What FAR Part 31 - Contract Cost Principles and Procedures (Allowability, Reasonableness, Allocability) requires
Federal Acquisition Regulation (FAR) Part 31 establishes the cost principles governing allowability of contractor costs charged to federal contracts: Subpart 31.2 (Contracts with Commercial Organizations) sets the foundational five-part allowability test at 31.201-2 (reasonableness, allocability, Cost Accounting Standards or GAAP compliance, terms of the contract, limitations set forth in the subpart); 31.201-3 establishes that a cost is reasonable only if it does not exceed that which would be incurred by a prudent person in the conduct of competitive business with the contractor bearing the burden of proof (no presumption of reasonableness exists for contested costs); 31.201-4 defines allocability as costs incurred specifically for the contract or that benefit both the contract and other work; 31.202 governs direct cost charging (must charge specifically with limited de minimis exception for consistency); 31.203 governs indirect cost pools and allocation bases that distribute on benefits-accruing basis; 31.205-1 through 31.205-52 enumerate specific unallowable cost categories including 31.205-1 (public relations and advertising), 31.205-6 (compensation - reasonableness ceilings, executive compensation cap, stock options), 31.205-22 (lobbying - absolutely unallowable), 31.205-37 (royalties - allowable only if not contractor-owned), 31.205-47 (legal costs - generally allowable except costs of defending against Government enforcement actions when contractor adverse to Government). Subpart 31.1 governs educational and nonprofit institutions (cross-reference to 2 CFR Part 200 Uniform Guidance).
Pillar: Public Sector & Government Procurement · Authority: Federal Acquisition Regulatory Council (DOD, GSA, NASA) issuing the Federal Acquisition Regulation under 41 USC 1303 and 48 CFR Chapter 1; Cost Accounting Standards Board under 41 USC chapter 15 issuing CAS at 48 CFR chapter 99 · Version: 1.0.0 · Last updated:
Primary source: https://www.acquisition.gov/far/part-31
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Primary Citations — 6 traced to source
- FAR Part 31 Section 31.201-2 (Determining allowability): 'A cost is allowable only when the cost complies with all of the following requirements: (1) Reasonableness. (2) Allocability. (3) Standards promulgated by the CAS Board, if applicable; otherwise, generally accepted accounting principles and practices appropriate to the circumstances. (4) Terms of the contract. (5) Any limitations set forth in this subpart.' All five elements must be met; failure of any one renders the cost unallowable.
- FAR Part 31 Section 31.201-3(a) (Determining reasonableness): 'A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business...No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer's representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable.'
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