FAR 31.205-47 governs allowability of legal costs incurred for particular types of proceedings. Whether it be costs of professional services covered by FAR 31.205-33 or legal services under FAR 31.205-47, most legal costs are allowable but those incurred under the following circumstances are always unallowable: (1) attempts to improperly obtain, distribute or use information or data protected by law or regulation or to improperly influence the contents of solicitations, the evaluation of proposals or selection of sources for contract or subcontract award (2) services obtained, performed or otherwise resulting in violation of any statute or regulation prohibiting improper business practices or conflicts of interest (3) services performed that are not consistent with the purpose and scope of the services contracted for (4) defense against federal government claims and appeals or prosecution of claims or appeals against the federal government (5) organization, reorganization (including mergers and acquisitions) or resisting mergers and acquisitions (6) defense of antitrust suits (7) defense of suits brought by employees or ex-employees under the Major Fraud Act of 1988 where your company was found liable or settled (8) defense or prosecution of lawsuits arising from (a) an agreement or contract concerning a teaming arrangement, a joint venture or similar arrangement of shared interest and (b) dual sourcing, or production or similar programs unless (i) incurred as a result of compliance with specific terms and conditions or written instructions from the CO or (ii) when agreed to in writing by the CO. (9) patent infringement litigation unless otherwise provided in the contract (though general counseling services such as advice on patent laws and regulations are allowable) (10) representation of or assistance to individuals, groups or legal entities which your company is not "legally bound" to provide, arising from an action where the participant was convicted of a violation of law or regulation or was found liable in a civil or administrative proceeding or (11) bid protests or defense, unless the costs of defending against the protest are incurred pursuant to the CO’s written request.

Except for actions brought by employees under the Major Fraud Act or qui tam relators under the False Claims Act, legal costs incurred in connection with defense against suits brought by nongovernmental parties are generally considered allowable. Legal costs incurred in connection with suits brought by your employees other than those alleging fraud against the government are generally allowable. Backpay resulting from violations of federal labor laws or Civil Rights Act should be allowable provided it represents additional compensation for work performed for which the employee was underpaid and is not compensation for other violations such as improper discharge or discrimination.

FAR 31.205-47 was significantly revised in 1989 to implement the Major Fraud Act of 1988. The revisions made unallowable under any covered contract any costs incurred in connection with criminal, civil or administrative proceeding brought by the US, state, local or foreign government if the proceeding (1) relates to a violation or a failure to comply with a federal or state statute or regulation and (2) results in one of four outcomes: (a) criminal conviction or plea of nolo contendere (b) a determination of contractor liability in a civil or administrative proceeding involving an allegation of fraud or similar misconduct or imposition of a monetary penalty (c) final decision to debar or suspend contract or rescind, void or terminate the contract for default or (d) a disposition by consent or compromise if the action could have resulted in one of the outcomes. Even if the proceeding does not result in one of the enumerated dispositions, the allowable costs may not exceed 80% of the otherwise allowable costs incurred. FAR 31.205-47 applies to wrongdoing "by the contractor (including agents or employees)." The incurred costs may be allowed if the proceeding are settled by consent or compromise and the settlement explicitly provided the costs are allowable. Costs incurred in a proceeding brought by a state may be allowed if the agency head determines that such costs were incurred as a result of a specific term of the contract or specific written instructions of the agency.

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