31.205-25
Manufacturing and production engineering costs
Only specific manufacturing and production engineering costs are allowable, while basic research and development for sale items must follow separate cost principles.
Overview
FAR 31.205-25 addresses the allowability of manufacturing and production engineering costs in government contracts. It specifies which types of engineering efforts are considered allowable costs, such as developing new materials, improving production processes, and analyzing manufacturing suitability. The section also clarifies exclusions, notably that basic and applied research, as well as development for items intended for sale, are not covered here but under FAR 31.205-18. Additionally, if such costs are capitalized per the contractor’s accounting policies, their allowability is determined by FAR 31.205-11 on depreciation.
Key Rules
- Allowable Manufacturing and Production Engineering Costs
- Costs for developing and deploying new or improved materials, systems, processes, pilot lines, and production improvements are allowable.
- Exclusions
- Basic and applied research, and development for items intended for sale, are not allowable under this section and must follow FAR 31.205-18.
- Capitalization of Costs
- If costs are capitalized, their allowability is governed by FAR 31.205-11 (Depreciation).
Responsibilities
- Contracting Officers: Ensure claimed costs meet the criteria for allowability and are not excluded by this section.
- Contractors: Properly classify and document manufacturing and production engineering costs, and apply correct cost principles for research or capitalized costs.
- Agencies: Oversee compliance and review cost submissions for adherence to these rules.
Practical Implications
- This section helps contractors determine which engineering costs can be charged to government contracts, reducing disputes over cost allowability.
- Misclassification of research or capitalized costs is a common pitfall, potentially leading to disallowed costs or audit findings.
- Clear documentation and adherence to accounting policies are essential for compliance.