(Editor’s Note.  We are seeing a lot more rejection of legal and consulting costs on the basis “the government is not receiving benefit” for such costs.  The following addresses this assertion.)

When the contractor terminated a subcontract for nonperformance, the subcontractor brought suit and lost.  The contractor included the legal costs as a direct cost of the contract and the government questioned them asserting (1) since the prime contractor selected the sub it was liable for the sub’s defective performance and (2) it neither contributed to the nonconforming work nor benefited from the defective work.  The Board rejected these arguments stating it is reasonable for the contractor to defend itself when a subcontractor’s performance is nonconforming and the subcontracting work was clearly part of the contract and hence allocable to it (Information Systems and Networks Corp. ASBCA No. 42659).

(The decision appears to run counter to a recent decision we reported on where Northrup’s legal costs related to defending against allegations of improper employee firings were rejected because the government did not benefit from such activities.  We intend to explore this issue in the next GCA DIGEST.)

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