In Northrop Worldwide Aircraft Services, government attorneys tried a new tack, arguing the costs of an unsuccessful defense of a wrongful termination suit were not allocable and therefore were unallowable because there was no "benefit to the government" for incurring the expense. The case involved a cost reimbursable contract where employees claimed they were fired because they refused to participate in a contract-related fraud against the government and the state court ruled in favor of the employees. Following the rationale of the Hirsh case discussed above the Board ruled the costs were reasonable and allocable to the contract but the Federal Circuit disagreed stating the contractor "must show a benefit to government work from a cost" it claims is necessary for the overall business and concluded there was no benefit to the government of the contractor’s defense of the wrongful employee termination. Ms. Manos states the Federal Circuit confused the concepts of allocability and allowability. Unlike reasonableness, which turns on a qualitative judgment about the nature and amount of the costs, allocability is strictly an accounting concept for logically distributing costs to cost objectives (e.g. contracts). Unlike a determination of allowability, allocability does not involve any judgment about whether, as a policy matter, the government should or should not reimburse the costs.

The ASBCA took the rationale from Northrop one step further in Boeing North American, Inc. A group of shareholders charged that Rockwell (predecessor of Boeing) failed to maintain adequate controls resulting in numerous penalties and fines being imposed by the government. Rockwell settled the suit by agreeing to pay a portion of legal costs with no admission of wrongdoing and claimed the legal costs in its G&A pool where the CO disallowed them on reasonableness grounds. The Board sustained the CO’s action asserting it could "discern no benefit to the government for the contractor’s defense." In addressing the allocability issue of the costs, the Federal Circuit court rejected the "benefit to the government" argument on similar grounds Ms. Manos put forward above, namely allocability is an accounting concept where there is no requirement that a cost directly benefit the government’s interests for the costs to be allocable. To do otherwise is to allow an "amorphous inquiry into whether a particular cost sufficiently benefits the government."

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