31.205-35 Relocation costs
Source: FAR 31.205-35 on acquisition.gov
Only reasonable, properly documented, and policy-consistent relocation costs are allowable, with strict limits and refund requirements if employees resign within 12 months.
Overview
FAR 31.205-35 outlines the rules for determining the allowability of relocation costs incurred by contractors when employees are permanently reassigned or newly recruited for work assignments of 12 months or more. It specifies which types of relocation expenses are allowable, sets monetary and procedural limitations, and identifies unallowable costs. The regulation also addresses lump-sum reimbursements, refund requirements if employees resign within 12 months, and special provisions for employees hired for specific contracts or field projects.
Key Rules
- Allowable Relocation Costs
- Includes travel, transportation of household goods, home finding, temporary lodging, certain closing and ownership costs, and other reasonable expenses, subject to specific limits (e.g., 14% of home sale price for certain costs, 5% for new home acquisition).
- Criteria for Allowability
- Moves must benefit the employer, follow consistent company policy, not exceed actual expenses (with some lump-sum exceptions), and not be otherwise unallowable under FAR 31.2.
- Unallowable Costs
- Loss on home sale, certain home acquisition costs (e.g., broker fees, litigation), continuing mortgage principal payments, and costs related to special mortgage arrangements are not allowable.
- Refund Requirement
- If an employee resigns within 12 months for reasons within their control, previously allowed relocation costs must be refunded or credited to the Government.
- Special/Mass Movements
- Family or mass personnel movements are allowable if costs are properly allocated.
- Field Project Employees
- Relocation costs for employees hired for specific contracts/field projects are allowable if employment is 12+ months and agreements specify return relocation, with certain exceptions for refunds.
Responsibilities
- Contracting Officers: Ensure claimed relocation costs meet FAR criteria, monitor for required refunds, and verify lump-sum calculations and documentation.
- Contractors: Maintain consistent relocation policies, document and justify all claimed costs, adhere to monetary limits, and refund costs if employees resign within 12 months for personal reasons.
- Agencies: Oversee contractor compliance, review cost allowability, and enforce refund provisions.
Practical Implications
- This section ensures only reasonable, necessary, and properly documented relocation costs are charged to government contracts, protecting government funds from excessive or inappropriate expenses. Contractors must be diligent in policy application, documentation, and monitoring employee tenure to avoid disallowed costs or refund obligations.
(a) Relocation costs are costs incident to the permanent change of assigned work location (for a period of 12 months or more) of an existing employee or upon recruitment of a new employee. The following types of relocation costs are allowable as noted, subject to the limitations in paragraphs (b) and (f) of this subsection:
(1) Costs of travel of the employee and members of the employee’s immediate family (see 31.205-46) and transportation of the household and personal effects to the new location.
(2) Costs of finding a new home, such as advance trips by the employee or the spouse, or both, to locate living quarters, and temporary lodging during the transition period for the employee and members of the employee’s immediate family.
(3) Closing costs incident to the disposition of the actual residence owned by the employee when notified of the transfer (e.g., brokerage fees, legal fees, appraisal fees, points, and finance charges), except that these costs, when added to the costs described in paragraph (a)(4) of this subsection, shall not exceed 14 percent of the sales price of the property sold.
(4) Continuing costs of ownership of the vacant former actual residence being sold, such as maintenance of building and grounds (exclusive of fixing up expenses), utilities, taxes, property insurance, and mortgage interest, after the settlement date or lease date of a new permanent residence, except that these costs, when added to the costs described in paragraph (a)(3) of this subsection, shall not exceed 14 percent of the sales price of the property sold.
(5) Other necessary and reasonable expenses normally incident to relocation, such as disconnecting and connecting household appliances; automobile registration; driver’s license and use taxes; cutting and fitting rugs, draperies, and curtains; forfeited utility fees and deposits; and purchase of insurance against damage to or loss of personal property while in transit.
(6) Costs incident to acquiring a home in the new work location, except that-
(i) These costs are not allowable for existing employees or newly recruited employees who were not homeowners before the relocation; and
(ii) The total costs shall not exceed 5 percent of the purchase price of the new home.
(7) Mortgage interest differential payments, except that these costs are not allowable for existing or newly recruited employees who, before the relocation, were not homeowners and the total payments are limited to an amount determined as follows:
(i) The difference between the mortgage interest rates of the old and new residences times the current balance of the old mortgage times 3 years.
(ii) When mortgage differential payments are made on a lump-sum basis and the employee leaves or is transferred again in less than 3 years, the amount initially recognized shall be proportionately adjusted to reflect payments only for the actual time of the relocation.
(8) Rental differential payments covering situations where relocated employees retain ownership of a vacated home in the old location and rent at the new location. The rented quarters at the new location must be comparable to those vacated, and the allowable differential payments may not exceed the actual rental costs for the new home, less the fair market rent for the vacated home times 3 years.
(9) Costs of canceling an unexpired lease.
(10) Payments for increased employee income or Federal Insurance Contributions Act (26 U.S.C.Chapter21) taxes incident to allowable reimbursed relocation costs.
(11) Payments for spouse employment assistance.
(b) The costs described in paragraph (a) of this subsection must also meet the following criteria to be considered allowable:
(1) The move must be for the benefit of the employer.
(2) Reimbursement must be in accordance with an established policy or practice that is consistently followed by the employer and is designed to motivate employees to relocate promptly and economically.
(3) The costs must not be otherwise unallowable under subpart 31.2.
(4) Amounts to be reimbursed shall not exceed the employee’s actual expenses, except as provided for in paragraphs (b)(5) and (b)(6) of this subsection.
(5) For miscellaneous costs of the type discussed in paragraph (a)(5) of this subsection, a lump-sum amount, not to exceed $5,000, may be allowed in lieu of actual costs.
(6)
(i) Reimbursement on a lump-sum basis may be allowed for any of the following relocation costs when adequately supported by data on the individual elements (e.g., transportation, lodging, and meals) comprising the build-up of the lump-sum amount to be paid based on the circumstances of the particular employee’s relocation:
(A) Costs of finding a new home, as discussed in paragraph (a)(2) of this subsection.
(B) Costs of travel to the new location, as discussed in paragraph (a)(1) of this subsection (but not costs for the transportation of household goods).
(C) Costs of temporary lodging, as discussed in paragraph (a)(2) of this subsection.
(ii) When reimbursement on a lump-sum basis is used, any adjustments to reflect actual costs are unallowable.
(c) The following types of costs are unallowable:
(1) Loss on the sale of a home.
(2) Costs incident to acquiring a home in the new location as follows:
(i) Real estate brokers’ fees and commissions.
(ii) Costs of litigation.
(iii) Real and personal property insurance against damage or loss of property.
(iv) Mortgage life insurance.
(v) Owner’s title policy insurance when such insurance was not previously carried by the employee on the old residence. (However, the cost of a mortgage title policy is allowable.)
(vi) Property taxes and operating or maintenance costs.
(3) Continuing mortgage principal payments on a residence being sold.
(4) Costs incident to furnishing equity or nonequity loans to employees or making arrangements with lenders for employees to obtain lower-than-market rate mortgage loans.
(d) If relocation costs for an employee have been allowed either as an allocable indirect or direct cost, and the employee resigns within 12 months for reasons within the employee’s control, the contractor shall refund or credit the relocation costs to the Government.
(e) Subject to the requirements of paragraphs (a) through (d) of this section, the costs of family movements and of personnel movements of a special or mass nature are allowable. The cost, however, should be assigned on the basis of work (contracts) or time period benefited.
(f) Relocation costs (both outgoing and return) of employees who are hired for performance on specific contracts or long-term field projects are allowable if-
(1) The term of employment is 12 months or more;
(2) The employment agreement specifically limits the duration of employment to the time spent on the contract or field project for which the employee is hired;
(3) The employment agreement provides for return relocation to the employee’s permanent and principal home immediately prior to the outgoing relocation, or other location of equal or lesser cost; and
(4) The relocation costs are determined under the rules of paragraphs (a) through (d) of this section. However, the costs to return employees, who are released from employment upon completion of field assignments pursuant to their employment agreements, are not subject to the refund or credit requirement of paragraph (d).