Earmarks

Leading up to the mid-term elections and continuing even now has been controversy over whether earmarks are good or bad, necessary or needless, affordable or budget-busters. Some senators and representatives have proposed to ban them or set up a moratorium. Its probably a safe bet to presume that earmarks (or "plus-ups") will survive in one form or another. This is a good time to revisit this area in terms of the allowability of earmark activities charged to Government contracts.

A legislative earmark refers to a Congressional provision directing funds to be spent on specific projects. Typically, a legislator seeks to insert earmarks in spending bills that direct a specified amount of money to a particular contractor, organization, or project in his or her home state or district. The fiscal year 2008 DoD appropriations act included 2,092 earmarks valued at $6.6 billion. Government contractors sometimes expend a significant amount of effort and related costs to support earmarks associated with specific contractors and programs. These costs generally meet the definition of lobbying costs as defined in FAR 31.205-22 and considered unallowable on Government contracts.

Government auditors are especially tuned to the possibility of unallowable lobbying effort at contractors receiving earmark funding. There are a number of public and FOUO (for official use only) sources for information on which contractors received earmarks and the amount. As part of their audit effort, auditors are instructed to make inquiries to determine procedures the contractor uses to identify and collect the costs related to support earmarks.

Lobbying effort associated with earmarks is not necessarily limited to company executives and hired lobbyists. Auditors are going to inquire about program management, contracting, public relations, consultants and technical personnel. Auditors will interview responsible contractor personnel to ascertain the nature and extent of effort provided to support any identified earmarks. Additionally, they will also consider the existence of "directly associated costs" such as travel and conference expenses.

If you have pursued earmarks in the past, you should assess whether any costs associated with those activities have crept into billings to the Government. If you intend to pursue them in the future, you need to establish controls that ensure any unallowable costs are identified, segregated, and removed from any billings to the Government.