Secretary of Defense v. Raytheon Co.

Gov. Contract

Issue(s) Presented

1. “Lobbying Costs. Absent narrow exceptions, Federal contractors are not allowed to charge the Government for lobbying activities. Federal Acquisition Regulation (FAR 31.205-22 (reproduced at Addendum C). Raytheon includes a portion of its in-house lobbyists’ salaries in the indirect rates it charges to the Government, claiming that the lobbyists do not work exclusively on lobbying activities. Raytheon does not keep records to show that the lobbyists actually worked on activities other than lobbying. Rather, it instructs the lobbyists simply to report how many hours they spent lobbying. Any hours not affirmatively accounted for as lobbying are treated as allowable. Moreover, Raytheon instructs the lobbyists not to report any hours worked before 8:00 A.M., after 5:00 P.M., or on weekends or holidays. Even though the lobbyists admit that attendance at night and weekend lobbying events is a regular and expected part of their job duties, Raytheon maintains that there is no cost for that work because the lobbyists’ salaries compensate them only for work done during regular business hours. Are these policies compliant with the FAR? Are the lobbying department costs that Raytheon charged to the Government under these policies allowable?”

2. “Acquisition and Divestiture Costs. The FAR also prohibits contractors from charging the Government for expenditures made in connection with corporate reorganizations, such as mergers and acquisitions. FAR 31.205-27 (reproduced at Addendum D). Although FAR 31.205-27 makes no allowance for early-stage acquisition and divestiture (A&D) expenditures, Raytheon adopted a corporate policy whereby it stops charging the Government for acquisition work only after making a ‘non-binding indicative offer’ (NBIO or indicative offer) to an acquisition target. For divestitures, Raytheon’s policy is to stop charging the Government only after it has made the decision to ‘go to market’ with its offering materials. Are these policies compliant with the FAR? Are the costs Raytheon charged to the Government under these policies allowable?”



1. “Because Raytheon’s incurred-cost submissions accounted only for unallowable costs incurred during regular hours and ignored after-hours lobbying, they do not accurately reflect the proportion of time that Raytheon’s employees spent on unallowable lobbying activities. . . . We therefore conclude that the Board erred in finding that the government failed to meet its burden of showing that Raytheon charged it for unallowable costs.”

2. “Because the Board erred as a matter of law in concluding that Raytheon’s corporate-development policies were consistent with the FAR, its factual determination that the government was not charged for unallowable costs because Raytheon’s employees complied with those policies is also legally incorrect. We therefore reverse the Board’s conclusion and remand for the Board to determine the amount of unallowable costs improperly charged to the government.”