Contract Cost Principles and Procedures
FAR Part 31 provides the foundational rules for determining which costs are allowable, reasonable, and allocable to government contracts, ensuring consistency and compliance across all contract types.
Overview
FAR Part 31, "Contract Cost Principles and Procedures," establishes the rules and guidelines for determining the allowability, reasonableness, and allocability of costs charged to government contracts. It provides a comprehensive framework for both contractors and contracting officers to assess which costs can be reimbursed under various contract types, including those with commercial organizations, educational institutions, state and local governments, Indian tribal governments, and nonprofit organizations. The part is organized into subparts that address specific types of organizations and contract scenarios, and it includes detailed cost principles for selected cost elements such as compensation, travel, depreciation, and legal costs. The purpose is to ensure consistency, transparency, and fairness in the treatment of contract costs across the federal acquisition process.
Key Rules
- Scope and Definitions
- Establishes the applicability of cost principles and provides definitions for key terms used throughout the part.
- Applicability by Organization Type
- Outlines which cost principles apply to contracts with commercial organizations, educational institutions, state/local/tribal governments, and nonprofits.
- Allowability, Reasonableness, and Allocability
- Sets criteria for determining if costs are allowable, reasonable, and allocable to government contracts.
- Selected Cost Principles
- Provides detailed rules for specific cost elements (e.g., compensation, travel, legal costs, depreciation, etc.).
- Advance Agreements and Indirect Cost Rates
- Addresses the use of advance agreements and requirements for indirect cost rate certification.
Responsibilities
- Contracting Officers: Must apply the appropriate cost principles, review cost proposals, negotiate allowable costs, and ensure compliance with FAR Part 31.
- Contractors: Must maintain adequate accounting systems, justify and document costs, and comply with the allowability, reasonableness, and allocability requirements.
- Agencies: Oversee compliance, provide guidance, and may issue additional requirements or clarifications.
Practical Implications
- FAR Part 31 is essential for determining which costs are reimbursable under government contracts, impacting pricing, billing, and audit outcomes.
- Contractors must be diligent in cost accounting and documentation to avoid disallowance of costs.
- Misinterpretation or non-compliance can lead to disputes, penalties, or loss of reimbursement.