Who's on first - do contracting officers decide the merits of employment discrimination cases filed against government contractors after Boeing v. Roche?

Army Lawyer, Oct, 2003 by Gregory R. Bockin

The ASBCA denied Boeing's appeal because there could be "no benefit to the Government in a contractor's defense of a third party lawsuit in which the contractor's prior violations of federal laws and regulations were an integral element of the third party's allegations." (45) The ASBCA "reasoned that 'but for' Rockwell's wrongdoing[,] the Citron suit would not have been brought, and the costs would not have been incurred." (46)

On 29 July 2002, the CAFC, acting en banc, issued the Boeing II decision. (47) The case established two new and important legal standards for allocability and allowability of costs under government cost-reimbursement contracts. With respect to allocability, the CAFC deviated from its earlier decisions, which provided that costs were allocable only if there was some "benefit to the government" for incurring the cost, and that the contractor had to show a benefit to government work from an expenditure of a cost that it claims is necessary to the overall operation of the contractor's business. (48)

In Boeing H, the CAFC held that the proper test for determining the allocability is the cost accounting standards (CAS) (49) "nexus" test: "whether sufficient 'nexus' exists between the costs and the government contract." (50) The CAFC decided that the proper test for allowability is determining whether the legal costs sought by the contractor for third party civil suits were "similar or related" to costs allowable under the regulations. (51) Boeing II "recognized that it was bound by its Northrop decision, but concluded that the decision should have been based on allowability, not allocability." (52) Therefore, the CAFC distinguished between the concepts of cost allocability and cost allowability under the FAR, holding that the issue of legal costs in this case is one of allowability. (53)

The Similarity Test Under FAR Section 31.204(C)--Similar or Related

After deciding that the issue was one of allowability, Boeing II focused on FAR sections 31.204 and 31.205. (54) The CAFC began by disavowing Boeing's argument "that the only professional service costs that axe not allowable under FAR [section] 31.205-33 are those costs that are specifically disallowed under another FAR provision." (55) The court reiterated that FAR section 31.201-2 explains the factors to consider in determining whether a cost is allowable, in conjunction with FAR section 31.204 (c), which "explains how to apply the principles and procedures, and FAR [section] 31.205 [which] contains over fifty subsections, each of which covers, in detail, the allowability of particular selected costs." (56)

In Boeing II, the court held that "[a]lthough the FAR [section] 31.205 subsections covering selected costs are extensive, FAR [section] 31.204 makes clear that 'section 31.205 does not cover every element of cost. Failure to include any item of cost does not imply that it is either allowable or unallowable.'" (57) When a cost is not specifically covered under FAR section 31.205, the CAFC noted, "FAR [section] 31.204(c) instructs us: 'The determination of allowability shall be based on the principles and standards in this subpart and the treatment of similar or related selected items.'" (58)