department of defense agency financial report fiscal year 2012

Department of Defense Agency Financial Report for FY 2012
and deliver satisfactory products, and because the amount of contractor costs incurred but
yet unpaid are estimable, the Department has recognized a contingent liability for the
estimated unpaid costs that are considered conditional for payment pending delivery and
government acceptance.
Total contingent liabilities for progress payments based on cost represent the difference
between the estimated costs incurred to date by contractors and amounts authorized to be
paid under progress payments based on cost provisions within the FAR. Estimated
contractor-incurred costs are calculated by dividing the cumulative unliquidated progress
payments based on cost by the contract-authorized progress payment rate. The balance of
unliquidated progress payments based on cost is deducted from the estimated total
contractor-incurred costs to determine the contingency amount.
NOTE 16. COMMITMENTS AND CONTINGENCIES
Legal Contingencies
The Department is a party in various administrative proceedings and legal actions related to
claims for environmental damage, equal opportunity matters, and contractual bid protests.
The Department has accrued contingent liabilities for legal actions where the Office of
General Counsel (OGC) considers an adverse decision probable and the amount of loss is
measurable. In the event of an adverse judgment against the Government, some of the
liabilities may be payable from the U.S. Treasury Judgment Fund. The Department records
contingent liabilities in Note 15, Other Liabilities.
The Department reports 48 legal actions with individual claims greater than the
Department’s FY 2012 materiality threshold of $140.3 million. The total of the 48 actions is
approximately $13.0 trillion. Of this amount, the OGC determined that claims totaling
approximately $8.6 billion are classified “reasonably possible,” $956.7 billion are classified
“remote,” and $12.0 trillion are classified “unable to determine the probability of loss.” The
Department also had a number of potential claims that individually did not meet the
Department’s materiality threshold but did meet the individual Components’ thresholds.
These claims are disclosed in the Components' financial statements.
Other Commitments and Contingencies
The Department is a party in numerous individual contracts that contain clauses, such as
price escalation, award fee payments, or dispute resolution, that may result in a future
outflow of expenditures. Currently, the Department has limited automated system
processes by which it captures or assesses these potential contingent liabilities, therefore,
the amounts reported may not fairly present the Department’s contingent liabilities.
Contingencies considered both measurable and probable have been recognized as liabilities.
Refer to Note 15, Other Liabilities, for further information.
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Financial Information