Raytheon Co. v. Secretary of Defense, No. 18-2371 (Fed. Cir. 2019)Annotate this Case
In 2005, Raytheon submitted its 2004 incurred cost rate proposal for a Cost-Plus-Fixed-Fee contract for engineering services associated with the Patriot Weapons system. Raytheon’s Corporate Controller certified that all included costs "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." The Defense Contract Audit Agency reviewed the proposal and concluded that it contained expressly unallowable costs. In 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 under Federal Acquisitions Regulation (FAR) 42.709-1(a)(1). Although Raytheon admitted that salary costs associated with lobbying are unallowable and that it committed 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 Armed Services Board of Contract Appeals and Federal Circuit affirmed, finding that the lobbying costs are subject to penalty because salary costs for lobbying activities are expressly unallowable under FAR 31.205-22.