CAS Exemption for Overseas Contracts

On February 13, the CAS Board announced that it will retain without change the CAS exemption for contracts executed and performed outside the US, its territories or possessions, found at 48 CFR 9903.201-(1)(b)(14).  The Board had issued a staff discussion paper in 2005, inviting comments on whether the exemption needed to be revised in light of earlier changes in the statutory authority for the CAS.  Commentators were unanimously opposed to any revisions, citing, among other reasons, potential difficulties in administering the CAS overseas.  73 FR 8259.

In a related development, on February 19, the chairman of the House Armed Services Committee called upon the OMB to reconsider the decision to retain the 48 CFR 9903.201-(1)(b)(14) exemption, saying that it does not “recognize the significance of the waste and fraud that has occurred with contingency contracting in Iraq.” Federal Contracts Report, 02/26/08.

Residual Home Office Expense Allocation

On February 13, the CAS Board issued a notice soliciting public comments on potential revisions to the dollar amounts in the three-factor formula allocation thresholds, found at CAS 403-40(c)(2).  The current provision continues to use the threshold amounts established in 1972.  In recent years, both the Aerospace Industries Association and the Department of Defense have proposed revisions to these amounts in order to reflect inflation, as well as economic, industry, and acquisition policy changes.  Comments are due April 14, 2008.  73 FR 8259.

Excessive Pass-Through Charges

The GAO has issued recommendations for finalizing and implementing the new DoD rule on excessive pass-through charges.  The interim DFARS provision at 215.408, and associated clauses at DFARS 252.215-7003 and 7004, require contractors who subcontract more than 70 percent of their total cost to describe their value added and permit the DoD to recoup any pass-through charges that it determines to be excessive.  Because the regulations do not provide specific criteria for evaluating value added, the GAO recommends that the evaluation be based on certain risk factors (e.g., whether contract is complete, whether the contract is fixed price, whether the contract was awarded using full and open competition) and that it involve the assistance of the DCMA and the DCAA.  Defense Contracting, Contract Risk a Key Factor in Assessing Excessive Pass-Through Charges, GAO-08-269.

Disclosure of Line-Item Pricing Information

On January 29, in the reverse-FOIA case of Canadian Commercial Corp., et. al. v. Dept. of the Air Force, the DC Circuit Court of Appeals affirmed the lower court’s decision that disclosure of line-item pricing would cause substantial competitive harm, thereby precluding the release of that information under FOIA Exemption 4.  In reaching the decision, the court reaffirmed its previous holding in McDonnell Douglas Corp. v. Air Force, 375 F.3d 1182 (2004), and found that the record did not support the Air Force’s contention that the line-item pricing had been historically disclosed prior to FOIA or that their release would be harmless in this case.  In addition, the court rejected the argument that disclosure of otherwise protected trade secret information was required under any FAR provision.

Environmental Remediation Costs

In Shell Oil Co. v. US, the Court of Federal Claims held on February 8 that the “Taxes” clause found in World War-II era contracts authorizes the recovery of environmental remediation required under CERCLA, which was passed in 1978.  The clause at issue provided that the Government would pay any “new or additional taxes, fees or charges” incurred by the contractor by reason of performing the aviation gasoline production contract in support of the war effort.

The passage of CERCLA obligated the contractor to clean up the site used to dump a byproduct of the gasoline production process.  The cost of the remediation, the court held, fell within the meaning of “charges” under the “Taxes” clause and its recovery was precluded by neither the passage of time nor the Anti-Deficiency Act.

Authored by:

Aleksander Lamvol

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