New Year’s Resolution #9: I will rock around the unallowable clock

January 17, 2023

At a glance

While company holiday parties and events are fun, they are likely unallowable costs in the eyes of the government.
If you’re a government contractor, you need to know what’s allowed and what’s not.
A good rule to remember is that if it’s fun, it’s probably unallowable.

The full story:

As we turn the page on a new year, companies have finalized their time entertaining and celebrating with holiday parties and generous gifts. While such things are fun and part of the joy of the holiday season, it’s important to remember that they are likely unallowable costs in the eyes of the government.

If you’re a government contractor, a good rule to remember when you’re considering what’s allowable and what’s not is that if it’s fun, it’s probably unallowable.

What are ‘Fun’ FAR clauses?

While there is a ‘fun’ section of the Federal Acquisition Regulation (FAR), it’s hard to find allowable activities within them.

The “Fun” FAR clauses, also known as FAR 31.205-13, Employee Morale, and FAR 31.205-14, Entertainment Costs, are the main culprits in ruining these good times.

FAR 31.205-13 shuts down the cost of gifts and recreation, except for company-sponsored sports teams, and FAR 31.205-14 broadly shuts down the rest of the fun by saying that “costs of amusement, diversions, social activities, and directly associates costs…are unallowable.”

Some government contractors think they can get away with claiming fun activities by saying they are allowable employee morale, but make no mistake, the government will question almost anything fun as unallowable, citing those costs as unallowable entertainment under FAR 31.205-14.

What about CAB (costs of alcoholic beverages)?

We can’t talk about fun without also discussing FAR 31.205-51, Costs of Alcoholic Beverages. A FAR clause with only six words that takes the cake as the ultimate party pooper: “Costs of alcoholic beverages are unallowable.”

Alcohol is considered an expressly unallowable cost in the government’s eyes. If they find that alcohol has been claimed by a contractor, not only will those costs be questioned, but you’ll also likely incur penalties, and they will look at associated costs for the event – food for reasonableness, and if labor was also claimed.

The bottom line

Feel free to throw that party or buy your employees happy hour drinks, just don’t expect the government to pay for it.

If you’re ever in doubt about allowable costs in the future, remember that fun costs aren’t usually allowable expenses in the eyes of the federal government.