Friday, January 13, 2017

Cost Relating to Congressional Investigations May Be Unallowable

The rules governing allowability of legal costs when a contractor has been charged with some form of wrongdoing is fairly well established. Generally, if the case is resolved by something other than compete vindication, the associated legal (and other related) costs will probably be questionable. FAR 31.205-47 describes it this way.

Costs incurred by a contractor in connection with any criminal, civil, or administrative proceeding commenced by the United States, by a State, or by a contractor or subcontractor employee submitting a (whistleblower) complaint or a third party in the name of the U.S. under the False Claims Act (i.e. Qui Tam), are not allowable as reimbursable costs if the proceeding relates to a violation of or a failure to comply with a Federal or State statute or regulation and results in one of several possible dispositions.

Those dispositions include:

  1. In the case of a criminal proceeding, a conviction (including a conviction pursuant to a plea of nolo contendere) by reason of the violation or failure.
  2. In the case of a civil or administrative proceeding involving an allegation of fraud or similar misconduct, a determination of contractor liability on the basis of the violation or failure,
  3. In the case of any civil or administrative proceeding, the imposition of a monetary penalty or an order to take corrective action
  4. A final decision to debar or suspend the contract, to rescind or void the contract, or to terminate the contract for default.
  5. A disposition of the proceeding by consent or compromise if such action could have resulted in a disposition described in items 1 to 4 above.

On January 13, 2017, the FAR (Federal Acquisition Regulations) Councils amended FAR 31.205-47, Costs related to legal and other proceedings, to prohibit costs incurred in connection with a Congressional investigation or inquiry into an issue that is the subject matter of a proceeding resulting in a disposition as described in items 1 through 5 above. So, if your company is offered the "opportunity" to testify before Congress for, say polluting a river, the costs of that testimony including prep time, travel, and other incidental expenses as well as directly associated costs, would not be allowable under Government contracts if one of the five dispositions applied.

This regulatory change was required under the fiscal year 2015 NDAA (National Defense Authorization Act) and although the underlying statute applies to DoD contracts only, the regulation applies to all Government contracts. It is effective now.

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