31.201
General
FAR 31.201 establishes the core principles for determining which costs can be charged to government contracts, requiring costs to be allowable, reasonable, and allocable.
Overview
FAR 31.201 provides the foundational rules for determining the total cost of government contracts with commercial organizations. It outlines the principles for identifying, measuring, and assigning costs to contracts, including the allowability, reasonableness, and allocability of costs. This section also addresses how credits, unallowable costs, and specific requirements for construction and architect-engineer contracts are handled. The purpose is to ensure that only appropriate and properly documented costs are charged to government contracts, supporting transparency and compliance with federal regulations.
Key Rules
- Composition of Total Cost
- Total cost includes all direct and indirect costs allocable to the contract, less applicable credits.
- Determining Allowability
- Costs must meet specific criteria to be allowable, including compliance with contract terms and FAR cost principles.
- Determining Reasonableness
- Costs must be reasonable for the work performed and consistent with what a prudent business person would incur.
- Determining Allocability
- Costs must be assignable to one or more cost objectives in reasonable proportion to the benefits received.
- Credits
- Any applicable credits (such as discounts, rebates, or recoveries) must be deducted from total costs.
- Accounting for Unallowable Costs
- Unallowable costs must be identified and excluded from any billing, claim, or proposal to the government.
- Construction and Architect-Engineer Contracts
- Special provisions may apply for these contract types, as referenced in this section.
Responsibilities
- Contracting Officers: Ensure costs claimed are allowable, reasonable, and allocable; review contractor submissions for compliance.
- Contractors: Properly identify, document, and segregate allowable and unallowable costs; apply credits; maintain adequate records.
- Agencies: Oversee compliance and conduct audits as necessary.
Practical Implications
- This section is essential for establishing the baseline for cost accounting and compliance in government contracts.
- It impacts how contractors prepare cost proposals, maintain accounting systems, and support audits.
- Common pitfalls include misclassifying costs, failing to apply credits, or including unallowable costs in billings.