31.205-38 Selling costs
Source: FAR 31.205-38 on acquisition.gov
Only specific, properly documented selling costs are allowable on government contracts, and commissions or fees are only permitted when paid to bona fide employees or established selling agencies.
Overview
FAR 31.205-38 defines and regulates the allowability of selling costs incurred by contractors in marketing their products or services to the government. It clarifies which types of selling activities are allowable, references related cost principles for specific categories, and sets boundaries on compensation for sales agents. The section ensures that only reasonable and properly categorized selling costs are charged to government contracts, preventing unallowable or excessive expenses from being reimbursed.
Key Rules
- Definition of Selling Costs
- Selling costs include all marketing efforts, but only those specifically addressed in this section or referenced subsections are potentially allowable.
- Categories of Selling Activities
- Advertising, corporate image enhancement, bid and proposal costs, market planning, and direct selling are addressed, each with specific allowability rules and cross-references to other FAR subsections.
- Allowability of Direct Selling
- Direct selling costs (e.g., customer meetings, demonstrations, negotiations) are generally allowable.
- Compensation for Sales Agents
- Fees or commissions for sellers or agents are only allowable if paid to bona fide employees or established commercial/selling agencies maintained by the contractor.
Responsibilities
- Contracting Officers: Must review and determine the allowability of selling costs based on this section and referenced subsections.
- Contractors: Must categorize and document selling costs accurately, ensuring compliance with allowability rules and proper payment of sales-related compensation.
- Agencies: Oversee compliance and may audit selling cost claims for adherence to FAR requirements.
Practical Implications
- This section helps prevent improper charging of marketing and sales expenses to government contracts.
- Contractors must be diligent in classifying selling costs and referencing the correct FAR subsections for allowability.
- Common pitfalls include misclassifying advertising or corporate image costs, or paying unallowable commissions to non-qualified agents.
(a) "Selling" is a generic term encompassing all efforts to market the contractor’s products or services, some of which are covered specifically in other subsections of 31.205. The costs of any selling efforts other than those addressed in this cost principle are unallowable.
(b) Selling activity includes the following broad categories:
(1) Advertising. Advertising is defined at 31.205-1(b), and advertising costs are subject to the allowability provisions of 31.205-1(d) and (f).
(2) Corporate image enhancement. Corporate image enhancement activities, including broadly targeted sales efforts, other than advertising, are included within the definition of public relations at 31.205-1(a), and the costs of such efforts are subject to the allowability provisions at 31.205-1(e) and (f).
(3) Bid and proposal costs. Bid and proposal costs are defined at 31.205-18 and are subject to the allowability provisions of that subsection.
(4) Market planning. Market planning involves market research and analysis and general management planning concerned with development of the contractor’s business. Long-range market planning costs are subject to the allowability provisions of 31.205-12. Other market planning costs are allowable.
(5) Direct selling. Direct selling efforts are those acts or actions to induce particular customers to purchase particular products or services of the contractor. Direct selling is characterized by person-to-person contact and includes such efforts as familiarizing a potential customer with the contractor’s products or services, conditions of sale, service capabilities, etc. It also includes negotiation, liaison between customer and contractor personnel, technical and consulting efforts, individual demonstrations, and any other efforts having as their purpose the application or adaptation of the contractor’s products or services for a particular customer’s use. The cost of direct selling efforts is allowable.
(c) Notwithstanding any other provision of this subsection, sellers’ or agents’ compensation, fees, commissions, percentages, retainer or brokerage fees, whether or not contingent upon the award of contracts, are allowable only when paid to bona fide employees or established commercial or selling agencies maintained by the contractor for the purpose of securing business.