31.201-2 Determining allowability
Source: FAR 31.201-2 on acquisition.gov
A cost is only allowable if it is reasonable, allocable, properly documented, and complies with contract terms, applicable cost principles, and selected CAS or GAAP standards.
Overview
FAR 31.201-2 outlines the criteria for determining whether a cost is allowable under a government contract. To be allowable, a cost must meet several requirements: it must be reasonable, allocable, comply with applicable Cost Accounting Standards (CAS) or generally accepted accounting principles, adhere to the terms of the contract, and not exceed any limitations set forth in FAR Subpart 31.2. The section also clarifies that only specific CAS standards referenced in the cost principles are mandatory unless the contract is fully CAS-covered. Contractors must use consistent accounting practices, and any costs resulting from inconsistent practices that exceed allowable amounts are unallowable. Additionally, contractors are responsible for maintaining adequate records to support claimed costs, and contracting officers may disallow costs that are not properly documented or supported.
Key Rules
- Allowability Criteria
- Costs must be reasonable, allocable, comply with CAS or GAAP, adhere to contract terms, and not exceed FAR limitations.
- CAS Applicability
- Only CAS standards specifically referenced in cost principles are mandatory unless the contract is CAS-covered.
- Consistency in Accounting Practices
- Costs from inconsistent accounting practices that exceed allowable amounts are unallowable.
- Recordkeeping and Documentation
- Contractors must maintain adequate records to support all claimed costs.
Responsibilities
- Contracting Officers: Review cost allowability, disallow unsupported or inadequately documented costs.
- Contractors: Ensure costs meet all allowability criteria, use consistent accounting practices, and maintain thorough documentation.
- Agencies: Oversee compliance with cost principles and CAS requirements.
Practical Implications
- This section ensures that only appropriate, well-documented costs are charged to government contracts, protecting taxpayer funds.
- Contractors must be diligent in applying cost principles, maintaining records, and understanding when CAS applies.
- Common pitfalls include inadequate documentation, inconsistent accounting practices, and misunderstanding CAS applicability.
(a) A cost is allowable only when the cost complies with all of the following requirements:
(1) Reasonableness.
(2) Allocability.
(3) Standards promulgated by the CAS Board, if applicable, otherwise, generally accepted accounting principles and practices appropriate to the circumstances.
(4) Terms of the contract.
(5) Any limitations set forth in this subpart.
(b) Certain cost principles in this subpart incorporate the measurement, assignment, and allocability rules of selected CAS and limit the allowability of costs to the amounts determined using the criteria in those selected standards. Only those CAS or portions of standards specifically made applicable by the cost principles in this subpart are mandatory unless the contract is CAS-covered (see part 30). Business units that are not otherwise subject to these standards under a CAS clause are subject to the selected standards only for the purpose of determining allowability of costs on Government contracts. Including the selected standards in the cost principles does not subject the business unit to any other CAS rules and regulations. The applicability of the CAS rules and regulations is determined by the CAS clause, if any, in the contract and the requirements of the standards themselves.
(c) When contractor accounting practices are inconsistent with this subpart 31.2, costs resulting from such inconsistent practices in excess of the amount that would have resulted from using practices consistent with this subpart are unallowable.
(d) A contractor is responsible for accounting for costs appropriately and for maintaining records, including supporting documentation, adequate to demonstrate that costs claimed have been incurred, are allocable to the contract, and comply with applicable cost principles in this subpart and agency supplements. The contracting officer may disallow all or part of a claimed cost that is inadequately supported.