Q.  A large percentage of our sales and marketing expenses this year relate to obtaining a commercial contract and we have been discussing the need to exclude the costs from our G&A pool.  I seem to remember you discussing a particular case that provided justification for keeping the cost in so but I don’t remember it.  Could you jog my memory?

A.  There are actually numerous court decisions that have made the point that all sales and marketing expenses, no matter what type of contracts are associated with the effort, are allocable to the G&A pool because such costs expand the business base which benefits government contracts by lowering G&A costs.  As for the specific case you are discussing, I believe it is the Aydin case (Aydin Corp/ v/ Widnall. 61 F3d1571) where the contractor’s normal established practice was to include sales commission expenses in its G&A pool.  One year, about 93% of the commission expenses were related to a foreign sale and the government asserted these costs should be removed from the G&A pool and charged directly to the foreign contract rather than allocating a significant amount to government contracts.  The Appeals board sided with the government stating it was proper to permit such a special allocation of the costs to the foreign contract because to allow such a “disproportionately” large cost would result in an “inequitable” allocation to the government.  The US Court of Appeals reversed the Board’s decision, asserting that the different treatment of sales commissions violated CAS 402 (requiring consistent treatment of like costs incurred under like circumstances), concluding the costs had to be treated consistently (i.e. charged to G&A) and in response to the assertion of “inequitable” allocation, the Court ruled the “chips should fall where they may.”

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