One of the recurring themes here is that paying attention to internal controls is good business. Yes, we know that selling work is also good business. We know that billing and collecting cash is also good business. In addition, we understand that doing good work and helping clients is also good business. We get all that and most business people do as well. But not all business people understand that designing good controls and hiring the right people to assess them is also good business. Most business people-especially those in C-Suite positions of medium-sized and larger companies-really don't seem get it.

Assume there is only limited budget to run the business. Assume there is only a limited pot of money available to devote to business development/proposals, finance/accounting, legal, training, and similar expenses of an indirect nature (i.e., expenses that do not directly support revenue-generating work). Such below-the-line expenses are always under scrutiny, because the more you can cut there, the more one's revenue can turn into profit. So let's take as a given that there is a limited amount of money for such expenses, and therefore one of the key responsibilities of the management team is to prioritize the tasks associated with running the business and to ensure that only the necessary tasks are performed, so as to minimize associated expenses. That makes good sense, right?

The general approach to such prioritization is to identify the needs of the business and rank them. There are necessary tasks that must be performed, such as accounting/bookkeeping, billings, and collections. Employees must be recruited, hired, trained and retained. Those tasks and others like them are considered to be mandatory and typically receive budgets accordingly. Fringe benefits such as medical insurance and a retirement plan generally fall into the top tier of "discretionary but important" budget items. And in order to generate new business, budget must be made available for travel, client meetings, and to fund generation of proposals. Finally, there are a host of lesser "nice-to-have" expenses such as dues/subscriptions, attendance at training and technical conferences, and employee morale events. The limited bucket of management funds has to be allotted judiciously, given due consideration and weight to benefit received by the company.

Moreover, there are other indirect tasks that may have no concrete benefit, but which are funded (and staffed) anyway-because the risks associated with not performing them need to be mitigated. Some risks have a low probability of occurrence, but their consequences are catastrophic, so smart business owners fund them. A great example is insurance. Smart business owners identify business risks (such as liability to employees or to third parties, or the risk of property loss, or the risk of business interruption from natural or manmade disasters) and they buy insurance policies and pay premiums so that if those risks ever do occur the company is protected.

Establishing internal controls falls into this "risk-mitigation" category of management funding. Much like an insurance policy, effective internal controls act to militate against certain risks. While insurance may address external risks, internal controls address internal risks: risks associated with employees and potential wrongdoing.

But the key notion here is that the insurance coverage (and associated premiums) is funded only to the extent deemed necessary to protect the business. The probability of occurrence and consequences are weighed in determining how much to pay for the coverage. Smart business owners generally employ a similar approach to determining how much budget to devote to internal controls, and the people who will implement them. Like insurance, internal control efforts are funded only to the minimum amount judged necessary to protect the business, given the identified risks and consequences associated therewith.

The problem with taking that approach to funding internal controls is that it is based on management's assessment of risks and consequences. In order to properly evaluate risk/consequence so as to determine the appropriate amount of limited funds to apportion to that effort, management has to have a good understanding of those risks and consequences, or be guided by somebody who does. With respect to government contracting statutes, regulations and rules, management rarely has a deep understanding of those risks and consequences. Consequently, management may under-fund the company's internal control efforts, to the long-term detriment of all stakeholders.

We've written about this situation before. We wrote-

The other problem is that contractors too frequently screw up the risk analysis. This is especially true when commercial companies dabble in government contracting. When the government contract revenue is a small percentage of total corporate sales, then management has a tendency to treat its Federal customers just like any other sales channel. Sure, they know (vaguely) that there are some special regulations involved in that government contracting stuff, and maybe they've hired a couple of people to 'scrub the books' to make sure that those arcane regulations are complied with. But there is a definite tendency-especially at the most successful commercial companies-to think that those additional hires plus some good ol' common sense will be sufficient to militate against the risk of noncompliance.

They screw up the risk analysis because they do not understand the risks.

They screw up the risk analysis because they do not understand the true cost of merely being accused of submitting a false claim to the Federal government. The cost of hiring attorneys and other outside experts. The cost of diverting personnel to litigation support instead of what they were hired to do. The cost of litigation-related reserves. The cost of filing SEC disclosures and of preparing special litigation notes to the financial statements. The cost of answering probing questions-not just by the Assistant U.S. District Attorney, but also by investment analysts during investor conference calls. The cost of seeing the stock price fall because of DOJ press releases. The reputational 'brand' impact in the marketplace.

This website blog is rife with articles about blown risk analyses and inadequately implemented internal controls. There are any number of articles that discuss how even the biggest defense contractors have paid huge dollars because they were accused of wrongdoing. How much more catastrophic, then, are the impacts of similar accusations on smaller contractors, the mid-tier companies that are (generally) subject to the exact same risks as the Top 5 aerospace/defense contractors? The big dogs have the deep pockets, the available cash and/or lines of credit. What about the smaller dogs? How deep are their pockets? Not as deep, is our assertion.

Thus, while the risks may be similar across the spectrum of government contractors, the consequences associated with those risks may well vary by individual company circumstances. And while the smaller dogs may not have as much management budget to allot to their internal controls, we believe it is absolutely critical that they do so, given their relative vulnerability.

It is critical for the mid-tier and smaller companies to focus on this area, even though the task is harder for them. Because if the big dogs, such as UTC and CH2M Hill, misevaluate the risks and consequences within the complex world of government contracting, how much more likely will it be for the smaller dogs to blow it? We fervently believe that all companies-but especially the mid-tiers-need to work harder on this evaluation.

(Now of course we could discuss internal controls within the Federal government. And we have done so, many times, on this site. But that's not the focus of today's article.)

We would like to offer evidence in support of our fundamental assertion that too many companies fail to appreciate the risks and consequences associated with regulatory noncompliance within the government contracting marketplace.

• An IT manager at two (2!) government contractors funneled some $700,000 to his own shell company. "Over the course of the scheme, Spangler created fraudulent documentation for 19 purported purchases of IT supplies from the shell company that he owned. In reality, however, Spangler did not provide the supplies at the agreed-upon prices and instead used the funds for personal expenses."

• Employee timecard fraud led to allegations of submission of False Claims for one former NGA contractor employee. More importantly, his falsification of intelligence reports put U.S. military personnel at risk.

• The Glenn Defense Marine Asia scandal claimed another victim, as a "general manager of government contracts" pleaded guilty to one count of conspiracy to defraud the United States. "… Wisidagama and other GDMA employees generated bills charging the U.S. Navy for port tariffs that were far greater than the tariffs that GDMA actually paid … created fictitious port authorities for ports visited by U.S. Navy ships … created fake invoices from legitimate port authorities purporting to bill the U.S. Navy at inflated tariff rates. Wisidagama and GDMA also overbilled the U.S. Navy for fuel by creating fraudulent invoices which represented that GDMA acquired fuel at the same cost that it charged the U.S. Navy when in fact GDMA sold the fuel to the U.S. Navy for far more than it actually paid … also defrauded the U.S. Navy on the provision of incidental items by creating fake price quotes purportedly from other vendors to make it appear that the other vendors' offering prices were greater than GDMA's prices."

• A Utah construction company agreed to pay $928,000 to settle allegations that it "made false statements and submitted false claims" in connection with its Mentor-Protégé Agreement with a qualified 8(a) business. Among other allegations, "The government also alleged that Okland Construction's relationship with Saiz Construction violated the terms of an SBA set-aside contract awarded to Saiz Construction that required Saiz Construction to perform at least 15 percent of the labor on the contract minus the cost of materials."

• An owner of a Maryland contractor pleaded guilty to defrauding both the Small Business Administration and the Internal Revenue Service.

• A medical-device maker in Orange County, CA, paid $500,000 to resolve allegations that it violated the Buy America Act by selling foreign-made devices to the U.S. Army. To its credit, the company discovered the violations on its own and voluntarily disclosed them. "In conjunction with Ossur's voluntary disclosure, the company instituted a series of compliance measures, including distribution of instruction sheets to sales representatives and training for management officials, to ensure future compliance with the Buy American Act."

• A university professor was convicted of "wire fraud, mail fraud, falsification of records, and theft of government property in connection with a scheme to fraudulently obtain research grants from the National Science Foundation (NSF) and kickbacks from students' stipends." The fraud was uncovered during a routine audit by the NSF Office of Inspector General.

• A co-owner of a New Jersey industrial supply company pleaded guilty to one count of "making a materially false and fictitious statement to the U.S. Environmental Protection Agency (EPA) at a debarment proceeding." Yes, the individual fibbed at his own debarment hearing. How did the individual find himself in a debarment proceeding? "Previously, Boski and his company … had pleaded guilty … to participating in a kickback and fraud conspiracy … from approximately December 2000 to approximately September 2004. As outlined in the 2009 plea agreement, Boski provided $55,000 in kickbacks to two employees of the prime contractor responsible for awarding contracts at the two Superfund sites in exchange for the award of sub-contracts to NIS. These kickbacks included luxury vacations and payments to shell companies held by the two employees."

• A former vice president of a government contracting company pleaded guilty to "conspiracy to pay bribes to public officials in exchange for favorable treatment in connection with U.S. government contract work."

• A construction company agreed to "pay $2.4 million and implement internal reforms subject to independent monitoring to resolve a multi-agency joint criminal and civil investigation into alleged fraud committed by the company in connection with a public works project that commenced in 2007."

• Five California-based masonry contractors and two individuals agreed to pay nearly $1.9 million "to resolve allegations that they violated the False Claims Act by misrepresenting their disadvantaged small business status in connection with military construction contracts." According to the announcement, "The government alleged that the defendant masonry subcontractors and their principals misrepresented to the prime contractors that they were small businesses, and that these misrepresentations caused the prime contractors to falsely certify that they had complied with the small business provisions of the contracts in claiming payment."

Readers, every single one of the foregoing press releases was published within a single 30-day period. Every single one. And we didn't even report them all!

When evaluating risks and consequences, please feel free to refer to this article.

Now in fairness, the instances of wrongdoing listed above might not have been prevented, even through the best internal controls regime. The fact of the matter is that fraud committed by a company CEO or President, or other officer, is almost impossible to prevent. Which is why outside auditors so often focus on "tone at the top" as an element of assessing fraud risk.

Regardless, we maintain that the probability of wrongdoing taking place is higher than almost all management thinks it is, and we maintain that the consequences of that wrongdoing (even if detected and voluntarily disclosed) is much worse than management thinks it is. Thus we believe management is (generally) failing to invest sufficient amounts of its limited indirect funds to implement effective internal controls.

Investing in internal controls is good business. Investing in good controls and good compliance people may seem like a lower-priority than some other management tasks, but we believe it's an investment that will have a good return, in terms of employee or vendor wrongdoing detected or (better yet) deterred.

Long-time reader, supporter, and friend "Black Hawk Dawn" asked us to pontificate on the question "what is a 'cost' for Government contract cost accounting purposes?" She didn't know it, but that innocent question pushed one of our buttons and brought up unpleasant memories. Come with us down memory lane ….

Accept for a moment that the FAR does not define the term "cost". It defines "total cost" but elides any description of what is that nebulous term "cost" that is somehow made up "direct" and "indirect" expenses. And what about "cost of money" (aka Facilities Capital Cost of Money) which is an "imputed cost" for government contract cost accounting purposes? Is an imputed cost the same as a direct/indirect expense? How do we know?

Costs, or expenses, are "incurred" but they are also "recorded" on the contractor's books and records. What about costs that have yet to be incurred, but which have been recorded (e.g., accruals). Are they still costs for government contract cost accounting purposes?

The Cost Accounting Standards (CAS) regulations are of no help either. Though there is much to be found regarding the measurement, assignment, and allocation of costs, the CAS regulations actually don't ever define that term.

So now we have recorded costs, incurred costs, and imputed costs-but we are still no nearer to understanding what we mean by the term "cost". If the FAR and CAS won't help us to understand, where should we look?

Fortunately (or unfortunately, as the case may be) we have a couple of legal decisions that have answered that question for us. The decisions concern the Pratt & Whitney division of the United Technologies Corporation (UTC).

UTC had entered into several "collaboration agreements" with its suppliers (many of them foreign) in support of its commercial programs. Those agreements specified that UTC would not actually pay for the supplier parts; instead, UTC would give the individual suppliers contractually-specified percentages of total revenue generated by the program(s) they were supporting. In other words, UTC's "cost" for the supplier parts was zero, because it simply reduced sales it would otherwise have recorded and issued the suppliers a check for that same amount.

If UTC's treatment seems weird or strange, remember that many industrial companies were innovating at the time by making similar agreements with their suppliers. For instance, automakers developed the concept of paying tire suppliers not when an invoice was submitted and matched with a Purchase Order and Receiving document, but instead based on the number of cars that left the factory. Tire suppliers never had to submit an invoice; instead, every time a car left the factory, the automaker would assume it had a full complement of four (or five) tires, and pay the tire supplier accordingly. Naturally, innovations of this type reduced transaction costs: Suppliers never had to submit invoices, the automakers significantly streamlined their Accounts Payable processes, and the lag between invoice submittal and receipt of payment was dramatically shortened. It was a win/win for the automotive industry and UTC was looking to create similar win/win situations in the aerospace industry.

But UTC/Pratt & Whitney had both governmental and commercial programs. Use of collaboration agreements on the commercial programs meant that those programs recorded significantly less costs than did UTC's similar governmental programs (which did not use collaboration agreements). That was no big deal, except UTC-like almost all government contractors-allocated most of its indirect costs on the basis of program direct costs. Since the commercial programs used collaboration agreement accounting, they absorbed a lower share of indirect costs than they would have, had UTC used "traditional" supplier agreement accounting that recorded costs associated with supplier-provided materials (and which would have included supplier profit as well).

The government didn't like the situation. It argued that its programs were paying too much for allocated indirect expenses because the commercial programs didn't record all their costs. The government argued that UTC's revenue-sharing payments to its suppliers should be treated as direct "costs" for purposes of allocating UTC's indirect costs and for purposes of calculating governmental indirect cost rates. A Contracting Officer's Final Decision (COFD) was issued, alleging that UTC was in noncompliance with CAS 410, 418, and 420 because UTC excluded the value of the collaboration parts from the cost input base it used to allocate (and calculate) indirect costs. UTC appealed that COFD to the ASBCA.

For its part, UTC argued that costs were costs, and that contra-revenue transactions were not costs as that term was generally understood. Since costs had to be "incurred" and/or "recorded" the revenue shares paid to collaboration suppliers were not costs. UTC's indirect cost allocations were not distorted because they were allocated on cost input bases that included all costs that UTC actually incurred.

Thus, the stage was set for an argument over the definition of "cost".

Both parties agreed that the term "cost" could not be found in the cost accounting regulations that govern contractors. The government argued that since CAS did not define "cost" then the GAAP definition must be used, and since the collaboration suppliers were subcontractors, then UTC should have recorded appropriate costs for purposes of calculating its cost input bases.

Interestingly, UTC also agreed that the parties must turn to GAAP to define "cost". But the two parties disagreed over which GAAP promulgation should control. (As a side note, we've often wondered why the first two words of the acronym "GAAP" are "Generally Accepted" because no two accountants seem to agree on any aspect of GAAP. But we digress.) Each side presented its own experts in an attempt to persuade Judge Park-Conroy which part of GAAP should be used to define "cost" and which part of GAAP should be used to evaluate whether the collaboration agreements generated costs that should be considered for government contract cost accounting purposes.

The case became a battle of the accounting experts.

On the government's side, Mr. Thomas O'Donnell (DCAA) testified on CAS and government contract cost accounting, and Mr. Staley Siegel (Professor, New York University Law School) testified on GAAP, audit standards, accounting practice and theory, business organizations, and finance. UTC called four experts: Dr. David Teece testified on organizational economics and industrial organizations; Mr. Nelson Shapiro (former Member of the CAS Board) testified on CAS and GAAP, Mr. William Keevan (Partner, Arthur Andersen) testified on CAS, GAAP, and cost accounting; and Dr. Charles Horngren testified on GAAP, cost accounting, and management accounting.

(We note with sadness that Darrell Oyer reported that Nelson Shapiro passed away last month, in March, 2014.)

After reciting the experts' opinions and positions, Judge Park-Conroy concluded that the collaboration agreement suppliers were not subcontractors and that UTC's share of program revenues were not "costs" for purposes of complying with CAS and GAAP. For example, she wrote-

The Government relies upon FASB Statement of Financial Accounting Concepts No. 6 for its definition of cost (an economic sacrifice to obtain goods and services) to support the assertion that Pratt incurs a cost for parts when it distributes program revenue share payments. As Mr. O'Donnell testified, this is the same definition of cost used in Riverside Research Institute, 860 F.2d at 422. Pratt responds, and we agree, that payment of a collaborator's program revenue share is not an economic sacrifice because Pratt has no right to retain that share. Rather, consistent with our discussion above, the payments are more like a 'pass through' because Pratt collects the sale price from the customers and distributes net program revenue share payments to the collaborators according to the terms of their agreements. Pratt does not treat the collaboration parts as a cost either when it records a sale or when it records the collection and distribution of the sale revenue.

Based on the foregoing, Judge Park-Conroy decided as follows-

We have concluded that the collaborators are not subcontractors to Pratt and that the program revenue share payments distributed by Pratt to them should not be treated as payment for the cost of the parts they manufacture. Accordingly, Pratt is not required to include revenue share payments distributed to its collaborators in its MOH allocation base under CAS 418.50(d)(2) or its G&A and IR&D/B&P total cost input bases under CAS 410.50(d)(1) and CAS 420.50(f)(2). Pratt's accounting for collaboration parts complies with these CAS requirements.

At the time, we thought this to be a ground-breaking decision, because it acknowledged that the FAR did not prescribe the universe of transactions between those acquiring goods and services, and those providing them. The decision recognized that there were other-perhaps more innovative-types of contracts, subcontracts, and supplier agreements than were specified in FAR Part 16. The decision implicitly rested on the notion that private industry was innovating faster than the Federal government, and it was incumbent on the Federal government to catch up, at least in its regulatory coverage if nothing else.

And yet our joy at the decision was short-lived. The Government appealed to the Federal Circuit, and Judge Dyk issued a reversal and Government victory that was every bit as ground-breaking as Judge Park-Conroy's decision had been … but for the wrong reasons.

Now remember, dear readers, that we here at Apogee Consulting, Inc. are not attorneys and our legal analyses are those of laypersons. As such you must give our opinions little weight and consult your own learned counsel before proceeding based on the opinions you read herein. But our opinions are bolstered by others' views, including a restrained yet pointed critique by a well-respected public contract law attorney.

Judge Dyk started by rejecting the views of all of the experts that testified in the ASBCA case, writing-

The issue in this case is whether CAS required Pratt [UTC] to include a 'cost' for collaboration parts in its allocation bases used to allocate overhead. Resolution of this question requires us to interpret CAS. Contrary to the Board's approach, the central issue we confront - the interpretation of CAS - is an issue of law, not an issue of fact. . .The views of the self-proclaimed CAS experts, including professors of economics and accounting, a former employee of the CAS Board, and a government contracts accounting consultant, as to the proper interpretation of those regulations is simply irrelevant to our interpretive task; such evidence should not be received, much less considered, by the Board on the interpretive issue. That interpretive issue is to be approached like other legal issues - based on briefing and argument by the affected parties.

Having rejected all evidence and testimony proffered to the trial judge regarding what might be meant by the term "cost" and whether UTC had, in fact, incurred a "cost" when it made a revenue-sharing payment to its collaboration suppliers, Judge Dyk then turned "to standard dictionary definitions and other pertinent regulations."

Judge Dyk's journey into dictionary definitions and other pertinent regulations is worth quoting at some length, if only to show readers an excellent example of tautology and circular reasoning, seasoned with deliberate ignorance regarding the trial court's findings. He wrote-

Given that 'material cost' is involved, the pertinent definition of 'cost' is 'an item of outlay incurred in the operation of a business enterprise (as for the purchase of raw materials, labor, services, supplies ) including depreciation and amortization of capital assets.' Webster's Third New International Dictionary 515 (1968) ('Webster's') (emphasis added). There is no suggestion that the accounting source references use a materially different definition. [Ed. Note: Correct, because Judge Dyk rejected all the suggestions by all the experts he was ignoring.] Indeed, the parties before the Board agreed on a definition of 'cost' as 'the sacrifice incurred in economic activities that which is given up or forgone to consume, to save, to exchange, to produce.' … We have indeed approved the use of a similar definition of 'cost' under earlier procurement regulations, stating that ''cost' is equated with the amount a contractor forgoes or gives up, i.e., its economic sacrifice, to obtain goods or services.' Riverside Research Inst. v. United States, 860 F.2d 420, 422 (Fed.Cir.1988) (citing FASB Concept Statement No. 3, which provides '[c]ost is the sacrifice incurred in economic activities-that which is given up or foregone to consume, to save, to exchange, to produce, etc.').

In addition to dictionary definitions, clarity in the term 'cost' as used in CAS may also be provided in related regulations, such as FAR. FAR provides the general regulatory scheme for contracts with the federal government and '[the] policies and procedures for applying the Cost Accounting Standards Board (CASB) rules and regulations to negotiated contracts and subcontracts.' 48 C.F.R. § 30.000 (2001); see also Lane K. Anderson, Accounting for Government Contracts Cost Accounting Standards § 1.06 (2002). Thus, the usage of the word 'cost' in FAR is instructive of its usage in CAS. [ Ed. Note: Here Judge Dyk was ignoring the part of the CAS statute that exclusively reserves the right of the CAS Board to interpret its own regulations. ] The definitions section of FAR defines 'material costs' as 'includ[ing] the costs of such items as raw materials, parts, sub-assemblies, components, and manufacturing supplies, whether purchased or manufactured by the contractor, and may include such collateral items as inbound transportation and intransit insurance.' 48 C.F.R. § 31.205-26 (2001) (emphasis added). [ Ed. Note: Here Judge Dyk was using the definition found in a individual FAR Cost Principle - and not found the definitions section of the FAR - to interpret CAS. In other words, he was using an allowability prescription to interpret a cost allocation prescription, which is interesting, to say the least. ]

Thus, both standard dictionaries and FAR define 'cost' or 'material cost' to include the outlay for materials 'purchased.' The standard dictionaries do not define 'purchase' with any precision. Nor does the FAR or CAS itself. [ Ed. Note: Not that those omissions will stop Judge Dyk from his quest to create a definition.] However, in addition to dictionaries, this court has recognized that the Uniform Commercial Code (U.C.C.) is useful for determining 'the ordinary commercial meaning of terms.' … In order to determine whether there has been a purchase, we look to see whether there has been a 'sale' by the parts suppliers to Pratt. The U.C.C. defines 'sale' as 'the passing of title from the seller to the buyer for a price.' … The point in time when title passes may be defined by explicit agreement of the parties. … Contrary to the Board's finding that 'Pratt does not take title to the collaboration parts,' … Pratt's witness confirmed that '[t]itle, as far as Pratt & Whitney is concerned, in order to be able to convey title to the engine when it sells it to the customer, that is an instantaneous passage of title from the collaborators to Pratt & Whitney at that moment or instant in time, if you will.' … Thus, there is no question but that Pratt does obtain title to the parts.

Further, Pratt paid a 'price' for the parts.   It became bound by the obligation to pay the collaborators' share of revenue just prior to its transfer of parts to a purchaser. The Board noted that all of the collaboration agreements save one 'provide[d] that the sharing of gross revenues from the sale of engines and parts will be 'in consideration of the parts manufactured.' ' … The contracts also expressly linked the receipt of revenue share payments to the delivery of a collaborator's program share of production. The fact that a particular revenue share was not assigned as a matter of internal accounting to individual parts and that the revenue share per part during any particular time period might have been greater or lesser depending on a variety of factors did not prevent the payments from constituting a price. [Emphasis added.] Thus, the transactions constituted a sale, wherein title passed from the foreign collaborators to Pratt and Pratt became obligated to pay a price to the foreign collaborators representing the revenue share. The express language of Pratt's contracts, which make clear that the parts suppliers are 'independent contractors' of Pratt, supports this conclusion. In short, we find the terms 'cost' and 'material cost' as used in CAS to be clear and unambiguous, and to include the revenue share payments made by Pratt for the parts under the collaboration agreements.

Judge Dyk singlehandedly threw out the use of experts to assist triers of fact in understanding the complex worlds of CAS and cost accounting-areas in which but a handful of attorneys have any real expertise. That cleared the field for what, in our view, became a rather circuitous and frankly, incredible, journey to find a definition of "cost" that he could use to overturn the ASBCA decision. And attorneys trying complex CAS cases have had to live with the use of "dictionary definitions" of terms ever since-to the detriment of their clients and to the detriment of equity and justice.

Moreover, in another (related) ruling, Judge Dyk threw out UTC's estoppel arguments, thus paving the way for the Government to ignore a contractor's Disclosure Statement language regarding its cost accounting practices, even though government auditors routinely torture contractors for weeks or months (or sometimes years) over "adequacy" and "compliance" of those Disclosure Statements and those cost accounting practices. Before this decision, we used to preach to contractors that they should include as much detail in their Disclosure Statements as possible, to establish estoppel arguments should they become necessary. After this decision? Not so much.

In issuing this important decision, Judge Dyk set the complex world of CAS litigation back a generation or two and personally created a new Dark Age where attorneys and judges have to feel their way through the CAS and FAR regulations without an expert to help guide them.

"Black Hawk Dawn" wanted to know what the definition of "cost" was for government contract cost accounting purposes. It's taken us a while to get to this point, but now you are ready to hear the answer to her question.

Use a dictionary. Everything you need to know to understand the term is there. Don't believe us? Just ask Judge Dyk.