Allowable and Unallowable Cost Policy

BACKGROUND

Federal Acquisition Regulation (FAR) Part 31 is commonly referred to as the “Cost Principles”. These principles establish guidelines for the allocability of costs and address the allowability of certain categories of costs. The consequence of knowingly submitting unallowable costs could be severe. GovC and the employees can be criminally charged with fraud, for which the penalty could be a fine, suspension, debarment or even imprisonment.

PURPOSE

This policy provides the requirement to exclude costs from USG claims that the USG has determined to be unallowable. This document provides basic requirements that GovC entities must follow in identifying and categorizing allowable and unallowable costs.

DEFINITIONS

“Unallowable Costs” - Are costs which, by provisions of any pertinent law, regulation or contract, cannot be included in prices, cost reimbursements, or settlements under a Government contract to which it is allocable. Costs that are ‘expressly unallowable’, can result in penalties up to three times the amount of the original unallowable cost, if the contracts to which the costs are allocable contain the FAR, “Allowable Cost and Payment” clause (FAR 52.216-13).

“Allocable cost” - A cost is allocable if it is assignable or chargeable to one or more cost objectives on the basis of relative benefits received or other equitable relationship. Subject to the foregoing, a cost is allocable to a Government contract if it:

• Is incurred specifically for the contract;
• Benefits both the contract and other work, and can be distributed to them in reasonable proportion to the benefits received; or
• Is necessary to the overall operation of the business, although a direct relationship to any particular cost objective cannot be shown.

SCOPE

This policy applies to all GovC entities whose costs will ultimately be included on government contracts, whether they be direct costs or indirect costs.

POLICY

It is the policy of GovC to exclude unallowable costs from its pricing and costing of USG contracts. It is also the policy of GovC to not claim reimbursement of contract costs that are specifically identified by contract to be non-reimbursable.

BASIC REQUIREMENTS

Unallowable and Contract Non-reimbursable accounts must be set up to identify and segregate unallowable and non-reimbursable costs.

All costs/ must be analyzed to determine if they are allowable or unallowable under Government contracts.

Costs must be classified according to the proper categorization of those costs, allowable, unallowable, or contract non-reimbursable.

The processing and payment of all costs must include the proper segregation of duties, and chart of authorities, to ensure that proper internal controls are in place to prevent the mis-categorization of costs, or prevent improper payment of costs.

Costs must be categorized as either direct or indirect and the classification of unallowable should not change this categorization. Indirect rate structures should provide for the proper inclusion of all unallowable costs except for General and Administrative (G&A) costs.

Previously incorrectly categorized costs should be reclassified from allowable to unallowable in all books and records to include the General Ledger, Indirect Rates and Budgets, and contract costs.

Documentation should be compiled and readily available for all costs for which GovC is pricing, or seeking reimbursement.

Comprehensive Downloadable Policy

For a comprehensive downloadable policy, go here. http://www.govcwiki.org/index.php?title=File:USG_Allowable_and_Unallowable_Cost_Policy.docx