31.205-13
Employee morale, health, welfare, food service, and dormitory costs and credits
Only reasonable, necessary, and properly documented employee morale, health, welfare, food service, and dormitory costs are allowable, with strict limitations on gifts, recreation, and losses.
Overview
FAR 31.205-13 addresses the allowability of costs related to employee morale, health, welfare, food service, and dormitory operations in government contracts. It outlines which activities and associated costs are allowable, sets limitations, and provides guidance on handling losses, indirect expenses, and contributions to employee organizations. The regulation aims to ensure that only reasonable and necessary costs for improving employee conditions and performance are charged to government contracts, while preventing unallowable expenses such as gifts and most recreational costs.
Key Rules
- Allowable Activities
- Costs for activities improving working conditions, morale, and performance (e.g., house publications, health clinics, wellness centers, counseling, food/dormitory services) are generally allowable, less any income generated.
- Unallowable Costs
- Gifts (except certain awards) and most recreational costs are unallowable. Only specific team or fitness-related recreation is permitted.
- Food and Dormitory Losses
- Losses are allowable only if services are operated on a break-even basis, unless unusual circumstances justify otherwise (e.g., remote locations, excessive unproductive labor costs).
- Indirect Expenses
- Food and dormitory costs must include an allocable share of indirect expenses.
- Employee Associations
- Profits from employee associations operating services must be treated as if the contractor operated them. Contributions to such organizations are allowable only if equivalent costs would be allowable if incurred directly.
Responsibilities
- Contracting Officers: Ensure claimed costs comply with these rules and review justifications for losses or contributions.
- Contractors: Maintain documentation, operate services on a break-even basis, exclude unallowable costs, and justify any unusual circumstances or contributions.
- Agencies: Oversee compliance and audit cost submissions.
Practical Implications
- This section prevents contractors from charging the government for excessive or unnecessary employee-related costs. Contractors must carefully document and justify allowable costs, especially for food and dormitory losses or contributions to employee organizations. Common pitfalls include misclassifying gifts, failing to operate services on a break-even basis, or not allocating indirect expenses properly.