31.109 Advance agreements
Source: FAR 31.109 on acquisition.gov
Advance agreements provide written clarity on the treatment of special or unusual costs, reducing the risk of disputes and disallowances, but must always comply with FAR cost principles.
Overview
FAR 31.109 addresses the use of advance agreements between contractors and the government to clarify the treatment of special or unusual costs under government contracts. Advance agreements are written arrangements negotiated before or during a contract to avoid later disputes over cost allowability, reasonableness, or allocability, especially for complex or ambiguous cost items. While not mandatory, these agreements help both parties by providing certainty and reducing the risk of disallowance. Advance agreements must be consistent with FAR cost principles and cannot authorize costs that are otherwise unallowable. The section outlines who is authorized to negotiate these agreements, the process for coordination among agencies, and the need for proper documentation and distribution of the executed agreement. It also lists examples of cost areas where advance agreements are particularly useful, such as compensation, use charges, deferred maintenance, precontract costs, and statistical sampling methods.
Key Rules
- Advance Agreements Purpose and Scope
- Used to clarify the treatment of special or unusual costs and statistical sampling methodologies to prevent future disputes.
- Timing and Documentation
- Should be negotiated before costs are incurred, must be in writing, signed by both parties, and incorporated into relevant contracts.
- Consistency with FAR
- Agreements cannot allow costs that are unallowable under FAR cost principles.
- Negotiation Authority
- Specifies which contracting officers can negotiate and execute advance agreements and the need for coordination when authority is delegated.
- Interagency Coordination
- Requires notification and possible involvement of other agencies with significant contract balances with the same contractor.
- Distribution and Recordkeeping
- Executed agreements and supporting memoranda must be distributed to relevant agencies and audit offices.
- Examples of Applicable Costs
- Lists specific cost categories where advance agreements are especially important.
Responsibilities
- Contracting Officers: Initiate, negotiate, and document advance agreements; ensure consistency with FAR; coordinate with other agencies as required.
- Contractors: Propose and comply with advance agreements; ensure costs are treated as agreed; maintain documentation.
- Agencies: Oversee negotiation process, ensure proper coordination and distribution of agreements, and involve audit agencies as needed.
Practical Implications
- Advance agreements provide clarity and reduce risk of cost disallowance for complex or ambiguous costs.
- They are especially useful for recurring or high-value cost categories prone to interpretation disputes.
- Failure to secure an advance agreement does not automatically make a cost unallowable, but lack of clarity can lead to disputes or disallowances during audits.
(a) The extent of allowability of the costs covered in this part applies broadly to many accounting systems in varying contract situations. Thus, the reasonableness, the allocability and the allowability under the specific cost principles at subparts 31.2, 31.3, 31.6, and 31.7 of certain costs may be difficult to determine. To avoid possible subsequent disallowance or dispute based on unreasonableness, unallocability or unallowability under the specific cost principles at subparts 31.2, 31.3, 31.6, and 31.7, contracting officers and contractors should seek advance agreement on the treatment of special or unusual costs and on statistical sampling methodologies at 31.201-6(c). However, an advance agreement is not an absolute requirement and the absence of an advance agreement on any cost will not, in itself, affect the reasonableness, allocability or the allowability under the specific cost principles at subparts 31.2, 31.3, 31.6, and 31.7 of that cost.
(b) Advance agreements may be negotiated either before or during a contract but should be negotiated before incurrence of the costs involved. The agreements must be in writing, executed by both contracting parties, and incorporated into applicable current and future contracts. An advance agreement shall contain a statement of its applicability and duration.
(c) The contracting officer is not authorized by this 31.109 to agree to a treatment of costs inconsistent with this part. For example, an advance agreement may not provide that, notwithstanding 31.205-20, interest is allowable.
(d) Advance agreements may be negotiated with a particular contractor for a single contract, a group of contracts, or all the contracts of a contracting office, an agency, or several agencies.
(e) The cognizant administrative contracting officer (ACO), or other contracting officer established in part 42, shall negotiate advance agreements except that an advance agreement affecting only one contract, or class of contracts from a single contracting office, shall be negotiated by a contracting officer in the contracting office, or an ACO when delegated by the contracting officer. When the negotiation authority is delegated, the ACO shall coordinate the proposed agreement with the contracting officer before executing the advance agreement.
(f) Before negotiating an advance agreement, the Government negotiator shall-
(1) Determine if other contracting offices inside the agency or in other agencies have a significant unliquidated dollar balance in contracts with the same contractor;
(2) Inform any such office or agency of the matters under consideration for negotiation; and
(3) As appropriate, invite the office or agency and the responsible audit agency to participate in prenegotiation discussions and/or in the subsequent negotiations.
(g) Upon completion of the negotiation, the sponsor shall prepare and distribute to other interested agencies and offices, including the audit agency, copies of the executed agreement and a memorandum providing the information specified in 15.406-3, as applicable.
(h) Examples for which advance agreements may be particularly important are-
(1) Compensation for personal services, including but not limited to allowances for off-site pay, incentive pay, location allowances, hardship pay, cost of living differential, and termination of defined benefit pension plans;
(2) Use charges for fully depreciated assets;
(3) Deferred maintenance costs;
(4) Precontract costs;
(5) Independent research and development and bid and proposal costs;
(6) Royalties and other costs for use of patents;
(7) Selling and distribution costs;
(8) Travel and relocation costs, as related to special or mass personnel movements, as related to travel via contractor-owned, -leased, or -chartered aircraft; or as related to maximum per diem rates;
(9) Costs of idle facilities and idle capacity;
(10) Severance pay to employees on support service contracts;
(11) Plant reconversion;
(12) Professional services (e.g., legal, accounting, and engineering);
(13) General and administrative costs (e.g., corporate, division, or branch allocations) attributable to the general management, supervision, and conduct of the contractor’s business as a whole. These costs are particularly significant in construction, job-site, architect-engineer, facilities, and Government-owned contractor operated (GOCO) plant contracts (see 31.203(h));
(14) Costs of construction plant and equipment (see 31.105(d));
(15) Costs of public relations and advertising; and
(16) Statistical sampling methods (see 31.201-6(c)(4).