[Code of Federal Regulations]
[Title 48, Volume 1]
[Revised as of October 1, 2007]
From the U.S. Government Printing Office via GPO Access
[CITE: 48CFR31.203]

[Page 608-609]
 
            TITLE 48--FEDERAL ACQUISITION REGULATIONS SYSTEM
 
                CHAPTER 1--FEDERAL ACQUISITION REGULATION
 
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

[[Page 609]]

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).
    (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]