Insights

FAR 31 Allowability: Firm Events

November 11, 2024

In government contracting, the Federal Acquisition Regulation (FAR) provides guidelines for determining the allowability of costs incurred by government contractors. One of the key aspects of FAR Part 31 is the treatment of costs associated with firm events, which can include, but is not limited to activities such as meetings, conferences, tradeshows and training sessions. Understanding the allowability of these costs is essential for government contractors to ensure compliance and proper cost recovery. This article explores the principles governing firm events allowability under FAR Part 31, along with best practices for government contractors.

Overview of FAR Part 31

FAR Part 31 outlines the principles for determining the allowability of costs incurred by government contractors. The primary objective of this guidance is to ensure that costs charged to government contracts are reasonable, allocable, and conform to the terms of the contract. The allowability of costs can be evaluated based on several criteria, including:

Reasonableness: The cost must be necessary for the performance of the contract and reflect a cost that a prudent person would incur under similar circumstances. These are costs incurred within the normal course of business.
Allocability: Costs must be assigned to specific contracts in a manner that is consistent with and proportionate to the benefits received. Consistency and proportionality are equally important.
Compliance: Costs must comply with the terms of the contract and any applicable laws or regulations. These may vary by state, county, etc.

Firm Events and Allowability

Firm events can include a variety of activities, such as:

Conferences and Meetings: These can be internal or external events aimed at fostering collaboration, business development, or enhancing skills. Some examples may include but are not limited to tradeshows, board meetings, etc.
Training Sessions: Specific activities designed to improve employee skills or knowledge relevant to the contract.

The allowability of costs related to firm events under FAR 31 is assessed based on the following criteria:

Purpose and Necessity: The costs associated with firm events must serve a legitimate business purpose related to the performance of the government contract. For example, if a contractor hosts a training session to enhance employee skills critical for contract execution, these costs may be deemed allowable.
Cost Limitations: FAR 31.205-43 provides specific limitations on costs related to entertainment, including the prohibition of costs for social activities or events that do not have a direct benefit to the contract. Government contractors must ensure that any firm event does not fall into these prohibited categories.
Documentation: Proper documentation is essential to substantiate the allowability of firm event costs. This includes maintaining records of the purpose of the event, the attendees, the agenda, and the costs incurred. This documentation should clearly demonstrate how the event relates to the contract’s objectives.
Reasonable Costs: The costs incurred for firm events must be reasonable in nature and scope. This includes evaluating whether the expenses align with what is customary and accepted in the industry. Excessive costs, particularly for meals, lodging, or entertainment, may raise red flags during audits. Documentation is vital yet again with proving the reasonable nature of costs.

Best Practices for Government Contractors

To navigate the complexities of cost allowability for firm events under FAR 31, government contractors should implement the following best practices:

Establish Clear Policies: Develop and maintain clear policies governing the planning and execution of firm events. These policies should align with FAR requirements and include guidelines for determining the allowability of costs.
Conduct Thorough Planning: Ensure that any firm event is planned with a clear understanding of its purpose and how it relates to contract performance. A well-defined agenda can help demonstrate the event’s relevance.
Maintain Comprehensive Documentation: Keep detailed records of all costs associated with firm events, including invoices, receipts, agendas, and attendance lists. This documentation will be crucial during FAR overhead audits or reviews.
Train Employees: Educate employees about FAR requirements related to firm events and FAR 31 in general. This training should emphasize the importance of cost allowability and the documentation needed to support claims.
Seek Legal or Compliance Guidance: When in doubt about the allowability of specific costs, government contractors should consult legal or compliance experts familiar with FAR regulations to ensure adherence to the guidelines.

Understanding the allowability of firm events under FAR 31 is critical for government contractors seeking to recover costs associated with these activities. By adhering to the principles of reasonableness, allocability, and compliance, and by maintaining comprehensive documentation, government contractors can navigate the complexities of cost recovery while ensuring compliance with federal regulations. As government contracting continues to evolve, staying informed about regulatory changes and best practices will be essential for successful contract management.

For more information about McKonly & Asbury’s Architecture, Engineering, and Construction (AEC) experience, visit the AEC Industry Page and don’t hesitate to contact a member of the AEC team.