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The contractor appealed the government’s final decision to issue a debt demand for five disallowed costs after the government determined the contractor was overpaid. ASBCA affirmed four of the government’s disallowed costs but found the government improperly calculated fees. The government’s straight-line method used the ratio of incurred costs to the total estimated costs. According to FAR 49.305-1(b), this ratio was only one factor to be considered.
Appeal of D-STAR Engineering Corp., ASBCA Nos. 62075, 62780
- Background – The government terminated for convenience a contract to build an unmanned vehicle fuel-to-power-generation system. While auditing the contractor’s termination settlement proposal, the government determined it had overpaid the contractor. It issued a debt demand to the contractor totaling nearly $300K based on 5 types of costs. The contractor appealed. ASBCA reviewed each of the government’s disallowed costs in turn.
- Disallowable Labor Costs – The government disallowed $62K in direct labor costs. The contractor asserted the disallowed costs were unreasonable because it was unclear what standard the government used. ASBCA disagreed. It found the government sufficiently complied with the definition in FAR 31.201-3(a) by reviewing the time sheets and providing a brief explanation why it found each identified time entry unreasonable. On the other hand, the contractor failed to respond to the specific challenges by the time entry and only used the same generalized justifications.
- Indirect Factory Expenses – The Board also found that the government proved $104K in indirect factory expenses were unallowable. The government paid the contractor $38K of materials on a prior contract, but the contractor still included it in its engineering overhead pool calculation. Once the $38K was removed from the overhead pool and the proper cost rate applied, the Board found the proper disallowance of $104K in indirect factory expenses.
- Other Proper Non-Allowables – Additionally, ASBCA found that the government properly determined that some general and administrative (G&A) expenses and settlement costs disallowed. The Board said these costs were reasonably calculated based on the government’s detailed records and the adjusted overhead rate. Furthermore, the contractor did not segregate non-allowable indirect costs in applying G&A to its settlement costs. Thus, the Board denied recovery.
- Improperly Disallowed Fee – The government claimed it properly applied a straight-line method for calculating the percentage of contract completion. It used the ratio of incurred costs to the total estimated cost. The contractor maintained that the government should have allowed the company to use a double-declining method for calculating the fee. FAR 49.305-1(b) clearly states that “the ratio of costs incurred to the total estimated cost…is only one factor in computing the percentage of completion.” FAR 49.201(c) provided other factors to consider. As such, the Board found the government should not have disallowed $55K for the fee.
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