DCAA Updates Its Guidance on Identifying Expressly Unallowable Costs

DCAA (Defense Contract Audit Agency) has updated its audit guidance for identifying expressly unallowable costs. This update comes as a result of recent court cases and wording changes to the FAR (Federal Acquisition Regulations) and DFARS (DoD FAR Supplement).

The issue of expressly unallowable costs is significant because such costs are subject to a penalty if found by an auditor in an incurred cost claim or any other billing to the Government. It has also been controversial because contract auditors often clash as to whether a particular cost is expressly unallowable. DCAA's position historically has been that even if the cost principle does not include the word "unallowable" or the phrase "not allowable" does not mean that costs questioned based on that cost principle are not expressly unallowable. That was before the Raytheon case however, where the ASBCA (Armed Services Board of Contract Appeals) ruled that costs must be specifically named and stated as unallowable in order for them to be considered expressly unallowable.

The new guidance pars the listing of expressly unallowable costs from 110 examples to 91 cost principles identifying expressly unallowable costs. It also updates the guidance so as to be consistent with the Raytheon case. It now reads:

In order for a cost to be expressly unallowable, the cost principle must state in direct terms that the costs are unallowable, or leaves little room for interpretation or differences of opinion as to whether the particular cost meets the allowability criteria. The Government must show that it was unreasonable, under all the circumstances, for a person in the contractor's position to conclude that the costs were allowable.

The updated guidance can be downloaded here.