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Raytheon Co. v. Secretary of Defense

United States Court of Appeals, Federal Circuit

October 18, 2019

RAYTHEON COMPANY, Appellant
v.
SECRETARY OF DEFENSE, Appellee

          Appeal from the Armed Services Board of Contract Appeals in No. 57743, Administrative Judge David D'Alessan-dris, Administrative Judge Cheryl L. Scott, Administrative Judge Richard Shackleford.

          Karen Louise Manos, Gibson, Dunn & Crutcher LLP, Washington, DC, argued for appellant. Also represented by John William Chesley.

          Domenique Grace Kirchner, Commercial Litigation Branch, Civil Division, United States Department of Justice, Washington, DC, argued for appellee. Also represented by Joseph H. Hunt, Robert Edward Kirschman, Jr., Patricia M. McCarthy.

          Before Dyk, Linn, and Taranto, Circuit Judges.

          Dyk, Circuit Judge.

         Raytheon Company ("Raytheon") appeals a decision by the Armed Services Board of Contract Appeals ("Board") that the unallowable salary costs associated with Raytheon's lobbying activities are "expressly unallowable" under Federal Acquisition Regulation ("FAR")[1] § 31.205-22 ("Subsection 22") and thus subject to penalty under FAR § 42.709-1(a)(1) (known as "level 1" penalties). Because we find that salary costs for lobbying activities are expressly unallowable under Subsection 22, we affirm.

         Background

         On June 2, 2005, Raytheon submitted its 2004 incurred cost rate proposal ("cost proposal") for a Cost-Plus-Fixed-Fee contract for engineering services associated with the Patriot Weapons system. In the proposal, Raytheon's Corporate Controller certified that:

[T]o the best of my knowledge and belief:
(1) All costs included in this Corporate 2004 Overhead Cost Submission . . . proposal to establish final indirect cost rates for 2004 are allowable in accordance with the cost principles of the [FAR] and its supplements applicable to the contracts to which the final indirect cost rates apply; and
(2) This proposal does not include any costs which are expressly unallowable under applicable cost principles of the FAR or its supplements.

Raytheon Co. (Raytheon I), ASBCA No. 57743, 17-1 BCA ¶ 36724, slip op. at 13-14, 2017 WL 1740026 (Apr. 17, 2017) (third alteration in original).

         The Defense Contract Audit Agency reviewed the cost proposal in April of 2006 and concluded that it contained various expressly unallowable costs. On May 26, 2011 a Corporate Administrative Contracting Officer of the Defense Contract Management Agency ("DCMA") issued a final decision determining that Raytheon's proposal included, among other expressly unallowable costs, over $220, 000 of expressly unallowable lobbying salary costs. The contracting officer demanded that Raytheon repay the government for these reimbursed expressly unallowable costs, and assessed penalties and interest against Raytheon under FAR § 42.709-1(a)(1).

         Raytheon appealed the contracting officer's final decision to the Board. The only cost at issue in this appeal is the one related to lobbying expenses. Although Raytheon admitted that salary costs associated with lobbying are unallowable and that it committed several cost errors or omissions in its calculations, Raytheon argued that salaries were not specifically referenced in Subsection 22 and, accordingly, were not "expressly unallowable." The Board upheld the DCMA decision, finding that the lobbying costs are subject to penalty because "[c]osts associated with certain named lobbying activities are stated to be unallowable under FAR 31.205-22" and "they are [thus] expressly unallowable." Raytheon Co. (Raytheon I), ASBCA No. 57743, 17-1 BCA ΒΆ 36724, slip op. at 54, 2017 WL 1740026 (Apr. 17, 2017). The Board alternatively relied on ...


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