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Lockheed Martin Aeronautics Company

March 10, 2026Judge Melnick

OtherCost Allowability / Allocability (FAR 31)Indirect Rates / Incurred CostContract InterpretationDCMA InvolvedCommercial Item

Lockheed Martin Aeronautics Company appealed contracting officer decisions disallowing indirect shipping costs and demanding payment based on alleged violations of U.S.-flag transportation requirements. The Board denied both parties' cross-motions for summary judgment, holding that indirect cost treatment does not categorically exempt transportation from the FAA and CPA clauses, while finding that the government had not provided sufficient evidence to establish the alleged violations as a matter of law.

Material Facts

Lockheed had government contracts during fiscal years 2016 through 2019 incorporating FAR 52.216-7, FAR 52.247-63, and DFARS 252.247-7023.
The representative contract was a fixed-price incentive/firm-fixed price contract for long lead-time items and production of F-35 aircraft.
Lockheed's Fort Worth, Marietta, and Palmdale Manufacturing indirect cost pools expressly included shipping.
Lockheed's fiscal year 2016 and 2017 final indirect cost rate proposals included shipping in specified manufacturing overhead pools.
Lockheed's fiscal year 2018 and 2019 final indirect cost rate proposals included shipping in specified manufacturing and engineering overhead pools.
The government issued three audits questioning specific cost amounts under the FAA and CPA clauses.
The contracting officers disallowed indirect costs in Lockheed's fiscal year 2016 through 2019 final indirect cost rate proposals and demanded payment based on unilaterally established rates.
The government did not cite record evidence identifying specific shipments performed under contracts containing the clauses that used unauthorized foreign-flag transportation.
Lockheed disputed the government's factual allegations concerning transportation and clause violations.

Parties

Appellant: Lockheed Martin Aeronautics Company
Respondent Agency: Defense Contract Management Agency
Contract Number: N00019-15-C-0003

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