The Court held that the Board should have gone along with the civil court decision and disallowed the costs if Northrup was guilty of wrongful discharge. By looking at the civil court decision as to whether a cost is allowable many commentators believe the Court is inappropriately imposing an outcome-determination test to allowability of the costs. While FAR 31.205-47, "costs related to legal and other proceedings" applies an outcome determination test to allowability of some legal costs such as defending against government allegations of fraud, criminal defenses or other serious misconduct, an outcome test has never been applied to defending employment litigation. Such costs are subject to reasonableness tests only. While outcome may often be seen as a clear criteria of allowability by auditors, such a test begs the question of whether the cost was reasonable. It is rare for a case to involve issues so black and white that an outcome of litigation is clear from the outset. The court’s decision to impose such an outcome determination implies that contractors that lose cases should have been known they would loose at the beginning and therefore it was unreasonable to incur the cost in the first place.

The unfortunate decision not to rehear the case will place a "slippery" concept in the hands of government auditors and COs. Further cases will likely need to resolve this issue.

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