Legal fees are generally treated as indirect costs and included in the contractor’s G&A pool because legal services benefit the business as a whole. However, several cases have held that when legal or accounting costs are incurred specifically for and can be identified with a particular contract they must be allocated directly to that contract. For example, in Jana, Inc. the board held the costs of defending against a protest were chargeable directly to its cost type contract. Similarly in FMC Corp, the Court held that costs incurred in litigating a claim under a purchase order were directly chargeable to that PO and could not be included in the contractor’s G&A pool. Ms. Manos points out that this line of cases can present problems for recovery of legal costs under fixed price contracts where we have seen numerous instances of DCAA questioning inclusion of costs in contractors’ G&A pools, asserting they were allocable to a specific fixed-price contract. As a practical matter, when negotiating the price of a fixed price contract contractors typically do not include an estimate for litigation or investigations that may arise. Incurrence of these costs would not entitle them to a price adjustment unless a constructive change to the contract had occurred. Ms. Manos also questions whether this line of cases would withstand scrutiny under CAS 402 which requires consistent treatment of all costs incurred for the same purpose under like circumstances concluding where CAS conflicts with the FAR cost principles, CAS prevails.

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