[Code of Federal Regulations]
[Title 48, Volume 1]
[Revised as of October 1, 2003]
From the U.S. Government Printing Office via GPO Access
[CITE: 48CFR31.201-6]

[Page 576]
 
            TITLE 48--FEDERAL ACQUISITION REGULATIONS SYSTEM
 
                CHAPTER 1--FEDERAL ACQUISITION REGULATION
 
PART 31_CONTRACT COST PRINCIPLES AND PROCEDURES--Table of Contents
 
          Subpart 31.2_Contracts With Commercial Organizations
 
Sec.  31.201-6  Accounting for unallowable costs.

    (a) Costs that are expressly unallowable or mutually agreed to be 
unallowable, including mutually agreed to be unallowable directly 
associated costs, shall be identified and excluded from any billing, 
claim, or proposal applicable to a Government contract. A directly 
associated cost is any cost which is generated solely as a result of 
incurring another cost, and which would not have been incurred had the 
other cost not been incurred. When an unallowable cost is incurred, its 
directly associated costs are also unallowable.
    (b) Costs which specifically become designated as unallowable or as 
unallowable directly associated costs of unallowable costs as a result 
of a written decision furnished by a contracting officer shall be 
identified if included in or used in computing any billing, claim, or 
proposal applicable to a Government contract. This identification 
requirement applies also to any costs incurred for the same purpose 
under like circumstances as the costs specifically identified as 
unallowable under either this paragraph or paragraph (a) above.
    (c) The practices for accounting for and presentation of unallowable 
costs will be those as described in 48 CFR 9904.405-50, Accounting for 
Unallowable Costs.
    (d) If a directly associated cost is included in a cost pool which 
is allocated over a base that includes the unallowable cost with which 
it is associated, the directly associated cost shall remain in the cost 
pool. Since the unallowable costs will attract their allocable share of 
costs from the cost pool, no further action is required to assure 
disallowance of the directly associated costs. In all other cases, the 
directly associated costs, if material in amount, must be purged from 
the cost pool as unallowable costs.
    (e)(1) In determining the materiality of a directly associated cost, 
consideration should be given to the significance of (i) the actual 
dollar amount, (ii) the cumulative effect of all directly associated 
costs in a cost pool, or (iii) the ultimate effect on the cost of 
Government contracts.
    (2) Salary expenses of employees who participate in activities that 
generate unallowable costs shall be treated as directly associated costs 
to the extent of the time spent on the proscribed activity, provided the 
costs are material in accordance with subparagraph (e)(1) above (except 
when such salary expenses are, themselves, unallowable). The time spent 
in proscribed activities should be compared to total time spent on 
company activities to determine if the costs are material. Time spent by 
employees outside the normal working hours should not be considered 
except when it is evident that an employee engages so frequently in 
company activities during periods outside normal working hours as to 
indicate that such activities are a part of the employee's regular 
duties.
    (3) When a selected item of cost under 31.205 provides that directly 
associated costs be unallowable, it is intended that such directly 
associated costs be unallowable only if determined to be material in 
amount in accordance with the criteria provided in paragraphs (e)(1) and 
(e)(2) above, except in those situations where allowance of any of the 
directly associated costs involved would be considered to be contrary to 
public policy.

[48 FR 42301, Sept. 19, 1983, as amended at 59 FR 67045, Dec. 28, 1994]