31.204
Application of principles and procedures
Costs charged to government contracts must be reasonable, allocable, and allowable under FAR Part 31, with special rules for subcontracts and ambiguous cost items.
Overview
FAR 31.204 outlines how the cost principles and procedures in FAR Part 31 apply to determining the allowability of costs charged to government contracts. It establishes that costs must be reasonable, allocable, and allowable under the relevant sections (31.201, 31.202, 31.203, and 31.205). The section clarifies how these principles apply to various subcontract types and provides guidance for situations where costs are not specifically addressed in FAR 31.205. It also addresses how to handle costs that fall under multiple subsections of 31.205, ensuring that costs are apportioned or assigned to the most appropriate category for allowability determinations.
Key Rules
- General Allowability Criteria
- Costs must be reasonable, allocable, and allowable under the referenced FAR sections to be charged to government contracts.
- Subcontract Cost Allowability
- For cost-reimbursement, fixed-price incentive, and price redeterminable subcontracts, only costs consistent with FAR Part 31 are allowable for reimbursement.
- Firm-Fixed-Price Subcontracts
- Payments under firm-fixed-price or fixed-price with economic price adjustment subcontracts are allowable if the price was negotiated per FAR 31.102 and cost analysis was performed.
- Unlisted Cost Elements
- The absence of a cost item in FAR 31.205 does not automatically make it allowable or unallowable; allowability is determined by general principles and similar cost treatments.
- Multiple Relevant Subsections
- When a cost relates to more than one 31.205 subsection, it must be apportioned, or if not possible, assigned to the most specific applicable subsection.
Responsibilities
- Contracting Officers: Ensure costs claimed are reviewed for reasonableness, allocability, and allowability; verify subcontract cost analysis and negotiation compliance.
- Contractors: Apply cost principles consistently, perform required cost analyses for subcontracts, and document allowability determinations.
- Agencies: Oversee compliance with cost principles and provide guidance on ambiguous or complex cost items.
Practical Implications
- This section ensures consistent application of cost principles across contract types and subcontracts, reducing disputes over cost allowability.
- Contractors must be diligent in analyzing and documenting costs, especially for subcontracts and ambiguous cost items.
- Common pitfalls include misapplying cost principles to subcontracts or failing to properly apportion costs that fall under multiple categories.