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Overhead Pool Flunks "Homogeneity" Test Absent "Benefit" To The Government

Feb.23.2006

In AM General LLC (Feb. 2, 2006, http://docs.law.gwu.edu/asbca/decision/pdf2006/53610_54741.pdf) the ASBCA decided that a contract awarded pursuant to a partial waiver of the Truth in Negotiations Act was nevertheless fully covered by the requirements of the Cost Accounting Standards and that the contractor's creation of a single overhead pool combining military and commercial production was, in the context of that case, a violation of the homogeneity requirements of CAS 418 on the ground that the military business did not "benefit" from the costs of a facility housing only commercial production activities. Subsequent changes to the regulations have reduced risk that a contractor might be exempt from TINA and not from CAS, but the board's conclusion on the meaning of "homogeneous" cost pools is inconsistent with both the text and the drafting history of CAS 418 and could create significant issues for many contractors.

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Terry L. Albertson
Senior Counsel – Washington, D.C.
Phone: +1 202.624.2635
Email: talbertson@crowell.com