Organization Costs - FAR 31.205-27
Contents |
31.205-27 Organization Costs[1]
Allowable or Unallowable?
Generally, unallowable, but only after the Management decision is made to pursue a specific merger, acquisition or divestiture. Prior to that, it is a routine management and decision making required to run a business, which is reasonable, and allowable.
However, this can be a complex topic, especially with internal and external restructurings. Please see related topics for additional information.
Summary
Expenditures in connection with
- (1) planning or executing the organization or reorganization of the corporate structure of a business, including mergers and acquisitions,
- (2) resisting or planning to resist the reorganization of the corporate structure of a business or a change in the controlling interest in the ownership of a business, and
- (3) raising capital (net worth plus long-term liabilities)[2],
ARE UNALLOWABLE. Such expenditures include but are not limited to incorporation fees and costs of attorneys, accountants, brokers, promoters and organizers, management consultants and investment counselors, whether or not employees of the contractor.
Unallowable “reorganization” costs include the cost of any change in the contractor’s financial structure, excluding administrative costs of short-term borrowings for working capital, resulting in alterations in the rights and interests of security holders, whether or not additional capital is raised.
Related Topics
Related Definitions
External Restructuring Activities
Related Regulations
DFARS 231.205-70 - External Restructuring Costs
Related Guidance
DCAA Contract Audit Manual, 7-1900 Section 19 ---Restructuring Costs
