31.205-17 Idle facilities and idle capacity costs
Source: FAR 31.205-17 on acquisition.gov
Idle facility costs are generally unallowable except in limited, well-documented circumstances, while idle capacity costs may be allowable if reasonable and unavoidable.
Overview
FAR 31.205-17 addresses the allowability of costs associated with idle facilities and idle capacity in government contracts. It defines key terms, establishes when such costs are allowable, and sets limitations on their reimbursement. The regulation distinguishes between idle facilities (completely unused and excess to current needs) and idle capacity (partially unused capacity of facilities). It clarifies that costs for idle facilities are generally unallowable unless they are necessary for workload fluctuations or were unforeseeably rendered idle, and even then, only for a reasonable period (usually not exceeding one year). Idle capacity costs, however, are generally allowable as normal business expenses if the capacity is necessary or was originally reasonable and cannot be reduced by subletting, renting, or sale. Special provisions apply for facilities reserved for defense mobilization, requiring a separate agreement.
Key Rules
- Definitions and Distinctions
- Clearly defines idle facilities, idle capacity, and the types of costs covered.
- Allowability of Idle Facilities Costs
- Costs are unallowable unless tied to workload fluctuations or unforeseeable changes, and only for a reasonable period.
- Allowability of Idle Capacity Costs
- Generally allowable if the capacity is necessary or was originally reasonable and cannot be reduced by other means.
- Special Agreements for Defense Mobilization
- Costs for facilities reserved for defense mobilization must be covered by a separate agreement with the Government.
Responsibilities
- Contracting Officers: Must evaluate and determine the allowability of idle facility and idle capacity costs, ensure compliance with time limits, and require separate agreements for defense mobilization.
- Contractors: Must justify and document the necessity of idle facilities/capacity, attempt to mitigate costs, and comply with time and usage limitations.
- Agencies: Oversee compliance and may negotiate separate agreements for defense mobilization needs.
Practical Implications
- This section exists to prevent the Government from paying for unnecessary or excessive idle facility costs, while recognizing some idle capacity as a normal business expense.
- Contractors must carefully document and justify any claimed idle facility or capacity costs, and proactively seek to reduce or eliminate such costs.
- Common pitfalls include claiming costs beyond the allowable period, failing to mitigate idle costs, or not securing required agreements for defense mobilization.
(a) Definitions. As used in this subsection-
Costs of idle facilities or idle capacity means costs such as maintenance, repair, housing, rent, and other related costs; e.g., property taxes, insurance, and depreciation.
Facilities means plant or any portion thereof (including land integral to the operation), equipment, individually or collectively, or any other tangible capital asset, wherever located, and whether owned or leased by the contractor.
Idle capacity means the unused capacity of partially used facilities. It is the difference between that which a facility could achieve under 100 percent operating time on a one-shift basis, less operating interruptions resulting from time lost for repairs, setups, unsatisfactory materials, and other normal delays, and the extent to which the facility was actually used to meet demands during the accounting period. A multiple-shift basis may be used in the calculation instead of a one-shift basis if it can be shown that this amount of usage could normally be expected for the type of facility involved.
Idle facilities means completely unused facilities that are excess to the contractor’s current needs.
(b) The costs of idle facilities are unallowable unless the facilities-
(1) Are necessary to meet fluctuations in workload; or
(2) Were necessary when acquired and are now idle because of changes in requirements, production economies, reorganization, termination, or other causes which could not have been reasonably foreseen. (Costs of idle facilities are allowable for a reasonable period, ordinarily not to exceed 1 year, depending upon the initiative taken to use, lease, or dispose of the idle facilities (but see 31.205-42)).
(c) Costs of idle capacity are costs of doing business and are a factor in the normal fluctuations of usage or overhead rates from period to period. Such costs are allowable provided the capacity is necessary or was originally reasonable and is not subject to reduction or elimination by subletting, renting, or sale, in accordance with sound business, economics, or security practices. Widespread idle capacity throughout an entire plant or among a group of assets having substantially the same function may be idle facilities.
(d) Any costs to be paid directly by the Government for idle facilities or idle capacity reserved for defense mobilization production shall be the subject of a separate agreement.