Economic planning costs
Economic planning costs for long-range business development are allowable, but must be distinguished from organization/reorganization and market planning costs.
Overview
FAR 31.205-12 addresses the allowability of economic planning costs for government contractors. Economic planning costs refer to expenses incurred for general, long-range management planning focused on the future development of the contractor’s business, including considerations for potential economic changes or disruptions in the markets where the contractor operates. The regulation makes clear that such costs are allowable as part of contract cost principles, provided they are not related to organization or reorganization (which are covered under FAR 31.205-27) or market planning costs (covered under FAR 31.205-38). Contractors must distinguish economic planning costs from other planning expenses to ensure proper cost allocation and compliance.
Key Rules
- Allowability of Economic Planning Costs
- Economic planning costs are generally allowable as indirect costs under government contracts.
- Exclusions
- Costs related to organization or reorganization are not included and are governed by FAR 31.205-27.
- Market planning costs not related to economic planning are covered under FAR 31.205-38.
Responsibilities
- Contracting Officers: Must ensure claimed economic planning costs are properly classified and allowable under this section.
- Contractors: Must accurately identify, segregate, and document economic planning costs, ensuring they are not misclassified as organization/reorganization or market planning costs.
- Agencies: Should review cost submissions for compliance and proper allocation.
Practical Implications
- This section clarifies which long-range planning costs are allowable, helping contractors plan for future business development without risking cost disallowance.
- Misclassification of costs (e.g., confusing economic planning with organization or market planning) is a common pitfall and can lead to audit findings or disallowed costs.