If FAR 31.201-4 contains no requirement that "benefit" be demonstrated to allocate a cost necessary for the overall operation of the business, then this requirement should stem from two earlier cases the Court cites as requiring "benefit". All commentators we read, most of whom are lawyers, stress the cases cited do not support the conclusion the Court reaches.

In Lockheed, a share of the taxes on commercial inventory was held allocable to Government contracts because the government contracts were benefited by (received value from) the services provided by the taxes. In that case, the court invoked a "broad benefit" theory that reasoned "benefit" was implicit in the necessity of incurring the cost and that such implicit benefit allowed Lockheed to allocate the taxes to all of its work because all of its work benefited from the community services the taxes paid for. At the same time the Court rejected the government’s attempt to require an additional demonstration that a cost necessary for the overall operation of the business must also show a particular benefit to government work before it can be allocated to a government contract. It was in this case the Court referred to the concept of benefit as "slippery".

In FMC, the contractor incurred expenses in making a claim related to a purchase order it received from its prime contractor. The issued revolved around whether the cost could be properly charged to all contracts through a G&A allocation or had to be charged directly to one contract only. While FMC argued that the G&A allocation was appropriate because the claim "educated its personnel" and made it a "more competitive contractor" the Court ruled that such benefit was too removed to permit allocation through the G&A pool and the costs should be charged directly to the contract where the purchase order originated. In its rationale, the Court said the specific costs in question that were incurred specifically for a contract (were "direct costs" of the contract) will not be allocable to other contracts unless it is shown they benefit (provide value to) the other contracts. The only authority cited for this "benefit" is the Lockheed decision discussed about which does not require a benefit demonstration.

{TAG_FORM_TITLE}