The Federal Circuit’s decision in Raytheon Co. v. United States, No. 2013-5004 & 2013-5006 (Fed. Cir. April 4, 2014) [pdf] affirms a $59-million judgment arising from a government challenge to Raytheon’s calculation and payment of pension fund adjustments. It is certainly an important case because of the money at stake for Raytheon and its analysis of CAS 412 and CAS 413.

It may have much broader relevance. One of the most striking elements in the decision is the court’s discussion of the relationship between the Cost Accounting Standards and the cost principles in FAR Part 31. In a few direct and succinct paragraphs, the court summarizes the differences between allowability under the FAR and allocability under the CAS. Here are the highlights drawn from the opinion:

  1. The FAR Cost Principles govern matters of cost allowability. A determination that a particular cost is allowable reflects a policy judgment that the cost is of a type that should be paid by the Government.
  2. The CAS does not address allowability. Rather, the CAS addresses the measurement, assignment, and allocability of costs.
  3. If there is a conflict between the CAS and the FAR as to an issue of allocability, the CAS governs.
  4. According to the CAS, measurement includes defining the components of costs, determining the basis for cost measurement, and establishing the criteria for using alternative cost measurement techniques. Allocability addresses the relationship between a cost and a cost objective (e.g., a contract), such that the cost objective bears the appropriate portion of a cost.
  5. An agency may include a provision in its contracts or regulations that disallow certain types of costs because they are unreasonable in amount or contrary to public policy. Unallowable costs may nevertheless be allocable to a contract.

The decision also concludes that the Government bears the burden of proving that a contractor’s accounting practices do not comply with the CAS.