31.205-23
Losses on other contracts
Losses from other contracts cannot be charged to or recovered under a different government contract; each contract must stand on its own for cost accounting purposes.
Overview
FAR 31.205-23 addresses the treatment of losses incurred by contractors on contracts other than the one being billed. Specifically, it states that any excess of costs over income (i.e., losses) from other contracts, including the contractor’s own contributions under cost-sharing contracts, cannot be charged to or recovered under a different government contract. This rule ensures that each contract stands on its own for cost accounting purposes and prevents contractors from offsetting losses from one contract against profits or costs on another.
Key Rules
- Unallowable Losses
- Losses from other contracts, including cost-sharing contributions, are not allowable costs on the current contract.
- Cost Segregation
- Contractors must segregate costs and income by contract and not cross-charge losses.
Responsibilities
- Contracting Officers: Must ensure that claimed costs do not include losses from other contracts.
- Contractors: Must not allocate or bill losses from other contracts to government contracts.
- Agencies: Should review cost proposals and incurred cost submissions for compliance.
Practical Implications
- This rule prevents contractors from shifting financial risk or poor performance from one contract to another, protecting the government from subsidizing unrelated losses.
- Contractors must maintain accurate accounting systems to track costs and income by contract.
- Common pitfalls include mistakenly allocating indirect costs or losses from other projects to government contracts, which can result in disallowed costs and potential penalties.