The US Court of Appeals for the Federal Circuit (Federal Circuit) reversed a decision of the ASBCA because the ASBCA erroneously held that a military housing contractor’s costs associated with defending and settling a sexual harassment lawsuit were allowable under the contract regardless of the lawsuit’s merits. Geren v. Tecom, Inc., No. 2008-1171 (Fed. Cir. May 19, 2009). During the performance of a cost reimbursement contract for military housing maintenance, a former employee sued the contractor under Title VII of the Civil Rights Act of 1964, alleging sexual harassment and firing in retaliation for filing a sexual harassment charge while the employee was working under the contract. The contractor subsequently settled the case without admitting any wrongdoing, and then sought to (1) include its related legal fees as an indirect cost charged to its G&A expense pool and (2) bill the settlement costs as a direct cost of the contract. The Federal Circuit first held that the costs associated with an adverse judgment in the sexual harassment case would not have been allowable because the alleged harassment clearly would have violated the contract, which included a FAR clause prohibiting discrimination on the basis of sex. The Federal Circuit therefore further held that, under its decision in Boeing North American, Inc. v. Roche, 298 F.3d 1274 (Fed. Cir. 2002), the contractor’s defense and settlement costs were allowable only if the contractor could show that the plaintiff in the Title VII suit had “very little likelihood of success on the merits.” Because the ASBCA refused to apply this standard to the contractor’s defense and settlement costs, the Federal Circuit reversed the ASBCA’s decision and remanded the case to the Board for further proceedings.
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