31.201-1 Composition of total cost
Source: FAR 31.201-1 on acquisition.gov
Total contract cost includes all allocable direct and indirect costs, but only those costs that are also allowable under FAR Part 31 and agency supplements can be charged to the Government.
Overview
FAR 31.201-1 defines how the total cost of a government contract is determined. It states that the total cost is the sum of all direct and indirect costs allocable to the contract, including properly adjusted standard costs and any allocable cost of money, minus any allocable credits. The regulation allows for any generally accepted, equitable, and consistently applied method for determining or estimating costs. However, while all allocable costs are included in the total cost, only those costs that are also allowable under FAR Part 31 and any applicable agency supplements can be charged to the Government.
Key Rules
- Total Cost Composition
- Total cost includes all direct and indirect costs allocable to the contract, adjusted standard costs, allocable cost of money, and less any allocable credits.
- Cost Determination Methods
- Any generally accepted, equitable, and consistently applied method may be used to determine or estimate costs.
- Allowable vs. Allocable Costs
- Only costs that are both allocable and allowable under FAR Part 31 and agency supplements are chargeable to the Government.
Responsibilities
- Contracting Officers: Ensure only allowable and allocable costs are reimbursed; review contractor cost methodologies for consistency and equity.
- Contractors: Use consistent, equitable, and generally accepted methods for cost determination; segregate allocable and allowable costs; deduct allocable credits.
- Agencies: Oversee compliance with cost principles and agency supplements.
Practical Implications
- This section ensures clarity and fairness in how contract costs are calculated and reimbursed.
- Contractors must maintain robust cost accounting practices and distinguish between allocable and allowable costs.
- Common pitfalls include inconsistent cost allocation methods or charging unallowable costs to the Government.
(a) The total cost, including standard costs properly adjusted for applicable variances, of a contract is the sum of the direct and indirect costs allocable to the contract, incurred or to be incurred, plus any allocable cost of money pursuant to 31.205-10, less any allocable credits. In ascertaining what constitutes a cost, any generally accepted method of determining or estimating costs that is equitable and is consistently applied may be used.
(b) While the total cost of a contract includes all costs properly allocable to the contract, the allowable costs to the Government are limited to those allocable costs which are allowable pursuant to part 31 and applicable agency supplements.