An ASBCA decision, which held that the salaries of a contractor’s lobbyists are not recoverable costs, is affirmed. The FAR states that costs associated with lobbying activities are unallowable. The contractor argued that because that FAR provision does not expressly mention the salaries of lobbyists, salaries are recoverable. But the Federal Circuit repudiated this argument, reasoning that the salaries of lobbyists are, by definition, costs associated with lobbying activities. The contractor attempted to argue that a FAR amendment had created ambiguity as to whether lobbyists’ salaries are unallowable. The court rejected this argument, however, noting that the history of that amendment evinced no intent to exempt lobbyists’ salaries from the list of unallowable costs.
Raytheon had a contract to provide engineering services associated with the Patriot Weapons system. After an audit of Raytheon’s cost proposal for the contract, the Defense Contract Management Agency determined that the proposal included $220,000 in an unallowable lobbying salary costs. The government demanded that Raytheon repay these and assessed penalties and interest against the company. Raytheon appealed the determination to the ASBCA. The board upheld the agency’s decision, finding that the costs were unallowable under FAR 31.205-22, which prohibits recovery of costs for lobbying activities. Raytheon then appealed ASBCA’s decision to the Federal Circuit.
FAR 31.205-22(a)(3) provides that “costs associated with . . . [a]ny attempt to influence the introduction of Federal, state, or local legislation . . . through communication with any member or employee of Congress or state legislature” are unallowable. While this section makes lobbying costs unallowable, Raytheon argued that it does not expressly mention the salaries of the employees who participate in the lobbying activities. Lobbyists’ salaries, Raytheon thus contended, must be allowable.
The Federal Circuit rejected this hairsplitting interpretation. The FAR definition of an unallowable cost refers to a “particular item or type of cost.” The court reasoned that these two categories confirm that an unallowable costs includes more than an expressly stated “item.” Rather, costs that unambiguously fall within a generic description of a “type” of cost are also unallowable.
Here, the salaries of lobbyists are prototypical lobbying expenses. They are unambiguously the type of cost that are associated with lobbying. The prohibition of lobbying expenses, under the plain language of FAR 31.205-22, disallows lobbyists' salaries.
Raytheon, however, argued that a 1984 amendment to the FAR potentially excepted lobbyists’ salaries from the list of unallowable costs. Before 1984, the FAR (and its predecessor regulations, the Defense Acquisition Regulation and GSA’s Federal Procurement Regulations) used to expressly include the “applicable portions of the salaries and fees of those individuals engaged in lobbying efforts” from the list of unallowable costs. But in 1984, that specific salary language was removed and replaced with the more generic “costs associated with” lobbying activities.
The court, however, did not believe the amendment created any ambiguity as to the recoverability of lobbyists’ salaries. The regulatory history of the amendment did not evince any uncertainty about the inclusion of the salaries in the prohibition on lobbying costs. The term “costs associated with” was meant to include the costs of lobbying and activities undertaken to facilitate that lobbying.
Still, Raytheon contended that another FAR cost provision, 31.205-47, includes a reference to the “cost of employees.” Thus, Raytheon reasoned, FAR 31.205.22, which does not include a similar reference is indicative of an intent to exclude the “cost of employees” from the list of unallowable costs.
The court wasn’t buying it. FAR 31.205-47 derives its language from a statute. This decision to mimic statutory language does not suggest that FAR 31.205-22, which is not based on similar statutory language, should be interpreted to exclude the salaries of employees.
Raytheon is represented by Karen Louise Manos and John William Chesley of Gibson, Dunn & Crutcher LLP. The government is represented by Domenique Grace Kirchner, Joseph H. Hunt, Robert Edward Kirschman, Jr., and Patricia M. McCarthy.
Fed Circuit – Raytheon