                  ARMED SERVICES BOARD OF CONTRACT APPEALS

Appeal of--                                     )
                                                )
Raytheon Company                                )      ASBCA No. 57743
                                                )
Under Contract No. N00024-04-C-6 l O1           )

APPEARANCES FOR THE APPELLANT:                         Karen L. Manos, Esq.
                                                       John W.F. Chesley, Esq.
                                                        Gibson, Dunn & Crutcher LLP
                                                        Washington, DC

APPEARANCES FOR THE GOVERNMENT:                        Arthur M. Taylor, Esq.
                                                        DCMA Deputy Chief Trial Attorney
                                                       Stephen R. Dooley, Esq.
                                                        Senior Trial Attorney
                                                       Alexander M. Healy, Esq.
                                                       Kathleen P. Malone, Esq.
                                                        Trial Attorneys
                                                        Defense Contract Management Agency
                                                        Boston, MA

                  OPINION BY ADMINISTRATIVE JUDGE SCOTT
            ON THE PARTIES' CROSS-MOTIONS FOR RECONSIDERATION

        The parties have cross-moved for reconsideration of parts of the Board's decision in
Raytheon Company, ASBCA No. 57743 et al., 17-1 BCA ,r 36,724 (Raytheon JI), 1 in
which, as pertinent to the instant motion, we denied Raytheon's appeal from the corporate
administrative contracting officer's (CACO's) assessment, and non-waiver, of penalties
and interest concerning lobbying costs and we sustained Raytheon's appeal from the
government's claim for what is sometimes, and herein, referred to as "level one" or
"single" penalties and interest under Federal Acquisition Regulation (FAR) 42.709-l(a)(l)
regarding aircraft fractional lease costs. Raytheon asks the Board to reconsider its ruling
that salary costs are part of expressly unallowable lobbying costs.

       The government moves for reconsideration of the Board's decision that
Raytheon's aircraft fractional lease costs were not expressly unallowable and subject to
level one penalties and interest. The government also contends that what is sometimes,

1
    In the decision the parties have asked the Board to reconsider, the Board denoted its
          prior decision concerning the parties' motions to strike, Raytheon Company,
          ASBCA No. 57743 et al., 16-1 BCA ,r 36,335, as "Raytheon 1"
and herein, referred to as "level two" or "double" penalties and interest, are appropriate
under FAR 42.709-l(a)(2) and other FAR and statutory provisions.

       Each party alleges that the Board made clear errors of law but each denies the



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errors alleged by the other party and asserts that the rulings challenged by the other party
were correct. 2

                                        DISCUSSION

         The Board applies the following standards in deciding a motion for reconsideration:

                [W]e look to whether the movant has presented newly
                discovered evidence, mistakes in findings of fact, or errors
                of law. Kellogg Brown & Root Services, Inc., ASBCA
                Nos. 57530, 58161, 16-1 BCA ,r 36,554 at 178,039. A
                reconsideration motion is not an opportunity to reargue
                issues previously raised and decided, or to advance
                arguments that should have been presented in an earlier
                proceeding. Precision Standard, Inc., ASBCA No. 59116,
                15-1 BCA ,r36,155 at 176,445;AvantAssessment, LLC,
                ASBCA No. 58867, 15-1 BCA ,r 36,137 at 176,384.
                A party moving for reconsideration "must show a
                compelling reason" why the Board should alter its
                decision. Precision Standard, 15-1 BCA ,r 36,155
                at 176,445.

Supreme Foodservice, GmbH, ASBCA No. 57884 et al., 17-1 BCA ,r 36,740 at 179,092.

                           Appellant's Motion for Reconsideration

                                 I. The Parties' Contentions

        Raytheon alleges that the Board's decision in Raytheon II, that salary costs
associated with unallowable lobbying are expr_essly unallowable, is irreconcilable with its
prior binding decision in Raytheon Co., ASBCA No. 57576 et al., 15-1 BCA ,r 36,043
(the CAS 405 Decision), which granted summary judgment to Raytheon that its bonus
and incentive compensation (BAIC) costs were not expressly unallowable lobbying costs.
Raytheon further alleges that the Board's decision in Raytheon II was faulty because
directly associated costs, such as salary expenses, differ from expressly unallowable
costs, such as certain lobbying costs, and are not themselves expressly unallowable.
Raytheon also contends that FAR 42.709-l(a)(l)'s penalty provisions apply only to

2
    We have reviewed all of the parties' arguments, even if we have not addressed them.

                                               2
indirect costs that are "expressly unallowable under a cost principle in the FAR, or an
executive agency supplement to the FAR, that defines the allowability of specific
selected costs." Raytheon asserts that the only such cost principles are those set forth in
FAR 31.205, Selected costs. With regard to FAR 31.201-6, Accounting for unallowable
costs, it posits that subsection (e)(2), which treats as directly associated costs certain
"[ s]alary expenses of employees who participate in activities that generate unallowable
costs," is not such a cost principle.

        The government responds that the CAS 405 Decision fully supports the Board's
decision in Raytheon II and that the BAIC costs at issue in the former decision are clearly
distinguishable from the lobbying salary costs at issue here. The government further
asserts that all of FAR Part 31, Contract Cost Principles and Procedures, applies in
assessing cost allowability, not just FAR 31.205. The government cites to FAR 31.204( c),
which provided that FAR 31.205 does not list every cost and the absence of a cost item on
the list is not dispositive of its allowability. 3 Raytheon agrees that all of FAR Part 31 's
principles and standards are relevant in assessing allowability, but it contends that
FAR 31.201-6 is part of general allowability principles and not a cost principle that defines
the allowability of "specific selected costs," as pertinent to penalty assessment under
FAR 42.709-l(a)(l).

        The government also rejects Raytheon's contention that "directly associated costs"
cannot be "expressly unallowable costs." The government points out that, under
FAR 3 l.201-6(a), "[w]hen an unallowable cost is incurred, its directly associated costs are
also unallowable," and that FAR 31.205-22, Lobbying and political activity costs, expressly
disallows "costs associated with" certain lobbying, which is broader than, and encompasses,
"directly associated" costs. Thus, it is apparent that directly associated costs can be expressly
unallowable. The government further asserts that, regardless of the "directly associated"
issue, salary costs are integral to lobbying and are included within FAR 3 l.205-22's
strictures.

                       IL Discussion of Raytheon's Motion for Reconsideration

      The CACO assessed penalties and interest concerning salary costs associated with
unallowable lobbying costs pursuant to FAR 42.709-l(a)(l), which states:

                      (a) The following penalties apply to contracts covered
               by this section:

                       (1) If the indirect cost is expressly unallowable under
               a cost principle in the FAR, or an executive agency

3   FAR 31.204(c) has beC?n recodified as FAR 31.204(d), which contains the same language.



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I
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                   supplement to the FAR, that defines the allowability of
                   specific selected costs, the penalty is equal to-

                          (i) The amount of the disallowed costs allocated to
                   contracts that are subject to this section for which an indirect
                   cost proposal has been submitted; plus

                          (ii) Interest on the paid portion, if any, of the
                   disallowance. [Emphasis added]

            Raytheon alleges that FAR 31.205 contains the only cost principles that define the
     "allowability of specific selected costs" and that the U.S. Court of Appeals for the
     Federal Circuit so held in Boeing North American, Inc. v. Roche, 298 F.3d 1274, 1285
     (Fed. Cir. 2002) (app. reply at 9). However, FAR 42.709-l(a)(l) refers to "a cost
     principle in the FAR, or an executive agency supplement to the FAR, that defines the
     allowability of specific selected costs." It does not limit its coverage to cost items listed
     in FAR 31.205, which the drafters could have done if that were their intent.

            Further, the court's discussion in Boeing is contrary to appellant's contention. The
     court noted:

                           Although the FAR § 31.205 subsections covering
                   selected costs are extensive, FAR § 31.204 makes clear that
                   "[s]ection 31.205 does not cover every element of cost.
                   Failure to include any item of cost does not imply that it is
                   either allowable or unallowable." In such situations,
                   FAR 31.204[d] instructs us: "The determination of
                   allowability shall be based on the principles and standards in
                   this subpart and the treatment ofsimilar or related selected
                   items."

     298 F.3d at 1285. FAR 31.205 itself invokes other FAR provisions. FAR 31.205-6(a)
     states that "[c]ompensation for personal services is allowable subject to the following
     general criteria and additional requirements contained in other parts of this cost
     principle." FAR 31.205-6(a)(5) refers to FAR 31.2 as a whole, stating that "[c]osts that
     are unallowable under other paragraphs of this Subpart 31.2 are not allowable under this
     subsection 31.205-6 solely on the basis that they constitute compensation for personal
     services" (emphasis added).

             FAR 31.205-22, Lobbying and political activity costs, states that "(a) Costs
     associated with the following activities are unallowable" (emphasis added). The listed
     activities include certain lobbying efforts. While FAR 31.205-22 does not name
     compensation or salary, per FAR 31.204( c) this is not dispositive of allowability. By


                                                   4
I
I   application of common sense, it is obvious that salary costs are "associated with"
!
    unallowable lobbying costs. Moreover, under FAR 31.201-6(e )(2), subject to materiality
    and other exceptions, salary costs are specifically named as costs "directly associated"
    with unallowable activities, which include lobbying: "Salary expenses of employees who
    participate in activities that generate unallowable costs shall be treated as directly
    associated costs to the extent of the time spent on the proscribed activity." The salary
    costs directly associated with the unallowable lobbying costs are themselves unallowable
    as provided in FAR 31.201-6(a), which defines a "directly associated cost" as:

                    [A]ny cost which is generated solely as a result of
                    incurring another cost, and which would not have been
                    incurred had the other cost not been incurred. When an
                    unallowable cost is incurred, its directly associated costs
                    are also unallowable. [Emphasis added]

    See similarly FAR 31.001, Definitions, quoted below.

            Reading FAR 31.201-6(a), FAR 3 l.201-6(e)(2) and FAR 31.205-22(a) together,
    the salary costs of Raytheon's employees who engaged in proscribed lobbying activities
    are named and stated to be unallowable. Therefore, they are expressly unallowable under
    cost principles in the FAR that define the allowability of specific selected costs and are
    subject to a level one penalty under FAR 42.709-l(a)(l). The FAR does not distinguish
    in this respect between unallowable costs and unallowable directly associated costs.
    Raytheon has not directed us to any persuasive authority in support of its contention that
    unallowable directly associated costs cannot be expressly unallowable costs. 4

           Finally, Raytheon's allegation that the Board's decision in Raytheon II is
    irreconcilable with the CAS 405 Decision, said to be binding contrary authority, is
    incorrect. First, in the latter decision, unlike here, lobbying salary costs were not in
    question and the Board did not issue any binding holdings regarding those costs. Rather,
    the Board decided matters pertaining to the costs ofBAIC and stock awards under
    Raytheon's long-term performance plan.


    4   On August 7, 2018, Raytheon filed a Supplemental Citation of Authority in Support of
            Raytheon's Motion for Reconsideration, which refers to a Department of Defense
            Instruction concerning cost allowability and penalties, said to bolster Raytheon's
            position that FAR 31.201-6 is not a cost principle that defines the allowability of
            specific selected costs. On August 8, 2018, the government objected. Among
            other things, it disputed that the Instruction was "authority" and moved to strike on
            the ground that Raytheon had impermissibly attempted to reopen the closed
            record. We need not decide the government's motion. We have reviewed the
            portions of the Instruction filed by Raytheon and they do not affect our decision.

                                                   5
       In any event, the Board in the CAS 405 Decision distinguished salaries from BAIC.
CAS 405 Decision, 15-1 BCA ,i 36,043 at 176,050. Regarding whether BAIC costs were
expressly unallowable under various cost principles, the Board discussed FAR 31.205-1,
Public relations and advertising costs, which includes salaries and fringe benefits, inter alia,
as unallowable, subject to exceptions. See FAR 31.205-1 (c ), (d). The Board stated that:

              BAIC cost is an item or type of cost, but it is not specifically
              named and stated as unallowable under FAR 31.205-1. While
              portions of "salaries" and "fringe benefits" are stated as
              unallowable, the government, as claimant, has not shown that
              BAIC constitutes either one. BAIC and salary are different
              types of compensation.

CAS 405 Decision, 15-1 BCA ,i 36,043 at 176,050. With respect to whether the BAIC
costs were otherwise unallowable the Board again stated that the government had not
shown that BAIC costs were equivalent to or subsumed under "salaries" or "fringe
benefits," but the Board opined that BAIC costs might be unallowable as directly
associated costs to unallowable salary costs. Id. at 176,051-52. The Board did not grant
summary judgment to either party on that issue due to material factual disputes.

       Regarding FAR 31.205-22's lobbying cost principle, the Board in the CAS 405
Decision stated that "[n]either 'BAIC' cost nor 'compensation' cost is specifically named
and stated as unallowable under this cost principle, nor are such costs identified as
unallowable in any direct or unmistakable terms." 15-1 BCA ,i 36,043 at 176,050. It
concluded that BAIC costs were not expressly unallowable under FAR 31.205-22 but that
they were unallowable under that cost principle as compensation associated with
unallowable lobbying activity. Id. at 176,050, 176,052. FAR 31.001 defines "compensation
for personal services " as "all remuneration paid currently or accrued, in whatever form and
whether paid immediately or deferred, for services rendered by employees to the contractor."
However, the Board did not conclude in the CAS 405 Decision that no compensation costs,
regardless of type, were expressly unallowable under FAR 31.205-22. If it had intended
such a broad ruling, it could have said so and its further discussion about BAIC costs would
not have been necessary.

       In Raytheon II the Board was considering the salary portion of lobbying costs. Unlike
BAIC costs, as delineated in Raytheon II and above, the FAR specifically denotes salary costs
as unallowable when they are associated with unallowable lobbying costs, as in the instant
case. FAR 31.201-6(e )(2). That FAR provision does not include BAIC costs or other forms
of compensation, thereby distinguishing salary costs from other forms of compensation.
Raytheon cannot reasonably assume otherwise and, in practice, it did not. It treated its
lobbying salary costs as unallowable. See Raytheon II, 17-1 BCA ,i 36,724 at 178,850. In
sum, Raytheon's lobbying salary costs are expressly unallowable and subject to the level one
penalty assessed by the CACO.


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I
I          We find no error of law or other reason to reconsider our decision in Raytheon II
!
    regarding lobbying salary costs and we deny Raytheon's motion for reconsideration.

                          The Government's Motion for Reconsideration

                                     I. The Parties' Contentions

           The government contends that the Board made clear errors of law when it ruled in
    Raytheon II that Raytheon's aircraft fractional lease costs were not expressly unallowable
    under the parties' February 2005 Advance Agreement and thus were not subject to
    penalties and that, even if they were expressly unallowable, penalties were not warranted
    because the pertinent penalty statute and regulations do not apply to costs that are expressly
    unallowable under a contract. The government asserts that the Board mistakenly relied
    upon only selected portions of Title 10 U.S.C. § 2324(b) and FAR 42.709 in reaching its
    decision and it ignored the plain language of 10 U.S.C. § 2324(b)(2), FAR 42.709-3,
    FAR 31.001, and FAR 52.242-3(e), said to require that the government assess penalties in
    the case of costs previously determined to be unallowable, such as by the parties'
    agreement. For example, FAR 31.001 states that: '"Expressly unallowable cost' means a
    particular item or type of cost which, under the express provisions of an applicable law,
    regulation, or contract, is specifically named and stated to be unallowable." The
    government alleges that the parties determined in the February 2005 Advance Agreement
    that Raytheon's aircraft fractional lease costs at issue were unallowable. Therefore, they
    were expressly unallowable and subject to penalties.

            The government concludes that, even if the aircraft fractional lease costs were not
    expressly unallowable, penalties would still apply because "costs determined to be
    unallowable by prior determination, agreement, or contract, do not even have to be
    'expressly unallowable' to be subject to penalty" (gov't opp'n & cross-mot. at 14). The
    government alleges that penalties are warranted because the parties agreed in the
    February 2005 Advance Agreement, prior to Raytheon's submission of its cost proposal,
    that the costs "would not be charged to the Government" (id. at 15).

            Raytheon responds, inter alia, that the Board correctly held that none of the aircraft
    fractional lease costs at issue were expressly unallowable and subject to penalty. Raytheon
    states that the government's statutory and regulatory citations for the proposition that a
    contracting officer must assess a penalty on costs determined to be unallowable by virtue of
    the parties' agreement pertains to level two/double penalties under FAR 42.709-l(a)(2), and
    not to the level one/single penalties under FAR 42.709-l(a)(l) that the CACO assessed here.
    Raytheon further asserts that the Board's analysis that an advance agreement cannot create
    expressly unallowable costs subject to penalties was correct and in accord with 10 U.S.C.
    § 2324(b)(l), FAR 42.709-l(a)(l) and FAR 42.709-3(a). Raytheon adds that the Board's



                                                 7
conclusion that the February 2005 Advance Agreement did not specifically name aircraft
fractional lease costs as unallowable in terms of the FAR was also correct.

                  II. Discussion of the Government's Motion for Reconsideration

        Regarding aircraft fractional lease costs, the CACO assessed level one/single
penalties against Raytheon under FAR 42. 709-1 (a)( 1). Raytheon II, 17-1 BCA ,i 36,724,
finding 16. As noted, that FAR provision states that a penalty applies if the indirect cost
at issue is expressly unallowable under "a cost principle in the FAR, or an executive
agency supplement to the FAR, that defines the allowability of specific selected costs." It
does not include the terms "contract," "agreement," or the like.

        FAR 42.709-l(a)(l) and (2) are derived from Title 10 U.S.C. § 2324(a), Indirect
Cost that Violates a FAR Cost Principle, and (b ), Penalty for Violation of Cost Principle.
Subsection 2324(a) covers an indirect cost that is unallowable because it "violates a cost
principle in the [FAR] or applicable agency supplement to the [FAR]." It does not
include the terms "contract," "agreement," or the like. Under subsection (b )( 1),
pertaining to level one penalties, if an agency head determines that a submitted indirect
cost is expressly unallowable under a "cost principle" referred to in subsection (a), then
the agency head is to assess a penalty equal to the amount of the disallowed costs plus
interest. Again, for level one penalties, the statute does not use the term "contract,"
"agreement," or the like. The FAR 52.242-3, Penalties for Unallowable Costs clause,
incorporated into the contract, is to the same effect at subsections (b) through (d). See
Raytheon II, 17-1BCA136,724, finding 2. The aircraft fractional lease costs at issue
were not stated to be unallowable under a FAR cost principle or executive agency
supplement to the FAR.

        In addition to costs that are unallowable under the express provisions of an
applicable law or regulation, FAR 31.001 's definition of "Expressly unallowable cost,"
quoted above, includes costs which, under the express provisions of an applicable
contract, are specifically named and stated to be unallowable. The plain language of the
statutory and regulatory provisions regarding level one penalties does not include
contracts. The contract aspect of the definition applies when level two, or double,
penalties are at issue. Double penalties apply if the agency head determines that a
contractor's proposal for settlement of indirect costs "includes a cost determined to be
unallowable in the case of such contractor before the submission of such proposal."
10 U.S.C. § 2324(b)(2); see similarly FAR 42.709-l(a)(2), FAR 52.242-3(e). The
government asserts that the parties' February 2005 Advance Agreement constituted such
a determination. It did not. As more fully explicated in Raytheon II, 17-1 BCA ,i 36,724
at 178,847, while Raytheon agreed not to charge a portion of its aircraft fractional lease
costs to the government, it did not concede that they were unallowable under the FAR.




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       In any event, the CACO did not assess penalties under FAR 42.709-l(a)(2) and
the government did not pursue level two penalties during the hearing. Raytheon II, 17-1
BCA ,r 36,724 at 178,846. The government belatedly seeks to do so in its motion for
reconsideration, which is not a proper vehicle in which to assert a new claim. We are not
persuaded by the government's arguments, couched in a footnote, that:

              It is of no moment that the Final Decision at issue failed to
              cite FAR 42.709-l(a)(2). The Board must review the Final
              Decision de novo, and simply cannot ignore the plain
              language of the statutes and regulations mandating penalties
              based upon "a determination or agreement of
              unallowability".... Equally, it is irrelevant that the
              Government did not revise its claim to seek "double
              penalties" pursuant to FAR 42.709-l(a)(2) during its case in
              chief regarding entitlement. ... [Q]uantum issues were not
              even before the Board during trial. Moreover, in no case can
              a minor mistake in the calculation of the Government's ·
              demand for damages negate the clear regulatory framework,
              as well as a finding of entitlement based upon such
              framework.

(Gov't opp'n & cross-mot. at 14 n.4)

       The assessment of penalties is not a mere matter of quantum, but rather involves
entitlement under the statutory and regulatory scheme. A claim for level two penalties is
separate from a claim for level one penalties. It is not up to the Board to fashion a claim on
behalf of the government that it did not make. That is not part of de novo review. See
Fiber Materials, Inc., ASBCA No. 53616, 07-1 BCA ,r 33,563 at 166,234 (Board declined
to address level two penalty claim that contracting officer did not make.). There is no
proper government claim for double penalties before us, as required by the Contract
Disputes Act, 41 U.S.C. § 7103(a)(3), and we lack jurisdiction to entertain such a claim.

       We find no error of law or other reason to reconsider our decision in Raytheon II
regarding aircraft fractional lease costs and we deny the government's motion for
reconsideration.




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                                     DECISION

      We deny the parties' cross-motions for reconsideration.

      Dated: August 28, 2018




                                                   ministrative Judge
                                                Armed Services Board
                                                of Contract Appeals



 I concur                                       I concur




 RICHARD SHACKLEFORD                            DAVID D' ALESSANDRIS
 Administrative Judge                           Administrative Judge
 Acting Chairman                                Acting Vice Chairman
 Armed Services Board                           Armed Services Board
 of Contract Appeals                            of Contract Appeals


     I certify that the foregoing is a true copy of the Opinion and Decision of the
Armed Services Board of Contract Appeals in ASBCA No. 57743, Appeal of Raytheon
Company, rendered in conformance with the Board's Charter.

      Dated:



                                               JEFFREY D. GARDIN
                                               Recorder, Armed Services
                                               Board of Contract Appeals




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