31.205-39 Service and warranty costs
Source: FAR 31.205-39 on acquisition.gov
Service and warranty costs are allowable if consistent with contract terms, but must not be duplicated in both estimated product cost and risk allowances.
Overview
FAR 31.205-39 addresses the allowability of service and warranty costs incurred by contractors in fulfilling contractual obligations such as installation, training, correcting defects, replacing defective parts, and issuing refunds for inadequate performance. The regulation clarifies that these costs are generally allowable, provided they are not inconsistent with the contract terms. However, contractors must ensure that such costs are not duplicated as both an element of estimated product cost and as a risk factor, which could lead to double-counting and unallowable charges. This section is crucial for contractors to properly allocate and justify service and warranty expenses in their cost proposals and billing to the government.
Key Rules
- Allowability of Service and Warranty Costs
- Service and warranty costs are allowable if they are consistent with the contract terms.
- Avoidance of Duplication
- Contractors must not duplicate these costs as both estimated product costs and as risk allowances.
Responsibilities
- Contracting Officers: Ensure that service and warranty costs claimed are consistent with contract terms and not duplicated.
- Contractors: Properly allocate, document, and avoid double-counting service and warranty costs in proposals and billings.
- Agencies: Oversee compliance and review cost submissions for accuracy and consistency.
Practical Implications
- This section exists to prevent double-charging the government for the same service and warranty obligations.
- It impacts daily cost accounting and proposal preparation for contractors.
- Common pitfalls include failing to segregate these costs or inadvertently including them in multiple cost categories.
Service and warranty costs include those arising from fulfillment of any contractual obligation of a contractor to provide services such as installation, training, correcting defects in the products, replacing defective parts, and making refunds in the case of inadequate performance. When not inconsistent with the terms of the contract, service and warranty costs are allowable. However, care should be exercised to avoid duplication of the allowance as an element of both estimated product cost and risk.