[Code of Federal Regulations]

[Title 48, Volume 1]

[Revised as of October 1, 2005]

From the U.S. Government Printing Office via GPO Access

[CITE: 48CFR31.201-3]



[Page 600-601]

 

            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. 31.201-3  Determining reasonableness.



    (a) A cost is reasonable if, in its nature and amount, it does not 

exceed that which would be incurred by a prudent person in the conduct 

of competitive business. Reasonableness of specific costs must be 

examined with particular care in connection with firms or their separate 

divisions that may not be subject to effective competitive restraints. 

No presumption of reasonableness shall be attached to the incurrence of 

costs by a contractor. If an initial review of the facts results in a 

challenge of a specific cost by the contracting officer or the 

contracting officer's representative, the burden of



[[Page 601]]



proof shall be upon the contractor to establish that such cost is 

reasonable.

    (b) What is reasonable depends upon a variety of considerations and 

circumstances, including--

    (1) Whether it is the type of cost generally recognized as ordinary 

and necessary for the conduct of the contractor's business or the 

contract performance;

    (2) Generally accepted sound business practices, arm's length 

bargaining, and Federal and State laws and regulations;

    (3) The contractor's responsibilities to the Government, other 

customers, the owners of the business, employees, and the public at 

large; and

    (4) Any significant deviations from the contractor's established 

practices.



[52 FR 19804, May 27, 1987]