Surety Bond Quarterly - Summer 2014 - 11

incur in the conduct of a competitive business. For example, a
business class airline ticket may be
reasonable under certain circumstances, but unreasonable under
other circumstances because a
prudent business person would
not have incurred such a cost. Of
particular note, recent precedent
holds that reasonableness may
be viewed through the eye of the
government and not the contractor. At any rate, the reasonableness
element has and always will be a
subjective element.
* An "allowable" cost is a cost that
is reasonable, allocable, in accordance with the terms of the contract, and is not otherwise limited
by regulation. For example, regulations provide that certain costs
are expressly unallowable, such
as the costs of alcohol, fines and
penalties, bad debts, and losses
on other contracts; and individual
contracts may also expressly disallow certain costs. Regulations also
provide that certain costs are generally allowable, such as bonding
costs, depreciation, material costs,
training costs, and rental costs.
* A cost is "allocable" when it can be
"allocated" to a particular government contract. A cost is allocable
to a contract when it is a direct cost
that is incurred specifically for the
contract or an indirect cost that can
be shown to benefit the contract.
When indirect costs benefit multiple contracts, the contractor must
have a means of fairly attributing
those costs to each contract.
In addition to these requirements,
contractors may be subject to additional regulations addressing the
recovery of costs, depending on
the value of the contracts at issue.
Therefore, at a very basic level, costs
charged to the government must
meet these above-stated requirements, and contractors must keep
these requirements in mind when
seeking reimbursement of their costs
from the government.

CONTRACTORS CAN ENCOUNTER SIGNIFICANT
LIABILITY WHEN THEIR EMPLOYEES EITHER
INADVERTENTLY OR INTENTIONALLY ENGAGE
IN "MISCHARGING."
Although charging the government may seem simple based on the
discussion above, contractors can
encounter significant liability when
their employees either inadvertently
or intentionally engage in "mischarging." Mischarging typically results
from employees charging time to the
wrong contract or cost code, or from
employees overstating the hours they
worked under a given contract. Such
practices not only jeopardize a contractor's ability to recover costs from
the government, but also may result
in criminal or civil liability. Among
the more serious sanctions, a contractor found to have mischarged the
government may face suspension
and debarment, or criminal and civil
sanctions under the False Claims Acts.
Therefore, contractors should ensure
that they have effective policies, procedures, and controls in place to avoid
mischarging and the consequences
that flow from such practices.
Accordingly, to avoid the pitfalls
associated with mischarging costs
under government contracts, contractors should consider the following
suggested best practices:
* Ethics training. Contractors should
require personnel to take ethics
courses, including training on timekeeping and labor charging.
* Contractor culture. A compliance
and ethics program is only as
strong as its leaders' confidence in
and support of an ethical culture.
Accordingly, contractors should
sustain a corporate "tone at the top"
that emphasizes the importance of
ethics and honesty, particularly in
connection with cost charging.
* Timekeeping system. A timekeeping system, in which employees
can record time in connection with
various tasks performed under contract, is a key element to charging

the government in a proper manner.
Regardless of whether a contractor
uses a manual or automated method
for keeping time, the timekeeping
system should enable employees
to enter their time accurately. Any
corrections to timekeeping records
should be documented, authorized,
and approved.
* Monitoring and enforcement.
Contractors should have a mechanism for monitoring compliance
with the company's time-charging
policies. Regular audits of timekeepers' entries are key to monitoring
compliance, as are regular reviews
of the timekeeping system to ensure
that it adequately captures and allocates time entries.
* Report suspected mischarging. In
the event of mischarging, report
such instances immediately to the
company's counsel or ethics official.
Cost charging is a highly regulated and compliance-driven part of
government contracting. Seemingly
endless regulations address what can
and cannot be charged to the government and how contractors should go
about charging and accounting for
those costs. This article addresses but
a small part of that regulatory maze,
yet provides practical steps all contractors should consider when seeking reimbursement of costs from the
government.
●
W. Barron A. Avery and Tara L. Ward
are attorneys at Wiley Rein LLP in
Washington, DC, where they specialize in government contracts law,
including bid protests, claims litigation, regulatory compliance counseling, and investigative matters. Avery
can be reached at 202-719-7263 or
bavery@wileyrein.com and Ward
can be reached at 202-719-7495 or
tward@wileyrein.com.

NATIONAL ASSOCIATION OF SURETY BOND PRODUCERS | WWW.NASBP.ORG

11


http://WWW.NASBP.ORG

Surety Bond Quarterly - Summer 2014

Table of Contents for the Digital Edition of Surety Bond Quarterly - Summer 2014

NASBP Upcoming Meetings and Workshops
2014-2015 NASBP Executive Committee
From the CEO: We have a great story so let's tell it!
Practical Insights: What You Need to Know - Cost charging in government contracts can result in common, but avoidable pitfalls
Strength in numbers: Harness the power of networking
Profile: President Thomas M. Padilla
Proving your worth: Surety bond producers provide value to clients and beneficiaries
NASBP Fall Workshops
Contract surety claims: The promise - Pact or fiction
Commercial surety claims: A case study on the bond producer's role in assisting a client to avoid loss and maintain surety credit through bankruptcy
Develop the techniques necessary to be an effective policy advocate
NASBP Annual Meeting focuses on the importance of mentoring and critical industry information
Index to Advertisers
Surety Bond Quarterly - Summer 2014 - cover1
Surety Bond Quarterly - Summer 2014 - cover2
Surety Bond Quarterly - Summer 2014 - 3
Surety Bond Quarterly - Summer 2014 - 4
Surety Bond Quarterly - Summer 2014 - 5
Surety Bond Quarterly - Summer 2014 - 6
Surety Bond Quarterly - Summer 2014 - 2014-2015 NASBP Executive Committee
Surety Bond Quarterly - Summer 2014 - From the CEO: We have a great story so let's tell it!
Surety Bond Quarterly - Summer 2014 - 9
Surety Bond Quarterly - Summer 2014 - Practical Insights: What You Need to Know - Cost charging in government contracts can result in common, but avoidable pitfalls
Surety Bond Quarterly - Summer 2014 - 11
Surety Bond Quarterly - Summer 2014 - Strength in numbers: Harness the power of networking
Surety Bond Quarterly - Summer 2014 - 13
Surety Bond Quarterly - Summer 2014 - 14
Surety Bond Quarterly - Summer 2014 - 15
Surety Bond Quarterly - Summer 2014 - Profile: President Thomas M. Padilla
Surety Bond Quarterly - Summer 2014 - 17
Surety Bond Quarterly - Summer 2014 - 18
Surety Bond Quarterly - Summer 2014 - 19
Surety Bond Quarterly - Summer 2014 - Proving your worth: Surety bond producers provide value to clients and beneficiaries
Surety Bond Quarterly - Summer 2014 - 21
Surety Bond Quarterly - Summer 2014 - 22
Surety Bond Quarterly - Summer 2014 - 23
Surety Bond Quarterly - Summer 2014 - NASBP Fall Workshops
Surety Bond Quarterly - Summer 2014 - 25
Surety Bond Quarterly - Summer 2014 - Contract surety claims: The promise - Pact or fiction
Surety Bond Quarterly - Summer 2014 - 27
Surety Bond Quarterly - Summer 2014 - 28
Surety Bond Quarterly - Summer 2014 - Commercial surety claims: A case study on the bond producer's role in assisting a client to avoid loss and maintain surety credit through bankruptcy
Surety Bond Quarterly - Summer 2014 - 30
Surety Bond Quarterly - Summer 2014 - 31
Surety Bond Quarterly - Summer 2014 - Develop the techniques necessary to be an effective policy advocate
Surety Bond Quarterly - Summer 2014 - 33
Surety Bond Quarterly - Summer 2014 - NASBP Annual Meeting focuses on the importance of mentoring and critical industry information
Surety Bond Quarterly - Summer 2014 - 35
Surety Bond Quarterly - Summer 2014 - 36
Surety Bond Quarterly - Summer 2014 - 37
Surety Bond Quarterly - Summer 2014 - Index to Advertisers
Surety Bond Quarterly - Summer 2014 - cover3
Surety Bond Quarterly - Summer 2014 - cover4
https://www.nxtbook.com/naylor/SBPQ/SBPQ0118
https://www.nxtbook.com/naylor/SBPQ/SBPQ0417
https://www.nxtbook.com/naylor/SBPQ/SBPQ0317
https://www.nxtbook.com/naylor/SBPQ/SBPQ0217
https://www.nxtbook.com/naylor/SBPQ/SBPQ0117
https://www.nxtbook.com/naylor/SBPQ/SBPQ0416
https://www.nxtbook.com/naylor/SBPQ/SBPQ0316
https://www.nxtbook.com/naylor/SBPQ/SBPQ0216
https://www.nxtbook.com/naylor/SBPQ/SBPQ0116
https://www.nxtbook.com/naylor/SBPQ/SBPQ0415
https://www.nxtbook.com/naylor/SBPQ/SBPQ0315
https://www.nxtbook.com/naylor/SBPQ/SBPQ0215
https://www.nxtbook.com/naylor/SBPQ/SBPQ0115
https://www.nxtbook.com/naylor/SBPQ/SBPQ0414
https://www.nxtbook.com/naylor/SBPQ/SBPQ0314
https://www.nxtbook.com/naylor/SBPQ/SBPQ0214
https://www.nxtbookmedia.com