31.205-47
Costs related to legal and other proceedings
Legal and related costs tied to proceedings involving violations, fraud, or misconduct are generally unallowable, and contractors must segregate such costs and comply with strict limitations and documentation requirements.
Overview
FAR 31.205-47 establishes the rules for determining the allowability of costs related to legal and other proceedings for government contractors and subcontractors. It defines which legal, administrative, and related costs are unallowable when incurred in connection with proceedings involving violations of law, fraud, whistleblower complaints, or other specified actions. The regulation covers costs incurred before, during, and after proceedings, and applies to both criminal and civil cases, including investigations and settlements. It also sets forth specific exceptions, limitations on allowable costs, and requirements for cost segregation and contracting officer determinations.
Key Rules
- Unallowable Costs
- Costs related to proceedings resulting in conviction, liability, penalties, debarment, contract termination, or similar adverse outcomes are unallowable.
- Allowable Costs (with Limitations)
- Some costs may be allowed if proceedings are resolved by consent or compromise, or if the contracting officer determines there was little likelihood of success for the claimant, but allowable costs are capped at 80%.
- Special Cases
- Costs related to proceedings initiated by state, local, or foreign governments may be allowable if directly resulting from contract terms or written direction from the contracting officer.
- Other Unallowable Costs
- Costs for defending against government claims, antitrust suits, certain employee suits, patent litigation, and protests are generally unallowable unless specifically authorized.
- Cost Segregation and Withholding
- Contractors must segregate potentially unallowable costs, and contracting officers may withhold payment during proceedings.
Responsibilities
- Contracting Officers: Must determine allowability, consult legal advisors, and may withhold or conditionally pay costs during proceedings.
- Contractors: Must segregate and account for potentially unallowable costs, comply with limitations, and provide assurances for repayment if costs are later disallowed.
- Agencies: Oversee compliance, provide written direction when needed, and ensure proper application of cost allowability rules.
Practical Implications
- This section exists to prevent the government from reimbursing contractors for costs associated with legal violations or misconduct.
- Contractors must carefully track and document all legal and related costs, understand when costs are unallowable, and seek contracting officer guidance for ambiguous situations.
- Common pitfalls include failing to segregate costs, misunderstanding the 80% cap, or incurring costs in unallowable proceedings without proper documentation or authorization.