FMI defended itself against a criminal indictment for violating export control laws by exporting certain goods to the Indian government without required license fees. Regardless of whether FMI was found guilty the government questioned these costs on the grounds they are not allocable to its government work because they were identified specifically with its commercial contracts. The government also disallowed costs related to leasing an aircraft, amortization of certain patent costs and certain sales commissions and recreation costs and assessed penalties on the unallowable costs.  FMI asserted the legal expenses were allocable to its government contracts under Boeing North American Inc. because they were necessary to the overall operation of the business. They also asserted the other unallowable costs were not subject to penalty assessments because they were not “expressly unallowable.” With respect to the legal costs, the Board sided with the government stating the contractor did not establish the necessity of the costs being incurred for the overall operation of the business because “there is no nexus between the costs it incurred in the proceeding and …any federal government contract.” It sided with the contractor on the aircraft and amortization costs stating though they were properly disallowed they were not expressly unallowable since had they been properly supported they would have been allowed while it agreed that the sales commissions and recreation costs were expressly unallowable in accordance with specific FAR Part 31 cost principles (Fiber Material Inc., ASBCA No. 53616).

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