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Consulting Fees Deemed Excessive and Severely Limited by Armed Services Board of Contract Appeals Decision

By Joseph Hackenbracht on November 2, 2007
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The Armed Services Board of Contract Appeals (“ASBCA”) recently decided a case involving the issue of whether a contractor could recover the fees charged by a consulting firm as a contract administration cost.  Fru-Con Construction Corporation. Although the cost principles in the FAR, at 31.205-47(f), provide that “costs are unallowable if incurred in connection with the prosecution of claims or appeals against the Federal Government,” FAR 31.205-33 provides that “professional and consultant services” are allowable in certain circumstances. One of those circumstances occurs when a consultant’s preparation of a request for equitable adjustment was for the purposes of seeking a negotiated settlement of pending issues with the government.  In such a case, a consultant’s costs may be allowable if otherwise found to be reasonable.

The ASBCA addressed the issue of whether the consultant’s fee of $612,000 was reasonable. Troubled by the lack of specificity in the consultant’s contract, the summary nature of the consultant’s bills, and the apparent lack of oversight by the contractor, the Board decided that it was almost as if the contractor had given the consultant a blank check. The Board concluded that a prudent business person in the conduct of a competitive business would not have reasonably incurred the expenses in an effort to negotiate with the government. The Board concluded that the contractor was entitled to recover a reasonable amount for its consulting fees and, in a jury verdict, decided that $65,000, not $612,000, was allowable as a reasonable contract administration cost.

When contracting for professional services on a Federal government contract, it is important to clearly define what the professional will do, to obtain itemized bills that include sufficient detail regarding the nature of the services provided, and to oversee the consultant’s activity. In addition, obtaining the consultant’s work product, including trip reports, minutes of meetings, memoranda and reports will go a long way in helping a contractor avoid a later determination that the consultant’s costs were unreasonable and, therefore, not recoverable.

Photo of Joseph Hackenbracht Joseph Hackenbracht

Joseph A. Hackenbracht is a Partner in the Federal Contracting Group of Cohen Seglias Pallas Greenhall & Furman and practices in all phases of federal government contract and construction law. He is often called upon to advise clients concerning contract interpretation and to…

Joseph A. Hackenbracht is a Partner in the Federal Contracting Group of Cohen Seglias Pallas Greenhall & Furman and practices in all phases of federal government contract and construction law. He is often called upon to advise clients concerning contract interpretation and to assist clients in the preparation of proposals for negotiated procurements. Joseph has extensive experience handling protests, contract claims, appeals to administrative boards of contract appeals, and litigation in various Federal courts. He has prepared and litigated claims involving the many issues which arise concerning construction, including defective design, defective specifications, differing site conditions, changes, suspensions, delays and contract terminations.

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  • Posted in:
    Government Contracts
  • Blog:
    Federal Construction Contracting Blog
  • Organization:
    Cohen Seglias Pallas Greenhall & Furman
  • Article: View Original Source

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