Rockwell was found liable for three False Claims Act violations in its contract to manage the Rocky Flats nuclear weapons plant.  In denying Rockwell’s claim for legal costs in defending the case, the Board said the contract made unallowable the costs for defense of fraud or similar proceedings brought by the government where the contractor is found liable. The Board stated that the FCA has always been considered by the courts to be a fraud statute where FAR 31.205-47 makes such costs unallowable and specifically defines fraud to mean acts of fraud or corruption and acts which violate the FCA (The Boeing Co. vs. DOE, CBCA No. 337-339).

In a separate, unrelated case, an employee and Tecom settled a sexual harassment case where the employee received direct payment for alleged harm to her.  In its rejection of Tecom’s claim for the settlement costs, the government contended that Boeing North American Inc. applied where it ruled that in order to recover these similar settlement costs the contractor was required to show the employee’s claim had “very little likelihood of success.” The government, citing the Boeing standard, stated the costs were “related” to the category of costs disallowed by FAR 31.205-47 which states contractor legal costs related to criminal conduct and fraud are unallowable. After reviewing the case the board concluded that the Boeing standard did not apply here because the private sexual harassment litigation did not meet the conditions for disallowing legal costs namely it did not (1) involve a criminal prosecution (2) require a finding, absent a settlement, of contractor liability on fraud or other similar misconduct nor was a monetary penalty to be imposed nor (3) require a final decision to debar or suspend a contractor, rescind or void a contract or terminate for default a contract.  The Board also rejected the government contention the settlement payment was a substitute for a fine or penalty stating the payment was paid to her not to any state or government entity to address a harm to the public. Finally in response to the government’s claim that the costs are allocable only if there is “some benefit to the government” according to a Northrup decision, the Board stated a different subsequent Boeing case held that the “benefit to the government” test fell squarely under FAR 31.201-4, criteria for allocating indirect costs.  In that case the Board stated the Court ruled the word “benefit” is a cost allocation concept describing the “nexus between required accounting purposes between the cost and the contract to which it is assigned” – the question of whether a cost should be recoverable as a matter of policy is to be resolved by applying cost allowability regulations not allocability rules (Tecom, Inc. ASBCA Nos. 53884, 54461).

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