Due to the many rumors and conflicting stories on this topic, a special update is necessary.

Here are some of the comments heard:

DCAA is appealing the decision. Obviously wrong, DCAA cannot appeal anything.

DCMA does not intend to appeal the decision. This would be consistent with their actions.

In ASBCA Nos. 56105, 56322 (J.F. Taylor, Inc.) the Board has ruled “…we conclude that there are statistical flaws in the government methodology for determining reasonable compensation…”  The Board upheld but $42,000 of the $590,000 disallowed by the government.

The flaws in the DCAA approach were alleged at nine, but the Board accepted one of the alleged flaws.

First, the DCAA analysis ignored the actual dispersion of data in surveys and instead applied a 10% Range of Reasonableness (ROR)—a concept accepted in a prior Board decision.  Statistically, a median can be derived from a universe that has little variability or significant variability.  For example, a median of $1000 may have a low of $10 and a high of $10,000; whereas another median of $1000 could have a low of $500 and a high of $2000. The DCAA approach equates these two conditions by adding 10% to the median ($1100) as the limit to reasonable compensation.  The statistical flaw is obvious.

The last issue of this newsletter reported that the ASBCA disallowed meals incurred locally to discuss recruiting with professional colleagues. A complete reading of that decision indicates only $500 were involved. The contractor did not provide DCAA with any documentation. Instead, new documentation and rationale were presented in court. Although alleged to be for  recruiting when finally revealed in court, the list of attendees indicated no recruiting candidates were  involved. Details on other issues in this decision may have added to the Board’s suspicions on the legitimacy of the costs. [SplashNote Systems, Inc. ASBCA No. 57403]


Courtesy of:
Darrell Oyer & Company
Government Contract Specialists
PO Box 11484
Milwaukee, WI  53211
414-446-8133
This e-mail address is being protected from spambots. You need JavaScript enabled to view it

The Armed Services Board of Contract Appeals has ruled a contractor must pay the government nearly $6.8 million in interest related to the sale of two business segments. [Raytheon Co., ASBCA, No. 54907]  The Board concluded the government should receive interest, compounded daily, on unpaid Cost Accounting Standards (CAS) noncompliance interest through the government's receipt of that interest.  The contractor sold two business units in 1998. Each sale constituted a segment closing under CAS 413.50(c)(12), but the contractor did not pay the government interest on the pension surpluses.  The Federal Circuit held that this action violated CAS 413, resulted in increased costs and entitled the government to interest, compounded daily,  However, the court left it for the Board to decide over what period the compound interest would be measured.  The Board added that interest, compounded daily, would continue to accrue until the contractor fully paid the CAS noncompliance interest. 

A prior ASBCA decision had ruled that the $10,000 threshold for waiving the penalties for claiming unallowable costs should be applied by individual cost item only.  The government appealed this decision, contending that the threshold applied to the total  unallowable cost.  Upon reconsideration the Board agreed with the government that the threshold applied to the total amount unallowable.  [Thomas Associates, Inc.]  

The ASBCA has denied an appeal, finding that under a firm-fixed-price (FFP) contract, absent inclusion of an economic price adjustment (EPA) clause, the risk of material or labor cost fluctuation is on the contractor.  The contractor submitted a claim for reimbursement of increased costs beyond those estimated in its proposal due to high gasoline prices based on FAR 52.216-4 (economic adjustment clause).