Government Failed to Prove CAS Noncompliance Claim

The government’s claim alleging noncompliance with Cost Accounting Standards was denied by the Court of Federal Claims because the government failed to prove the contractor’s method of allocating materiel overhead violated Cost Accounting Standard 418. The government claimed the contractor should reimburse it approximately $80 million plus interest because the contractor’s accounting method misallocated indirect costs to government contracts in contravention of Cost Accounting Standard 418. However, the evidence presented at trial established that the management and supervision costs contained within the materiel overhead pool were insignificant relative to the entire pool, and therefore the contractor was required to comply with CAS 418-50(e)(3) when choosing an allocation base for its materiel overhead pool. If it is impractical to allocate pooled costs based on resources consumed or output of activities, CAS 418-50(e)(3) permits use of a “surrogate that varies in proportion to the services received … to measure the resources consumed.” The contractor elected to use a direct labor surrogate.

Alternate Method of Allocation

The government failed to establish the contractor’s direct labor method of allocation was inappropriate under CAS 418-50(e)(3). The government did not adequately support its contention that direct materiel should have been used to allocate the materiel overhead pool, nor did it provide any evidence to establish that Cost Accounting Standard 418 required the use of an alternate method of allocation involving the segregation of government furnished materiel-related costs in a distinct indirect cost pool. In contrast, the record demonstrated that the contractor’s choice of a direct labor base complied with CAS 418-50(e)(3) because direct labor varied in proportion to materiel overhead costs during the relevant years and thus was an acceptable means of measuring the resources consumed in connection with pool activities. ( Sikorsky Aircraft Corp. v. U.S., FedCl, 57 CCF ¶80,040)