Excuses that Didn't Work

For the past two days, we've been discussing various aspects of the Thomas Associates (TAI) decision from the ASBCA (Armed Services Board of Contract Appeals). This case involved the inclusion of expressly unallowable costs in the contractors annual incurred cost claim and the eventual assessment of penalties and interest for doing so.

The ASBCA did not buy the contractor's argument that the costs were not expressly unallowable but just plain unallowable. Expressly unallowable costs carries a penalty while non-expressly unallowable costs do not. The contractor found out the hard way just how significant these penalties can become. Penalties and interest totaled 45 percent of the expressly unallowable amounts included in the incurred cost claim.

In its complaint, the contractor requested that the penalties be waived. FAR 42.709 allows the Government to waive penalties under three circumstances.

1. The contractor withdraws its proposal before the Government begins its audit
2. The amount charged to Government contracts is less than $10 thousand
3. The contractor can show that it had good policies and procedures for identifying and excluding unallowable costs from its proposal but there was an unintentional error notwithstanding the exercise of due care.

ASBCA denied TAI's waiver request.

The contractor first argued that the unallowable costs, individually, did not exceed $10 thousand. The ASBCA rejected the argument stating that the $10 thousand threshold is an aggregate amount.

The contractor then argued that the penalties represented a financial hardship. The Board rejected this on the basis that "there is no known regulatory or decisional authority for considering "financial hardship" as a basis to waive penalties".

Finally, the contractor argued that it had not been audited previously and that this was a "learning experience". The ASBCA ruled that "learning experience" was not a condition for waiver of penalty and there was no evidence that the contractor submitted the expressly unallowable costs "inadvertently" or due to "unintentional error".