment closing within the meaning of 48
C.F.R. § 9904.413-50(c)(12).
55. The Governent's share of the segment closing adjustment amount, computed in

accordance with 48 C.F.R. § 9904.413-50(c)(12)(vi), is $568,646.

56. As required by 48 C.F.R. § 9904.413-50(c)(12)(vi), the full amount of the
Governent's share of the segment closing adjustment amount is allocable, without limit, as a
charge during the cost accounting period in which the sale occurred, and the price of the Contract
must be adjusted accordingly.

57. Rayteon is entitled to judgment in the amount of $568,646, plus Contract Disputes
Act interest from the date of submission of the PWF Claim, November 8, 2004, until payment is
made.

COUNT III
(Aerospace Claim)

58. Raytheon incorporates the allegations contained in paragraphs 1 through 43 of this
Complaint as though set forth fully herein.
59. The sale of Rayteon Aerospace Division was a segment closing within the meaning

of 48 C.F.R. § 9904.413-50(c)(12).
60. The Governent's share of the segment closing adjustment amount, computed in

accordance with 48 C.F.R. § 9904.413-50(c)(12)(vi), is $2,933,153.

61. As required by 48 C.F.R. § 9904.413-50(c)(12)(vi), the full amount of the
Governent's share of the segment closing adjustment amount is allocable, without limit, as a

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charge durng the cost accounting period in which the sale occurred, and the price of the Contract
must be adjusted accordingly.

62. Raytheon is entitled to judgment in the amount of $2,933,153, plus Contract Disputes

Act interest from the date of submission of the Aerospace Claim, Januar 24, 2005, until
payment is made.

COUNT iv (AIS Claim)

63. Raytheon incorporates the allegations contained in paragraphs 1 through 43 of this
Complaint as though set forth fully herein.

64. The sale of Aircraft Integrated Systems was a segment closing within the meaning of
48 C.F.R. § 9904.413-50(c)(12).
65. The Governent's share of the segment closing adjustment amount, computed in

accordance with 48 C.F.R. § 9904.413-50(c)(12)(vi), is $66,551,482.

66. As required by 48 C.F.R. § 9904.413-50(c)(12)(vi), the full amount of the
Governent's share of the segment closing adjustment amount is allocable, without limit, as a
charge during the cost accounting period in which the sale occurred, and the price of the Contract
must be adjusted accordingly.

67. Raytheon is entitled to judgment in the amount of $66,551,482, plus Contract
Disputes Act interest from the date of submission of the AIS Claim, Januar 24, 2005, until
payment is made.

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WHEREFORE, for the reasons set forth above, Raytheon prays for relief as follows:

A. That the Cour enter judgment against the United States in the amount of
$85,016,513, plus Contract Disputes Act interest from the date of submission of each of the
claims described above to the date of payment.

B. That the Court award costs, attorneys' fees, and such other and further relief as
the Cour may deem just and equitable in the circumstances.

Respectfully submitted,

Date: November 30, 2007

s/Karen L. Manos Karen L. Manos, Esq.

GIBSON, DUN & CRUTCHER LLP 1050 Connecticut Avenue, NW Washington, DC 20036
Telephone: (202) 955-8536

Facsimile: (202) 530-9533

kmanos(ggibsondun.com
Attorney of Record for Plaintiff RA YTHEON COMPANY
Of Counsel:

Chrstyne K. Brennan, Esq. GIBSON, DUN & CRUTCHER LLP

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