Discretionary Profit Sharing Contributions

I am sure many are familiar with the OIG's audit report dated 2/5/09 entitled "Oversight of Design and Engineering Firms' Indirect Costs Claimed on Federal-Aid Grants." I am working with a client whose profit sharing contributions to a qualified defined contribution plan are being disallowed by a state DOT. The state DOT is citing the FAR and this OIG report for disallowing the contributions. The specific OIC report language ?claimed a discretionary profit sharing

contribution made to a pension fund and because the contribution was discretionary (voluntary), it was not required and is therefore unallowable.? There is simply no FAR basis for this claim, as retirement plans such as 401(k) plans are entirely discretionary for firm contributions (even employer-matching contributions are discretionary). If anyone has any specific case law that my client can reference in their response to the state DOT I would appreciate the assistance.