Government Contracts Salaries Paid for Lobbying Activities Were Expressly Unallowable
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Monday, December 2, 2019

Salaries Paid for Lobbying Activities Were Expressly Unallowable

By Government Contracts Editorial Staff

A decision denying a claim for salary costs associated with the contractor’s lobbying activities was affirmed by the Court of Appeals of the Federal Circuit because the costs were expressly unallowable under the FAR 31.205-22 cost principle. The Defense Contract Audit Agency reviewed the contractor’s incurred cost rate proposal and concluded it contained various expressly unallowable costs. A corporate administrative contracting officer subsequently assessed penalties against the contractor under FAR 42.709-1(a)(l) for including allegedly expressly unallowable lobbying costs in its cost proposal. On appeal from the CACO’s final decision, the Armed Services Board of Contract Appeals found the lobbying costs were subject to a penalty because “[c]osts associated with certain named lobbying activities are stated to be unallowable under FAR 31.205-22” and “they are [thus] expressly unallowable” (17-1 BCA ¶36,724). FAR 31.205-22(a), which mirrors the statutory language of 10 USC 2324(e)(B), states that “[c]osts associated with … [a]ny attempt to influence the introduction of Federal, state, or local legislation … through communication with any member or employee of the Congress or state legislature” are unallowable.

“Costs Associated With”. The contractor argued that salary costs of employees who participate in lobbying activities are not “expressly unallowable under” FAR 42.709-1(a)(1). According to the contractor, an item of cost must be “mentioned or identified by name” to be expressly unallowable, and the generic language of “costs associated with [lobbying activities]” in FAR 31.205-22 was insufficient. The court rejected this interpretation. The definition of “expressly unallowable cost” refers to “a particular item or type of cost.” Thus, costs unambiguously falling within a generic description of a “type” of unallowable cost are also “expressly unallowable.” Here, salaries of corporate personnel involved in lobbying activities were unambiguously “costs associated with” lobbying. The court also rejected the contractor’s assertion an amendment to FAR 31.205-22 created uncertainty as to the allowability of salaries as lobbying expenses. The amendment’s replacement of explicit language about “salaries” with the broader term “costs associated with” did not create any ambiguity about whether salary is included in the more general language. Moreover, nothing in the regulatory history suggested that salaries were excluded. Finally, the court disagreed with the contractor’s assertion that the specific reference to compensation costs of employees in FAR 31.205-47 showed that the lack of such a reference in FAR 31.205-22 was indicative of an intent to exclude compensation from its scope. (Raytheon Co. v. Secretary of Defense, CA-FC, 63 CCF ¶81,780)

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