International Development Solutions, LLC v. Secretary of State

United States Court of Appeals
for the Federal Circuit
______________________
INTERNATIONAL DEVELOPMENT SOLUTIONS,
LLC,
Appellant
v.
SECRETARY OF STATE,
Appellee
______________________
2022-1992
______________________
Appeal from the Civilian Board of Contract Appeals in
Nos. 6400, 6401, 6700, Administrative Judge Jonathan D.
Zischkau, Administrative Judge Kyle E. Chadwick, Admin-
istrative Judge Marian Elizabeth Sullivan.
______________________
Decided: June 26, 2024
______________________
T ODD MATTHEW G ARLAND, Haynes and Boone, LLP, Ty-
sons Corner, VA, argued for appellant. Also represented
by RICHARD C. J OHNSON, ZACHARY D AVID P RINCE.
BRYAN MICHAEL BYRD, Commercial Litigation Branch,
Civil Division, United States Department of Justice, Wash-
ington, DC, argued for appellee. Also represented by BRIAN
M. BOYNTON, WILLIAM J AMES G RIMALDI, P ATRICIA M.
MCCARTHY ; RANDAL WAX , Office of Legal Adviser, United
States Department of State, Washington, DC.
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2 INTERNATIONAL DEVELOPMENT SOLUTIONS, LLC v.
SECRETARY OF STATE
______________________
Before M OORE, Chief Judge, HUGHES and C UNNINGHAM ,
Circuit Judges.
HUGHES , Circuit Judge.
International Development Solutions, LLC (IDS), an
armed security service contractor, appeals the final deci-
sion of the Civilian Board of Contract Appeals. After find-
ing no entitlement to reimbursement, the Board denied
IDS’s consolidated appeal seeking cost-reimbursement of
tax payments made by related corporate entities. Because
substantial evidence supports the Board’s finding that IDS
did not present evidence that tax amounts paid “were costs
incurred by IDS, the contractor,” rather than by entities
higher in IDS’s ownership chain, we affirm.
I
A
Under the Contract Disputes Act of 1978 (CDA), a
party to a federal government contract (i.e., a contractor) is
authorized to submit, to a contracting officer for a decision,
any claims against the federal government relating to the
contract. 41 U.S.C. § 7101 et seq. If the contractor disagrees
with the contracting officer’s decision, the contractor may
appeal the decision to an agency board of contract appeals.
Id. § 7104(a).
The Federal Acquisition Regulations System (FAR)
provides a broad set of basic policies and information re-
garding government procurement in the United States, in-
cluding principles and guidelines for pricing government
contracts. 48 C.F.R. § 1 et seq. As relevant here, FAR Part
31 sets forth the procedures for determining whether a con-
tractor incurred an “allowable cost” under a government
contract. Id. § 31.201-2 (“Determining allowability.”). No-
tably, the regulation states that “[a] contractor is responsi-
ble for accounting for costs appropriately and for
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INTERNATIONAL DEVELOPMENT SOLUTIONS, LLC v.
SECRETARY OF STATE
3
maintaining records, including supporting documentation,
adequate to demonstrate that costs claimed have been in-
curred, are allocable to the contract, and comply with ap-
plicable cost principles . . . and agency supplements. The
contracting officer may disallow all or part of a claimed cost
that is inadequately supported.” Id. § 31.201-2(d).
A contracting officer’s denial of a claim submitted un-
der the CDA is final and conclusive unless the contractor
timely appeals the decision. 41 U.S.C. §§ 7103(g), 7104(a),
7105(b).
B
In September 2010, IDS entered into a contract with
the Department of State (State or agency) for the provision
of personal protection services in contingency environ-
ments, including Afghanistan (Worldwide Protective Ser-
vices contract or WPS contract). At the time of contracting,
IDS indicated it was a joint venture between ACADEMI
Training Center, Inc. (ATCI)1 and Kaseman, LLC. In Au-
gust 2011 and March 2012, State awarded Task Order 11
and Task Order 9, respectively, to IDS for armed security
services in Afghanistan under the WPS contract.
According to IDS, in May 2012, ATCI purchased all of
Kaseman, LLC’s membership interest in the IDS joint ven-
ture, thereby converting IDS to a sole member LLC, with
ATCI as the sole member and owner. That same month,
IDS asserts that it sold and transferred all of its interests
1 At the time of contracting, the joint venture was
between Kaseman, LLC and an entity named U.S. Train-
ing Center, Inc. (USTC). However, in December 2011,
USTC changed its name to ACADEMI Training Center,
Inc. (ATCI), which was later reflected in a March 2012
amendment to IDS’s limited liability operating agreement.
Appellant’s Br. at 6–7. Because USTC is not a relevant en-
tity to this appeal, this opinion only refers to ATCI.
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4 INTERNATIONAL DEVELOPMENT SOLUTIONS, LLC v.
SECRETARY OF STATE
in all of its contracts, subcontracts, and all property and
assets to ATCI. See J.A. 6974 (Bill of Sale).
Subsequently, on May 29, 2012, pursuant to FAR
42.12, ATCI submitted a written request to State seeking
government recognition of ATCI as the successor-in-inter-
est to IDS’s WPS contract through a formal novation agree-
ment. See 48 C.F.R. § 42.12 (“Novation and Change-of-
Name Agreements.”). On July 13, 2012, after reviewing
ATCI’s submission, State determined that it was “not in its
best interest to novate its contract with IDS” and denied
the novation request. J.A. 7087. As a basis for its decision,
State noted that IDS still existed as a separate entity and
had “all the necessary resources and support of [ATCI] to
continue fully meeting its contractual obligations under
the WPS contract.” Id. Accordingly, IDS was informed that,
as the contractor, “IDS should continue to fulfill its contrac-
tual obligation as agreed to under the WPS contract.” Id.
Following the denial of the novation request and aware
of State’s expectation that IDS “continue fully meeting its
contractual obligations,” IDS “proceeded for nearly a dec-
ade to invoice State in its own name” and “accept payments
in its own name” throughout the performance of Task Or-
ders 9 and 11. J.A. 10.
C
According to IDS, at all times relevant to this appeal,
ATCI (the immediate parent company of wholly owned sub-
sidiary IDS) was itself a wholly owned subsidiary of a hold-
ing company named ACADEMI LLC. IDS asserts that in
2014, Constellis Holdings LLC (Constellis), through a sub-
sidiary, acquired ACADEMI LLC. Collectively, we refer to
Constellis and ACADEMI LLC as the ultimate parent com-
panies. There is evidence that ACADEMI LLC held re-
quired licenses under which its subsidiaries, including IDS
and ATCI, operated while performing armed security ser-
vices in Afghanistan. IDS asserts that as the license holder,
ACADEMI LLC was responsible for paying and filing all
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INTERNATIONAL DEVELOPMENT SOLUTIONS, LLC v.
SECRETARY OF STATE
5
Afghan corporate tax returns with respect to all contract
revenues, including those of its multiple subsidiaries.
On June 19, 2012, the Afghan Ministry of Finance no-
tified ACADEMI LLC that the finance ministry was initi-
ating a tax audit covering the period from the outset of any
contract performance by any ACADEMI LLC subsidiary
through 2012. IDS asserts that after the tax audit was com-
pleted around 2017, the finance ministry determined that
ACADEMI LLC owed outstanding taxes. Pursuant to a ne-
gotiated tax settlement, ACADEMI LLC and Constellis
wired six payments to the finance ministry between Janu-
ary 2017 and September 2018. J.A. 7.
D
In September 2018, December 2018, and September
2019, IDS submitted three certified claims to its contract-
ing officer that collectively sought $36,714,278.18 “as reim-
bursement for taxes representing increased costs of
performance of task orders 9 and 11 due to assessment of
taxes by the [Afghan finance ministry].” J.A. 8 (internal
quotations omitted). As evidence of the increased costs, IDS
attached copies of bank statements showing the 2017 and
2018 wire transfers from ACADEMI LLC and Constellis to
the finance ministry. J.A. 7974–76. IDS described the wire
transfers as “payments that ‘IDS made.’” J.A. 8.
In February 2019, the contracting officer issued two
separate final decisions denying IDS’s first two claims for
reimbursement. IDS’s third claim for reimbursement was
deemed denied in September 2019, after no final decision
was issued. In March 2019 and January 2020, respectively,
IDS timely appealed the denials to the Civilian Board of
Contract Appeals (Board). The three appeals were subse-
quently consolidated, and on March 18, 2022, after finding
“‘no evidence’ that the amounts paid ‘were costs incurred
by IDS, the contractor,’ rather than by entities higher in
IDS’s ownership chain,” the Board determined that IDS
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6 INTERNATIONAL DEVELOPMENT SOLUTIONS, LLC v.
SECRETARY OF STATE
was not entitled to reimbursement and denied the appeal
on the merits. J.A. 1.
On July 7, 2022, IDS timely filed a notice of appeal with
this court pursuant to 41 U.S.C. § 7107(a)(1)(A). This court
has jurisdiction to review the Board’s decision under
28 U.S.C. § 1295(a)(10).
II
This court will set aside findings of fact by the Board
only if the findings are (a) fraudulent, arbitrary, or capri-
cious; (b) so grossly erroneous as to necessarily imply bad
faith; or (c) not supported by substantial evidence.
41 U.S.C. § 7107(b)(2)(A)–(C). The Board’s determination
is supported by substantial evidence if “based on ‘such rel-
evant evidence as a reasonable mind might accept as ade-
quate to support a conclusion.’” DG21, LLC v. Mabus,
819 F.3d 1358, 1361 (Fed. Cir. 2016) (cleaned up). A con-
tractor bears a heavy burden in overturning the Board’s
factual findings. T. Brown Constructors, Inc. v. Pena, 132
F.3d 724, 727 (Fed. Cir. 1997); see Koppers Co. v. United
States, 405 F.2d 554, 557–59 (Ct. Cl. 1968).
III
On appeal, IDS challenges the Board’s ultimate conclu-
sion that IDS was not entitled to reimbursement of the
roughly $36 million in taxes paid by ACADEMI LLC and
Constellis to the Afghan finance ministry. IDS argues that
it presented “uncontested evidence” that IDS’s claimed
“[c]osts are reimbursable.” Appellant’s Br. 24. There are
two primary issues for us to consider on appeal: first, the
identity of the contractor, and second, whether the claimed
tax payments are reimbursable costs under the WPS con-
tract. We address each issue in turn below.
A
Only a contractor for the relevant contract (i.e., “a
party to a Federal Government contract other than the
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INTERNATIONAL DEVELOPMENT SOLUTIONS, LLC v.
SECRETARY OF STATE
7
Federal Government,” 41 U.S.C. § 7101(7)), is statutorily
authorized under the CDA to submit a claim against the
federal government relating to such contract. 41 U.S.C.
§ 7103; see Avue Techs. Corp. v. Sec’y of Health & Hum.
Servs., 96 F.4th 1340, 1344 (Fed. Cir. 2024). Therefore, the
certified claims at issue in this appeal are statutorily re-
quired to have been submitted by the contractor for the
WPS contract.
The Board determined that IDS was the contractor for
the WPS contract. J.A. 1–6, 9. In making its determination,
the Board relied on witness testimony that IDS was the
“entity [that] still legally held the . . . contract and task or-
ders.” J.A. 4. The Board also considered the agency’s deci-
sion not to novate the WPS contract because “IDS still
exist[ed] . . . and ha[d] all of the necessary re-
sources . . . [to] continue to fulfill its contractual obligation
as agreed under the [WPS] contract.” J.A. 3. As IDS even
states in its opening brief before this court, “[t]hroughout
performance of Task Orders 09 and 11, IDS submitted all
invoices for those services to [State]” and “[State] remitted
payment to IDS for all services.” Appellant’s Br. at 12.
Thus, the record indicates that the WPS contractual rela-
tionship was between IDS and State. Because there is sub-
stantial evidence such that a reasonable mind could
conclude that IDS was the non-federal government party
to the WPS contract, we affirm the Board’s factual finding
that IDS was the contractor.
IDS alternatively argues that ATCI is the true contrac-
tor because, despite State denying the novation request,
the WPS contract nevertheless passed to ATCI by opera-
tion of law. Appellant’s Br. at 33. But this alternative ar-
gument is unsupported by the facts found by the Board. See
J.A. 10. Nor would it change the outcome even if factually
supported. The CDA authorizes only contractors to submit
certified claims against the federal government. Even if
IDS were able to establish that the WPS contract had
passed to ATCI by operation of law, making ATCI—not
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8 INTERNATIONAL DEVELOPMENT SOLUTIONS, LLC v.
SECRETARY OF STATE
IDS—the true contractor, such a finding does not help IDS
in this appeal. ATCI did not submit the certified claims at
issue here; IDS did. Therefore, whether ATCI was the true
contractor by operation of law does not change the outcome
of this appeal, and we need not address the issue further.
Having established that IDS is the contractor and the
only party statutorily authorized to submit a claim under
the CDA, we turn to the second primary issue in this ap-
peal: namely, whether IDS established that the claimed tax
payments meet the regulatory requirements for a reim-
bursable cost under the WPS contract.
B
As a threshold issue, an incurred cost is not eligible for
reimbursement from the government unless it is “properly
allocable to the contract” and “allowable” as defined by
FAR Part 31. See Composition of Total Cost, 48 C.F.R.
§ 31.201-1(b) (“[T]he allowable costs to the Government are
limited to those allocable costs which are allowable pursu-
ant to Part 31 and applicable agency supplements.” (em-
phasis added)). An allowable cost is one that meets all five
of the following regulatory requirements enumerated in
FAR 31.201-2(a): (1) reasonableness; (2) allocability;
(3) the applicable accounting standards or principles;
(4) terms of the contract; and (5) compliance with “[a]ny
limitations set forth in [FAR subpart 31.2].” 48 C.F.R.
§ 31.201-2(a)(1)–(5). One such limitation includes “contrac-
tor[s being] responsible for accounting for costs appropri-
ately and for maintaining records, including supporting
documentation, adequate to demonstrate that costs claimed
have been incurred, are allocable to the contract, and com-
ply with applicable cost principles.” Id. § 31.201-2(d) (em-
phasis added). As such, an incurred cost is not eligible for
reimbursement from the government unless a contractor
can satisfy each of the five relevant regulatory require-
ments and limitations for an allowable cost under FAR
31.201-2.
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INTERNATIONAL DEVELOPMENT SOLUTIONS, LLC v.
SECRETARY OF STATE
9
On appeal, IDS argues that it presented to the Board
“uncontested evidence that it met all five [FAR] require-
ments” for reimbursable costs and “uncontradicted evi-
dence [that] demonstrates IDS,” as opposed to its ultimate
parent companies, “incurred the tax settlement costs” in
question. Appellant’s Br. at 24. For the reasons stated be-
low, we disagree.
Determining whether a contractor’s claimed cost meets
the FAR requirements for allowability inherently requires
a contractor to have first incurred a cost that is allocable to
the contract. See Composition of Total Cost, 48 C.F.R.
§ 31.201-1. The Board found that IDS did not incur the
claimed tax costs. If supported by substantial evidence,
such a finding disposes of the regulatory requirements is-
sue. Therefore, we address the Board’s finding that IDS did
not incur tax costs first.
1
The Board concluded that IDS presented “‘no evidence’
that the [tax] amounts paid ‘were costs incurred by IDS,
the contractor,’ rather than by entities higher in IDS’s own-
ership chain.” J.A. 1. In making its determination, the
Board extensively considered testimonial and documen-
tary evidence presented by IDS. See J.A. 2–8 (identifying
evidence related to the identity of the contractor, the tax-
payer, and claims for reimbursement).
In reviewing IDS’s testimonial evidence, the Board de-
scribed IDS’s witnesses’ testimony regarding contract
and/or tax related payments and internal corporate ac-
counting structures and procedures as “ambigu[ous],” “con-
fusi[ng],” and “incorrect.” J.A. 4 n.3, J.A. 7 n.6. More
explicitly, when the presiding judge questioned one of IDS’s
testifying witnesses—a former vice president of finance
compliance for Constellis—and stated that the witness
“may not [have been] sure” about which entity was being
referred to, the witness responded, “[t]hat is correct. It’s a
complex legal structure.” J.A. 6. Yet this questionable
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10 INTERNATIONAL DEVELOPMENT SOLUTIONS, LLC v.
SECRETARY OF STATE
testimony is the same “uncontradicted evidence” that IDS
refers this court to as conclusive proof that IDS incurred
the tax costs in question. E.g., Appellant’s Br. 24–25 (citing
testimony of Constellis’s Vice President of Financial Com-
pliance). The Board also noted that some of the “cited tes-
timony” IDS relies on “does not support IDS’s assertion[s].”
J.A. 8. Therefore, contrary to IDS’s characterization, this
evidence is neither “uncontradicted” nor conclusive as to
whether IDS incurred tax costs. The Board’s rejection of
this same testimony as unconvincing further illustrates the
weakness of IDS’s evidence. And we decline to reweigh this
evidence on appeal. See Hayes v. Dep’t of the Navy, 727 F.2d
1535, 1537 (Fed. Cir. 1984).
Unpersuaded by IDS’s testimonial evidence, the Board
also considered IDS’s documentary evidence, but was
equally unconvinced. Specifically, the Board noted that the
bank records submitted by IDS as evidence IDS incurred
tax costs do not reflect any transaction made by, or to, IDS.
Instead, the bank records only show wire payments to the
finance ministry made by IDS’s two ultimate parent com-
panies. Although IDS’s certified claims described those
wire payments “as payments that ‘IDS made,’” the Board
clarified that the payments came exclusively from bank ac-
counts belonging to ACADEMI LLC and Constellis. J.A. 8.
Therefore, the Board concluded that based on the physical
evidence in the record, these related entities, and not IDS,
paid the taxes to the finance ministry.
IDS does not dispute this finding. See Appellant’s Br.
at 32 (“The corporate parents, Constellis and ACADEMI
LLC, paid these taxes.”). Instead, IDS argues that the
Board erred in concluding that payments made by IDS’s
ultimate parent companies were not “reimbursable to IDS.”
Id. According to IDS, “overwhelming” and “uncontradicted
course of dealing” evidence conclusively establishes that
ATCI—essentially operating as a subcontractor for IDS—
incurred costs that “were reimbursable to IDS under its
[WPS contract].” Id. at 31–32. But the Board, “[i]n full
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INTERNATIONAL DEVELOPMENT SOLUTIONS, LLC v.
SECRETARY OF STATE
11
possession of th[ose] uncontested facts,” already considered
and rejected this very argument. Id. at 31; see also J.A. 11.
After reviewing the alleged course of dealing evidence, the
Board explicitly concluded that “[e]ven assuming that
IDS’s parent company [ATCI] was its subcontractor, IDS
does not show that [ATCI] owed or paid any taxes to Af-
ghanistan that might ‘pass through’ to become IDS costs.
The taxpayer was ACADEMI LLC. Nor did IDS present ev-
idence that IDS made payments to [ATCI] for services ren-
dered.” J.A. 11. The Board also found IDS failed to
establish any “legal obligation” by IDS to pay or indemnify
ACTI for these payments. Id. Based on our review of the
record, we conclude that the Board’s findings are supported
by substantial evidence.
Reasonable minds can conclude that the physical evi-
dence provided by IDS adequately demonstrates that IDS’s
ultimate parent companies, and not IDS, incurred the tax
costs at issue in this appeal. Therefore, substantial evi-
dence supports the Board’s determination that the taxes
paid were costs incurred by entities higher in IDS’s owner-
ship chain, rather than by IDS.
2
Because we affirm the Board’s finding that IDS did not
incur the tax costs in question, there are consequently no
claimed costs which can be “properly alloca[ted] to the con-
tract,” and we therefore need not address IDS’s remaining
arguments as to whether those tax payments met the five
regulatory requirements for an allowable cost under FAR
Part 31. See Composition of Total Cost, 48 C.F.R.
§ 31.201-1(b) (“[T]he allowable costs to the Government are
limited to those allocable costs which are allowable pursu-
ant to Part 31 and applicable agency supplements.” (em-
phasis added)). As a threshold matter, in failing to show
that IDS incurred a cost that is allocable to the contract,
IDS also failed to establish that it is entitled to reimburse-
ment of any costs from the government. Id.
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12 INTERNATIONAL DEVELOPMENT SOLUTIONS, LLC v.
SECRETARY OF STATE
IV
Because substantial evidence supports the Board’s con-
clusion that IDS failed to present evidence that tax pay-
ments to the Afghan Ministry of Finance were costs
incurred by IDS, the contractor, rather than by entities
higher in IDS’s ownership chain, we affirm the Board’s de-
cision that IDS is not entitled to reimbursement.
AFFIRMED
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