Difference between revisions of "Category:Indirect Rates"

Revision as of 16:17, 3 March 2015

Indirect Cost Pools

“Indirect cost pools” means groupings of incurred costs identified with two or more cost objectives but not identified specifically with any final cost objective^[1].

Advance Agreements

It is always good to have an advance agreement on costs and the treatment of costs to avoid possible disallowance or dispute regarding the allowability, allocability, or reasonableness of costs. Advance agreements may be negotiated either before or during a contract but should be negotiated before incurrence of the costs involved. The agreements must be in writing, executed by both contracting parties, and incorporated into applicable current and future contracts. An advance agreement shall contain a statement of its applicability and duration^[2].

Determining Allowability^[3]

(a) A cost is allowable only when the cost complies with all of the following requirements:

(1) Reasonableness.

(2) Allocability.

(3) Standards promulgated by the CAS Board, if applicable, otherwise, generally accepted accounting principles and practices appropriate to the circumstances.

(4) Terms of the contract.

(5) Any limitations set forth in this subpart.

Determining Reasonableness^[4]

(a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer’s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable.

(b) What is reasonable depends upon a variety of considerations and circumstances, including—

(1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor’s business or the contract performance;

(2) Generally accepted sound business practices, arm’s-length bargaining, and Federal and State laws and regulations;

(3) The contractor’s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and

(4) Any significant deviations from the contractor’s established practices.

Determining allocability

References

1. ↑ FAR 31.001 Definitions
2. ↑ FAR 31.109(b) Advance Agreements
3. ↑ FAR 31.201-2
4. ↑ FAR 31.201-3