Understanding Federal Acquisition Regulation (FAR) Part 31 And Reimbursable Costs

The Federal Acquisition Regulation (FAR) Part 31 exists to help government contractors determine which costs are reimbursable and how these costs should be accounted for. This is a document every contractor needs to be familiar with since charging for costs not covered under FAR Part 31 could result in penalties, and failing to report every reimbursable cost could considerably reduce a contractor’s profit margin.

Why is FAR Part 31 important?

These guidelines should be followed if a contract requires cost analysis or if a contract clause specifies that costs need to be determined and negotiated. A contract that does not correspond to one of these scenarios does not fall under FAR Part 31.

The purpose of Federal Acquisition Regulation (FAR) Part 31 is to establish cost principles and procedures. These guidelines help maintain consistency between the accounting methods used by different contractors and need to be followed so that government agencies can easily review costs and approve the reimbursement of qualifying expenses.What kind of costs are reimbursable under FAR Part 31?

Costs have to meet a few requirements to be considered as reimbursable:

Costs should be reasonable. It is your responsibility to make sure you purchase the needed materials and equipment at a reasonable price and do not overpay another contractor if you decide to subcontract part of the project.
Allocability is another important factor to take into consideration. Allocability is the term used to refer to a cost that is relevant to a job. In other words, an expense is reimbursable only if you can prove that it is necessary and beneficial to the project you are working on.
Costs need to be recorded and submitted according to the accounting standards government contractors have to follow. If you are not familiar with these standards, take the time to read Pamphlet No. 7641.90.
Costs need to respect the terms of the contract and cannot correspond to expenses listed as unallowable in FAR Part 31. You need to carefully read the documentation for FAR Part 31 as well as your contract to make sure all the expenses you submit are allowed by both documents. Keep in mind that the costs that qualify as reimbursable can vary from one project to another since your contract might have specific clauses that cover or exclude a certain type of cost.

This is only a general overview of FAR Part 31 and you definitely need to familiarize yourself with this document as well as with accounting standards government contractors have to follow before you submit your costs for reimbursement purposes. This is crucial since penalties could be applied or the reimbursement process delayed if you did not follow guidelines when submitting your costs. Contact us to learn more about our accounting software designed to meet the unique needs of government contractors and how this tool could help you follow accounting guidelines as well as accurately track reimbursable costs.