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/IN
SECTION OF
PUBLIC CONTRACT LAW
AMERICAN BAR
ASSOCIATION
Vol 10, No. 1, October 1974
FEDERAL STATE & LOCAL GOVERNMENT CONTRACTS
Copyright © 1974 American Bar Association
Martin J. Harty, Editor, 14227 Georgia Ave., No. 104, Silver Spring, Md. 20906
Ronald Wartow, Assistant Editor
ALLOWABILITY OF
ATTORNEYS' FEES INCURRED IN
PROCESSING A DISPUTES CLAIM
Gilbert A. Cuneo of the
District of Columbia Bar
One of the most lively questions in Government procure-
ment is whether attorneys' fees paid in connection with
the processing of an appeal under the Disputes article
should be allowable, either as a direct or indirect
contractual cost.
Presently, the authorities are quite settled that such
costs are not generally allowable. However, many voices
bave been raised asking that the principle be re-examined
and that allowability be permitted.
Tile non-allowability of attorneys' fees as a contract
cost grew out of a dicta in a Court of Claims decision
rendered in 1927. From that time to the present, a
number of statutes and regulations have been enacted
making the non-allowability of attorneys' fees the law of
Government contracts. The rule now is that in tile
absence of a statute or regulation permitting it, or where
a contract does not provide specifically for the allow-
ance of legal fees as costs, or where it appears that the
Government has not assumed the risk or liability of
payment, a contractor may not recover the costs of legal
services incurred in connection with the assertion of a
claim against the United States. McBride and Wachtel,
Government Contracts, § 24.240 (1974).
The dicta which, to a large degree, gave birth to this
rule was set forth in Central Constniction Co. v. United
States, 63 Ct. Cl. 290, 296 (1927). In that case the court
made the following observation:
... Ordinarily we would not hold that fees to
counsel were necessarily a part of the cost of the work
contemplated in contracts of this character...
It has been said that expenses incurred by a contractor
for legal services are a part of the contractor's know-how
and should be paid out of his fixed fee profit. There
have been occasions when authorities, such as the
Comptroller General, have stated that the proper test in
determining the allowability of attorneys' fees is one of
benefit to the Government. 23 Comp. Gen. 439 (1943).
It has been generally held that legal costs incurred by a
contractor in defending against subcontractor claims
should be allowable.
The only situation to be reviewed herein is where the
legal costs are incurred by a contractor in processing an
appeal under the Disputes article. The writer's view is
that there are a number of valid reasons for holding that
certain of such costs should be allowable. However,
there are existing regulations and contract provisions
which deny allowability at the present time. The
purpose of this paper is to encourage amendment of
existing regulations and the adoption of statutory
provisions which would permit allowability.
During World War I the allowance of legal fees paid in
connection with the performance of any contract was
prohibited by Treasury Decision 5000, promulgated in
1940. Section 26.9(g) of that regulation provided in
part:
... Among the items which shall not be included as
part of the cost of performing a contract ... are the
following: ... legal and accounting fees in connection
with reorganizations, security issues, capital stock
issues and the prosecution of claims against the United
States (including income tax matteis) ... [emphasis
added]
Since the above quoted language applied only to the
prosecution of claims, other legal services could be
considered as allowable costs to the extent that they were
necessary for the performance and were allocable to a
particular contract. Appeal of Mason & Hanger Co.,
WDBCA 107, 1 CCF 272 (1943); Appeal of Braniff
Airways, hic., WDBCA 997, 2 CCF 718 (1945).
The Contract Settlement Act of 1944, 58 Stat. 649,
contained a similar and specific prohibition just as did
Treasury Decision 5000. Under tile latter Act, reim-
bursement of reasonable costs incident to termination
and settlement of a terminated war contract were
allowable.
The Armed Services Procurement Regulation (ASPR)
sets forth the same basic rules. ASPR 15-205.31(d)
presently provides as follows:
(d) Costs of legal, accounting and consulting ser-
vices, and related costs, incurred in connection with
organization and reorganization, defense of antitrust
suits, and the prosecution of claims against the Govern-
ment, are unallowable. Costs of legal, accounting and
consulting services, and related costs, incurred in
connection with patent infringement litigation, are
unallowable unless otherwise provided for in the
contract.
To the same effect, see Federal Procurement Regu-
lation (FPR) 1-15.205-3 1(d).](ViewImageLocal?handle=hein.journals/procurlw10&div=1&collection=&method=preview&ext=.png&size=3)
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