31.205-38
Selling costs
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.