Appeal of Honeywell Federal Systems, Inc.

Under a 1979 subcontract with Management & Technical Services Company (GE/MATSCO), Honeywell Federal Systems, Inc. (HFS) (plaintiff) provided commercial computers and spare parts for the United States Army’s (defendant) DAS-3 mobile data-processing units. The Army subsequently entered into a Basic Ordering Agreement (BOA) with HFS to acquire the DAS-3 spare parts directly. During negotiations for the BOA, Honeywell requested a commerciality exemption from the Truth in Negotiation Act’s (TINA) requirement to submit cost-or-pricing data for the spare parts, arguing that the spare parts were qualifying commercial items because (1) HFS had an existing contract with the General Services Administration (GSA) to provide the same spare parts for purchase by government agencies; and (2) although Honeywell typically sold spare parts to commercial customers under computer maintenance contracts rather than as individual parts, all spare parts were listed and sold in accordance with Honeywell’s Master Parts Price List, which was also incorporated into the GSA contract. After receiving Honeywell’s TINA exemption request, the Army’s contracting officer (CO) requested an audit report from the Defense Contract Audit Agency (DCAA). DCAA recommended against issuing the TINA exemption, stating that HFS failed to provide sufficient sales data to support its pricing. Regardless, the CO granted the exception and awarded HFS the BOA after determining that HFS charged both commercial and government customers the same prices. In 1985, a Department of Defense (DOD) investigation, raised in connection with the renewal of HFS’s BOA, determined HFS’s spare-part prices were defective because they were unrelated to HFS’s production costs. The Army issued a final decision directing Honeywell to reimburse the Army $10.5 million, stating that the CO did not have authority to issue the TINA exemption. HFS appealed.