Subpart 31.2
Contracts with Commercial Organizations
FAR Subpart 31.2 sets the rules for what costs commercial organizations can charge to government contracts, requiring strict adherence to allowability, allocability, and reasonableness standards.
Overview
FAR Subpart 31.2 establishes the cost principles and procedures applicable to contracts with commercial organizations. It provides detailed guidance on determining the allowability, allocability, and reasonableness of costs charged to government contracts. The subpart covers the distinction between direct and indirect costs, the application of cost principles, and specific rules for selected cost categories. Its purpose is to ensure that only appropriate, fair, and reasonable costs are reimbursed under government contracts with commercial entities.
Key Rules
- General Principles (31.201)
- Outlines the fundamental requirements for cost allowability, including reasonableness, allocability, and compliance with contract terms and regulations.
- Direct Costs (31.202)
- Defines direct costs as those specifically identified with a particular contract and details how they should be treated.
- Indirect Costs (31.203)
- Explains indirect costs, which are not directly attributable to a single contract, and provides guidance on allocation methods.
- Application of Principles (31.204)
- Describes how the cost principles should be applied to contracts and subcontracts, including exceptions and limitations.
- Selected Costs (31.205)
- Lists and explains the allowability of specific cost items, such as advertising, compensation, travel, and more.
Responsibilities
- Contracting Officers: Must ensure costs claimed are allowable, allocable, and reasonable; review and approve cost submissions; enforce compliance with cost principles.
- Contractors: Must segregate direct and indirect costs, maintain adequate records, and comply with all cost allowability rules.
- Agencies: Oversee contractor compliance and may audit cost records for accuracy and adherence to regulations.
Practical Implications
- This subpart is essential for determining which costs can be charged to government contracts, impacting pricing, billing, and audit outcomes.
- Misclassification or improper allocation of costs can lead to disallowed costs, penalties, or contract disputes.
- Contractors must have robust accounting systems and clear documentation to support cost claims.