[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: 48CFR31.203]



[Page 603-604]

 

            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. 31.203  Indirect costs.



    (a) For contracts subject to full CAS coverage, allocation of 

indirect costs shall be based on the applicable provisions. For all 

other contracts, the applicable CAS provisions in paragraphs (b) through 

(h) of this section apply.

    (b) After direct costs have been determined and charged directly to 

the contract or other work, indirect costs are those remaining to be 

allocated to intermediate or two or more final cost objectives. No final 

cost objective shall have allocated to it as an indirect cost any cost, 

if other costs incurred for the same purpose, in like circumstances, 

have been included as a direct cost of that or any other final cost 

objective.

    (c) The contractor shall accumulate indirect costs by logical cost 

groupings with due consideration of the reasons for incurring such 

costs. The contractor shall determine each grouping so as to permit use 

of an allocation base that is common to all cost objectives to which the 

grouping is to be allocated. The base selected shall allocate the 

grouping on the basis of the benefits accruing to intermediate and final 

cost objectives. When substantially the same results can be achieved 

through less precise methods, the number and composition of cost 

groupings should be governed by practical considerations and should not 

unduly complicate the allocation.

    (d) Once an appropriate base for allocating indirect costs has been 

accepted, the contractor shall not fragment the base by removing 

individual elements. All items properly includable in an indirect cost 

base shall bear a pro rata share of indirect costs irrespective of their 

acceptance as Government contract costs. For example, when a cost input 

base is used for the allocation of G&A costs, the contractor shall 

include in the base all items that would properly be part of the cost 

input base, whether allowable or unallowable, and these items shall bear 

their pro rata share of G&A costs.

    (e) The method of allocating indirect costs may require revision 

when there is a significant change in the nature of the business, the 

extent of subcontracting, fixed-asset improvement programs, inventories, 

the volume of sales and production, manufacturing processes, the 

contractor's products, or other relevant circumstances.

    (f) Separate cost groupings for costs allocable to offsite locations 

may be necessary to permit equitable distribution of costs on the basis 

of the benefits accruing to the several cost objectives.

    (g) A base period for allocating indirect costs is the cost 

accounting period during which such costs are incurred and accumulated 

for allocation to work performed in that period.

    (1) For contracts subject to full or modified CAS coverage, the 

contractor shall follow the criteria and guidance in 48 CFR 9904.406 for 

selecting the cost accounting periods to be used in allocating indirect 

costs.

    (2) For contracts other than those subject to paragraph (g)(1) of 

this section, the base period for allocating indirect costs shall be the 

contractor's fiscal year used for financial reporting purposes in 

accordance with generally accepted accounting principles. The fiscal 

year will normally be 12 months, but a different period may be 

appropriate (e.g., when a change in fiscal year occurs due to a business 

combination or other circumstances).



[[Page 604]]



    (h) Special care should be exercised in applying the principles of 

paragraphs (c), (d), and (e) of this section when Government-owned 

contractor-operated (GOCO) plants are involved. The distribution of 

corporate, division or branch office G&A expenses to such plants 

operating with little or no dependence on corporate administrative 

activities may require more precise cost groupings, detailed accounts 

screening, and carefully developed distribution bases.



[69 FR 17767, Apr. 5, 2004]