The Ball Corporation decision by the Armed Services Board of Contract Appeals (ASBCA) on April 3, 2000 is good news. It constitutes a reaffirmation by the ASBCA of the position it previously espoused in Ralph M. Parsons Co. (91-1 BCA p23,648) to the effect that reasonable contributions by cost-plus Government contractors to leveraged ESOPs to enable them to, in turn, amortize stock acquisition loans constitute costs which are allowable, allocable and, accordingly, reimbursable.
This should not be such a revelation since Congress and previous pronouncements by the Cost Accounting Standards Board (CASB) and the Defense Contract Audit Agency (DCAA) supported that position. Nevertheless, confusion developed out of what can only be described as an arcane debate as to which specific regulatory niche ESOPs fall into:
- Are they a form of “pension plan” or other form of “deferred compensation”?
- Are they plans that pay compensation in “money”, or in a form “other than money”? To a large degree cost reimbursement consequences were driven by descriptive nuances without substance in language chosen by the ESOP draftsmen.
- Did the ESOP document provide that the form of payment would be a life annuity based upon the value of a participant’s ESOP account, unless he chose otherwise (e.g. a cash payment or distribution of stock), or did the plan call for distributions of cash, notes or stock, again with alternative choices available to participants?