Navigating FAR 31.205: Selected Costs: Costs that ARE Allowable

At a glance:

• The FAR 31.205 contains 46 cost topics. Only seven of these topics are considered allowable, and even then they come with caveats to their allowability.  
• Understanding and adhering to the specific regulations regarding allowable costs is of paramount importance for government contractors and subcontractors who want to avoid potential issues.
• Learn about the seven allowable cost topics, then contact Aprio’s Government Contracting team for more information and assistance complying with regulations.

Schedule a consultation with Aprio’s Government Contracting team today for more information about staying compliant with FAR 31.205.

Summary points:

• FAR 31.205 contains a list of 46 cost topics.
• Seven of those cost topics are considered allowable.
• Although generally identified as allowable, there are caveats to the allowability.

In government contracting, adherence to specific regulations regarding allowable costs is paramount. Contractors and subcontractors must understand these regulations to ensure compliance and avoid potential issues during contract performance or audits.

Our first blog discussed 10 expressly unallowable costs for which contractors cannot be reimbursed. This blog will focus on allowable costs, providing insight into what is considered acceptable.

31.205-4 Bonding Costs

Bonding is crucial for government contracts, ensuring that contractors fulfill their obligations. Contractors must exercise prudence in assessing bonding costs to ensure they fall within acceptable limits.

Exception:  Costs incurred to obtain unreasonable or excessively priced bonds are unallowable.

Contractors must exercise prudence in assessing bonding costs to ensure they fall within acceptable limits.

31.205-21 Labor Relations Costs

Reasonable and allocable labor relations costs, such as those associated with negotiating and administering collective bargaining agreements, are reimbursable and allowable.

Exceptions: 1) Expenses related to labor disputes, strikes, picketing or any other activities that result from unresolved labor management conflicts. 2) Costs related to union organizing efforts (i.e., for the purpose of persuading employees to join or not to join unions) are generally unallowable.

31.205-25 Manufacturing and Production Engineering

These costs are essential for contracts involving the production of goods. In most cases, these costs are considered allowable.

However, costs related to developing or applying new technologies, methods, processes and techniques are governed by 31.205-18 Independent Research and Development.

31-205-26 Material Costs

Material costs are allowable when they are reasonable, allocable and compliant with contract terms. Considerations include regulated processes and adjustments to commercial products or services.

31.205-28 Other Business Expenses

The Other Business Expenses category encompasses a range of expenses that do not fall into specific cost categories addressed elsewhere in the FAR. They include costs related to the general management and administration of the contractor’s business, as well as other miscellaneous costs not covered elsewhere.

Specifically Allowable: (a) Registry and transfer charges resulting from changes in ownership of securities issued by the contractor. (b) Cost of shareholders’ meetings. (c) Normal proxy solicitations. (d) Preparing and publishing reports to shareholders. (e) Preparing and submitting required reports and forms to taxing and other regulatory bodies. (f) Incidental costs of directors’ and committee meetings. (g) Other similar costs.

31.205-29 Plant Protection Costs

Costs related to safeguarding plants or assets are generally allowable.

Specifically Allowable: (a) Wages, uniforms and equipment of personnel engaged in plant protection, (b) Depreciation on plant protection capital assets, and (c) Necessary expenses to comply with military requirements, are allowable.

31.205-39 Service and Warranty Costs

Service and warranty costs are allowable when they arise from fulfillment of any contractual obligation.  Certain service and warranty costs may require prior approval and must be incurred within the appropriate period of performance specified in the contract.

Contractors should be aware of the criteria and caveats outlined in the FAR and ensure compliance with all applicable requirements to avoid potential issues during contract performance or audits. When in doubt about the allowability of specific costs, contractors should seek guidance.

For help with identifying costs that may or may not be claimed, contact Aprio’s Government Contracting specialists.

Related Resources:

What are “Selected Costs”

Tips for Effectively Negotiating Incremental Tax Reimbursement

When Does Cost or Pricing Data Need to be Certified, and What Does That Mean?

The Four Horsemen of the Incurred Cost Audit