Allowability. The Board rejected the contractor’s claim it had properly distinguished between costs of developing a new product (charged to IR&D) and cost of developing capital equipment required for testing and manufacturing (charged to a capital account as manufacturing and production engineering) ruling the contractor had not carried its burden of proving the capitalized costs qualified as manufacturing and production engineering (TRW Inc. ASBCA 51172). The Board disallowed direct consultant fees on the grounds they were nothing more than the equivalent of an employee whose costs should have been charged to G&A and citing as one of the reasons that the FAR requires consulting costs "promote contract administration" while the consultant "ghost wrote" letters that hurt the parties’ relationship (Fire Security Systems, Inc. VABCA 5559-63). A California state court ruled a contractor was not subject to an Orange County ad valorem tax on equipment whose costs were included in overhead on the grounds the government paid for, and thus obtained title to the equipment (Hughes Aircraft 96 Cal. App. 4th 540). The board ruled that contractor’s "settling-in allowance" paid to employees who relocated overseas constituted relocation costs subject to the $1,000 per employee cap for miscellaneous costs rather than employee compensation. However, since the government had accepted "settling-in" costs for many years the Board ruled the government was "estopped" from disallowing the costs prior to the time DCAA had questioned the costs (Lockheed Martin Western Dev., ASBCA 51452). The Court held that the contractor’s direct labor costs and deferred compensation were allowable because the day-timer records with handwritten notes were sufficient evidence of direct labor costs and a promissory note to the owner was sufficient to establish the deferred compensation (Thermalon Industries Ltd. 51 Fed. Cl. 464).

Allocability. The Board disallowed costs for legal fees paid in defense of four members of its Board because they did not "benefit" the government. In its appeal the court ruled the board could not disallow the costs because they did not "benefit" the government but did say that the costs would be allowable only if the contractor could establish the allegations in the shareholder action had "very little likelihood of success." (Boeing North American, Inc. F.3d1320). The contractor could not recover expenses it incurred to prepare a proposal under a teaming agreement because the FAR definition of bid and proposal costs does not include obligations arising from joint ventures and teaming arrangements (though independent research and development costs do). The Board ruled the costs prepared under a "memorandum of agreement" to commercialize certain of the contractor’s technology were required in performing the contract and thus could not be allowable indirect B&P costs (TRW Inc. ASBCA 51530). Contractor received a refund in 1995 of state income taxes for which the contractor had received reimbursement from the government in 1987 as a contract costs. The court held the contractor was required to calculate the government’s share of the refund based on the ratio of government/commercial work in effect in 1987 rather than 1995 since the refund was a deduction of a 1987 contract cost. The Court rejected the contractor’s contention it was bound by CAS 406 to recognize the refund in the year received stating CAS did not require any particular period but the FAR clauses the government found relevant controlled the issue (Hercules Inc. 292 F.3d 1378).

Limitation of Costs. In its claim to be reimbursed for cost overruns on a cost plus contract due to the fact its actual indirect costs were higher than its provisional billing rates during contract performance, the Board sided with the contractor stating that under the "Limitation of Cost" clause it must look to see whether the overrun was "reasonably foreseeable." The board ruled in this case the overrun caused by the higher indirect rates was caused by an unexpected decrease in total business volume thus could not be reasonably foreseen (Moshman Assocs. ASBCA 52868).

Cost or Pricing Data Under TINA. The Truth in Negotiations Act defines cost or pricing data as all facts that as of the date of agreement on price, a prudent buyer or seller would reasonably expect to affect price negotiations. What is and is not cost or pricing data is a source of considerable review by Courts and Boards. Where the contractor’s practice is to place all subcontract bids in a locked box until the date a bid is opened the government argued the contractor’s failure to disclose the existence of unopened bids was defective pricing. The Board held the contractor was not required to open the quotes and advise the government of their contents because they were not cost or pricing data but the contractor was required to disclose the existence of the unopened bids because the government could have negotiated a lower price based on the unopened bids (Aeroject ASBCA 44568). Though the contractor argued that an important design improvement in a prototype unit developed several months before price negotiation was not cost or pricing data because it was not complete the Board ruled the design improvement was a fact constituting cost or pricing data and its disclosure would have reduced the contract price (Lockheed Martin Corp. ASBCA 50566). The Board held the contractor and government were on an "equal footing" with regard to the significance of certain labor hour data and rejected the government’s argument the contractor had violated TINA by failing to provide additional explanation of the significance of the data (Lockheed ASBCA 50464).

Termination Settlement Costs. Entitlement to reimbursement of certain costs when the government terminates a contract for convenience basically converts a fixed price contract into a cost-reimbursement contract where allowability of costs are often greater than under the FAR cost principles. Because the government was at fault for not divulging certain information to the contractor resulting in significant performance inefficiencies the Court tended to be quite generous in allowing termination costs including (1) cost of facilities capital on the initial value of special equipment rather than the value as depreciated during performance (2) rental rates on pre-owned equipment based on "Blue Book" rates enhanced by 39% to reflect harsh operating conditions (3) unabsorbed overhead applied to increases in the direct labor base at contractor’s historical rates of 10% rather than the lower actual 5% incurred during performance (4) a 30% profit based on the contractor’s "truly remarkable production rate" (Marshall Associated Contractors IBCA 1901). The Court held that (1) the contract price limitation (settlements can’t exceed the contract price) covers both the pre-termination and post termination costs except for settlement expenses which are outside the limitation (2) in establishing the limitation, the contractor has the burden of showing the government improperly determined adjustments to the contract price (3) the Associated General Contractors equipment rates are applicable only in the absence of actual cost information (4) rental costs for equipment owned by family members is limited to ownership costs (5) unsubstantiated salary costs of contractor owners would be compensated in the overhead allowed on contractor’s other costs and (6) though the FAR precludes profit on settlement expenses, the court is free to grant it (White Buffalo Construction 52 Fed. Cl. 1). Since a "constructive change" in the contract had, in effect, increased the contract price the limitation of recovery was also raised and the contractor was entitled to (1) lost volume discounts from vendors (2) increased markup on equipment purchases (3) unexpired portion of communication circuit lease and (4) the cost of undelivered equipment (Information Systems & Network Corp. ASBCA 46119). The Board ruled the contractor was entitled to labor, material and travel expenses that were substantiated by records but not presented on standard forms and allowed a 10% profit, rejecting application of a loss formula where it appeared the contractor would have made a profit and where the government contributed to the loss (Swanson Group Inc. ASBCA 52109).

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