Negligent Audit Claim Barred by Discretionary Function Exception

The District Court for the District of Delaware granted the government’s motion to dismiss for lack of jurisdiction because a contractor’s allegations the Defense Contract Audit Agency violated the Federal Tort Claims Act were barred by the discretionary function exception. The contractor alleged FTCA violations arising from a negligent DCAA audit. The FTCA waives the government’s sovereign immunity with respect to tort claims for money damages (28 USC 1346(b)(1)). However, the discretionary function exception limits that waiver and eliminates jurisdiction for claims based on the exercise of a discretionary function by a government employee (28 USC 2680(a)).

Pursuant to the Supreme Court ruling in Berkovitz v. U.S. (486 U.S. 531), to determine whether the discretionary function exception applies, a court must consider whether the action “involves an element of judgment or choice” and whether the judgment exercised “is of the kind that the discretionary function exception was designed to shield.”

Here, both the contracting officer and DCAA performed functions with significant discretionary elements. The CO’s interpretation of the contract involved professional judgment and therefore constituted a discretionary decision. The CO’s decision was “inextricably tied” to the DCAA audit, which also involved professional judgment and consequently was a discretionary action.

In addition, the CO’s disallowance of the contractor’s claimed costs and DCAA’s audit involved substantial public policy considerations that the exception “was designed to shield.” In particular, DCAA conducted the audit in direct response to a congressional investigation of the contractor’s costs, and the audit was intended to protect the government from fraudulent contract claims. (Kellogg Brown & Root Services, Inc. v. U.S.)

About George Gullo

George Gullo is an attorney editor in the Government Contracts group at Wolters Kluwer Legal & Regulatory U.S. George serves as the principal editor of Cost Accounting Standards Guide and supports all of the group’s print and electronic publications, as well as legal research tools, including the Government Contracts Reporter, Board of Contract Appeals Decisions, and the FAR and DFARS Matrix Smart Charts. With more than 25 years experience in the legal publishing industry, including more than 15 years in the government contracts area, George also has a background in legal and business transactions. He is a graduate of DePaul University College of Law and a licensed Illinois attorney.
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