[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: 48CFR31.205-7]



[Page 613-614]

 

            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. 31.205-7  Contingencies.



    (a) Contingency, as used in this subpart, means a possible future 

event or condition arising from presently known or unknown causes, the 

outcome of which is indeterminable at the present time.

    (b) Costs for contingencies are generally unallowable for historical 

costing purposes because such costing deals with costs incurred and 

recorded on the contractor's books. However, in some cases, as for 

example, terminations, a contingency factor may be recognized when it is 

applicable to a past period to give recognition to minor unsettled



[[Page 614]]



factors in the interest of expediting settlement.

    (c) In connection with estimates of future costs, contingencies fall 

into two categories:

    (1) Those that may arise from presently known and existing 

conditions, the effects of which are foreseeable within reasonable 

limits of accuracy; e.g., anticipated costs of rejects and defective 

work. Contingencies of this category are to be included in the estimates 

of future costs so as to provide the best estimate of performance cost.

    (2) Those that may arise from presently known or unknown conditions, 

the effect of which cannot be measured so precisely as to provide 

equitable results to the contractor and to the Government; e.g., results 

of pending litigation. Contingencies of this category are to be excluded 

from cost estimates under the several items of cost, but should be 

disclosed separately (including the basis upon which the contingency is 

computed) to facilitate the negotiation of appropriate contractual 

coverage. (See, for example, 31.205-6(g) and 31.205-19.)



[69 FR 34243, June 18, 2004]