Determining allowability
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.