Contractor Appeals DCAA Audit Results

Back in the 2007 to 2009 timeframe, Sperient Corporation was awarded several SBIR (Small Business Innovative Research Program) contracts by the Air Force and Marine Corps to perform research on fuzing sensors for munitions. These SBIR Phase II contracts were cost reimbursable contracts. In due course, DCAA (Defense Contract Audit Agency) conducted audits of the costs incurred by Sperient under the contracts and took exception to some of the costs. The contracting officers agreed with the audit results and Sperient has now appealed those final decisions to the United States Court of Federal Claims.

There are several issues in dispute.

Equipment rental costs. Sperient leased equipment from a company called Resperience. DCAA noted that the two companies were owned by the same person and therefore under common control. Being under common control, allowable costs are limited to the actual costs of ownership. Sperient countered with documentation showing the leases were reasonable when compared with market prices. The complaint raised a secondary defense stating that the owner of Sperient was only a minor shareholder of Resperience and therefore the two entities were not under common control.

Radar Range Rental Costs. Rental payments for the radar range were made pursuant to a lease agreement between Sperient and another private party. The property included a residence where, for a time, Sperient's CFO resided. It is unclear why DCAA questioned the amounts. One contracting officer final decision states the costs were not supported with invoices. This might be accurate as the complaint states that Sperient went out and got an appraisal for what the fair market value would have been. However, the complaint also mentions that DCAA questioned the costs because it didn't represent an arms-length transaction.

Consultant Housing. Sperient hired a consultant for these projects. The consultant costs are not in question. However, Sperient also paid the rent for office space in the consultant's home because, according to the complaint, the consultant had medical conditions that required him to work from home. DCAA questioned (and the contracting officers agreed) that such costs, in order to be allowable, must be included as part of the consulting agreement. Sperient argues that such costs are "reasonable accommodations" required by the Americans with Disabilities Act of 1990.

Credit card processing fees. DCAA questioned these costs on the basis that they were not necessary and therefore not allocable to the contracts. Sperient argues that the Government required them to obtain the ability to accept credit cards as payments.

Cell phones. DCAA questioned the cost of cell phones used by consultants and the owner of the radar range mentioned above. Sperient argues that the costs are reasonable and there is no restriction in FAR or elsewhere that prohibits a contractor from providing cell phones to consultants and lessees.

Sperient is seeking $520 thousand in its claim. There is one aspect to this case that might be problematic. The Marine Corp contract representing $410 of the $520 claimed amount, was terminated for default.

Now its up to the courts to decide the outcome. You can read the entire complaint here.