Penalties for Unallowable Costs

Most Government contractors know that there are penalties involved when claiming specifically unallowable costs. In an ASBCA (Armed Services Board of Contract Appeals) decision handed down last month, a contractor found out the hard way how significant those penalties can become.

In 2007, DCAA finished its audit of Thomas Associates Inc's. (TAI) 2004 incurred cost submission. It found about $38 thousand in costs that were specifically unallowable according to FAR cost principles. The contracting officer agreed and levied penalties for including unallowable costs in its claim. TAI appealed to the ASBCA, offering a number of defenses, including the idea that the costs in question were not specifically unallowable but were unallowable as a matter of interpretation.

The ASBCA ruled that Government had "sustained its burden of proof" that the costs in question were specifically unallowable under the respective FAR cost principles involved and denied TAI's appeal.

The penalties together with interest totaled about $17 thousand or about 45 percent of the specifically unallowable costs. That's significant.

You can read the decision here.