Roses are red, violets are blue–and a government contractor can’t bill Uncle Sam for either one, according to a recent decision of the Armed Services Board of Contract Appeals.

In Thomas Associates, Inc., ASBCA No. 57795 (2012), the ASBCA rejected a contractor’s claim that it was entitled to stick the government with a variety of costs I will charitably describe as “questionable,” including a hunting club membership, jazz ensemble, a lavish Christmas party, and yes, flowers given to employees, ostensibly to boost morale.

The Thomas Associates case arose from a final decision issued by the Defense Contract Management Agency, finding that five of Thomas’s indirect cost items submitted for Fiscal Year 2004 were unallowable:

• $9,908 for a “corporate deluxe membership” at a hunting club, which included sporting clay instruction, shooting, tournaments, fishing and golf
• $1,500 for the “Unified Jazz Ensemble”
• $138.58 for flowers given to employees
• $16,215 in excess rental costs for leasing a warehouse from the company’s owner, Alexis Thomas
• $9,848 for a three-day Christmas party, including liquor, wine, meals, and limousine service

After some legal wrangling, the case came before the Armed Services Board of Contract Appeals.  There, Thomas alleged that the hunting club membership was a “wellness/fitness center” designed to improve employee morale and performance, and similarly argued that the Unified Jazz Ensemble and flowers were appropriate morale-building expenses.  Thomas also argued that the three-day Christmas party was allowable as a “meeting.”  The company essentially admitted some liability for the excess rental costs, explaining that it did not fully understand the applicable FAR provision when it submitted its expenses.

The ASBCA made short work of Thomas’s arguments.  It held that the hunting club “bear[s] no resemblance to a wellness/fitness center” and that the membership was unallowable.  Similarly, it held that the jazz was an unallowable entertainment cost and that the flowers, were “nothing more than a gift, and . . . expressly unallowable.”  Finally, the ASBCA noted that during the three-day Christmas party, “the corporate meeting took at most two hours” and that “[t]he majority of attendees were guests, not [Thomas] employees.”  The ASBCA denied Thomas’s appeal.

There is no question that the FAR’s cost principles are complicated and can be challenging to interpret.  Nevertheless, contractors should approach them with a certain degree of common sense.  If a particular expense–like those identified in the Thomas Associates case–sounds like something that will be difficult to defend with a straight face, it’s worth a close look at the FAR before submitting it to Uncle Sam.