Government Contracts Appeals of Unallowable Costs Determinations Were Sustained
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Tuesday, April 13, 2021

Appeals of Unallowable Costs Determinations Were Sustained

By Government Contracts Editorial Staff

An appeal of a government claim asserting the contractor’s government relations costs were unallowable lobbying costs was sustained by the Armed Services Board of Contract Appeals because the government failed to prove the contractor violated Cost Accounting Standard 405, Accounting for unallowable costs. The contractor appealed final decisions by Defense Contract Management Agency contracting officers seeking payment for allegedly unallowable and expressly unallowable costs that the contractor included in its final indirect cost proposals for two years, as well as penalties for some of those costs. The contractor argued the government could not prove its claimed costs were unallowable lobbying costs under FAR 31.205-22. According to the contractor, it appropriately withdrew its lobbying costs from cost proposals and the costs were not for lobbying. The board found the contractor’s method of removing the unallowable costs was proper based on its disclosed accounting practice, and the government failed to prove the costs were unallowable lobbying costs that did not comply with CAS 405.

Corporate Development Costs. In addition, the contractor was found not to have violated CAS 405, because the government did not prove its corporate development costs were unallowable organization costs. The government argued that the contractor violated FAR 31.205-27, Organizational Costs, by charging the government for expressly unallowable acquisition and divestiture labor and salary costs, entitling the government to penalties, interest, and CAS 405 damages. However, the contractor’s policy was a reasonable reading of the FAR provisions governing organization, economic planning, market planning and selling costs and, applying the General Dynamics standard (02-2 BCA ¶31,888; 48 CCF ¶78,212), it was reasonable for the contractor to treat the costs at issue as allowable. (Raytheon Co., ASBCA, ¶96,229)

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