The government penalized the contractor for charging expressly unallowable costs. The contractor contended it qualified for a waiver of the penalty. ASBCA reviewed the two conditions required to qualify for a waiver and concluded the contractor didn’t meet either.
Appeal of Left Hand Design Corporation, ASBCA No. 62458
- Appeal – The contractor appealed the government’s claim for penalties for charging expressly unallowable costs. FAR 42.709-4 requires the government to assess a penalty against the contractor unless a waiver is granted.
- Established Policies – A contractor may receive a waiver of an unallowable costs penalty if established policies demonstrate that such costs are precluded from being in the contractor’s final indirect cost rate proposals. The contractor contended it had these established policies once the unallowable costs were identified. But ASBCA observed that the policies were established reactively after the unallowable costs were identified. Thus, because the contractor did not have adequate policies in place at the time it submitted the final indirect cost rate proposals, the Board found the contractor did not meet the condition for waiver.
- Unintentional Error – A contract may also receive a waiver if the charging of the unallowable cost was an unintentional error. The contractor argued it was entitled to a waiver because it did not act with malicious intent for its financial gain. ASBCA pointed out the standard was for unintentional error, not whether there was financial gain to the contractor. To this end, ASBCA found that the contractor did not do its due diligence in understanding the FAR requirements and relied on the agency to identify its mistakes. It was not enough that “the applicable personnel were not aware that these expenses were unallowable.” The appeal was denied.
The president of the contractor appeared for the contractor. The government was represented by Samuel W. Morris and Matthew D. Bordelon of DCMA.
— Case summary by Joshua Lim, Assistant Editor
