Foreign Currency Translation Costs

Exchange Rate Fluctuations

A contract that is to be performed outside the United States will incur costs in a currency other than the US Dollar. Currency rates throughout the world fluctuate, the estimated financial impact (costs) needs to be captured in the estimate to perform the work, or the contract should have an Economic Price Adjustment clause that allows for the redetermination of contract price based on foreign currency translations.

Allowability of Foreign Currency Translation Costs

The treatment of foreign currency translation costs is generally treated as an allowable costs. However, DCAA will from time to time challenge those costs, and cite them as contingency costs, which are not allowable, because they can not be readily determined, citing FAR 31.205-7 incorrectly. There is no specific mention of these costs under FAR 31 - Contract Cost Principles and Procedures.

ASBCA Case

Elter S.A, ASBCA No. 52441, 52792, 53082

• The case relates to a firm, fixed-price contract for construction of multiple facilities at the Naval Support Activity (NSA), Souda Bay, Crete, Greece.

• Etler decided to protect against the risk of currency translation costs, and included a 2% contingency amount in the offered price. The contingency amount of 2% was applied to the total estimated costs of the contract.

• The 2% was not enough to cover the cover the translation losses Elter experienced, and should sought a claim in the Armed Board of Contract Appeals.

• She lost, there was no Economic Price Adjustment clause in the contract. Additionally, she had estimated 2% for exchange rate costs.

Link of case summmary...http://www.asbca.mil/Decisions/2001/52792_53082.pdf