ASBCA Ruling on Claim Against Honeywell International

On June 8, 2023, the Armed Services Board of Contract Appeals (ASBCA) ruled that the Defense Contract Management Agency (DCMA) could pursue a $151 million claim against Honeywell International, Inc. (Honeywell) for alleged noncompliant treatment of general and administrative (G&A) expenses under cost accounting standard (CAS) 410. CAS 410 provides criteria regarding the allocation of G&A expenses to CAS-covered contracts. This ruling provides guidance for government contractors related to the interpretation and application of CAS 410.

Contractors have the ability under CAS 410 to allocate G&A expenses based on any of three methodologies: total cost input, value-added cost input, or single element cost input. Honeywell selected the total cost input method, which requires allocation of G&A costs to all costs except G&A.

The DCMA claims that Honeywell is in violation of CAS 410 since the company does not have significant intersegment transfer costs incurring in its G&A base, thereby increasing the indirect expenses the government paid for procuring certain Honeywell products. Honeywell contends that such costs are interorganizational and intermediary in nature, which is not covered by CAS 410 since the standard only covers the allocation of expenses to final cost objectives. The ASBCA ruled that “where a total cost input base has been selected, all significant costs other than the costs included in the G&A expense pool should be included in the base,” allowing the DCMA to continue pursuing its claim against Honeywell.

Government contractors should consider this issue while navigating the complexities of CAS 410 compliance. By using reasonable judgment regarding cost accounting regulations and developing robust internal policies, contractors will position themselves well to defend their accounting practices during audits and claims. BRG’s Government Contracts experts routinely work with clients to evaluate their existing CAS practices and interpret complex issues such as those raised in this ruling.

Find the ruling here:  ABSCA Ruling