Fall 2010 issue of Horizons

Contractors – continued

• Interest (unallowable) • Lobbying and political activities (unallowable) • Material costs (generally allowable) • Consultant costs (limited allowability) • Rental costs (generally allowable) • Federal income and excess profit taxes (unallowable) • Training costs (generally allowable) • Travel costs (generally allowable) • Claim prosecution costs against the federal government (unallowable) • Alcoholic beverage costs (unallowable) With a few exceptions, the treatment of specific costs in the FAR is quite detailed. For example, even though a cost such as personal services expenses (executive compensation and salaries) or insurance is generally allowable, the treatment of that cost category in the FAR can be very extensive. A cost may have specific requirements or conditions that must be met before the cost is truly allowable. Therefore, a contractor should review the version of the cost principles applicable to the particular contract carefully to determine if a cost is allowable and any conditions affecting allowability. Cost Accounting Standards Contractors should be familiar with Cost Accounting Standards (CAS). While FAR determines allowable costs, CAS provides guidance on acceptable cost accounting practices. CAS is governed by the Cost Accounting Standards Board and currently consists of 19 different standards. CAS guidance includes acceptable cost accounting practices for the measurement of costs, the allocation of costs and the assignment of costs to cost accounting periods. For contracts from $7.5 million but less than $50 million, compliance with selected cost accounting standards is required. For contracts of $50 million or more, full compliance with CAS is required.

If these principles apply, before the contractor may recover a particular cost, it must be allowable, allocable, and reasonable. Here is a listing of some examples of costs and their allowability:

• Advertising (unallowable) • Bad debts (unallowable)

• Bonding costs (generally allowable) • Compensation for personal services (generally allowable) • Depreciation (generally allowable) • Entertainment costs (unallowable) • Insurance (generally allowable)

Raise Your Expectations

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