Public Relations and Advertising Costs
The first cost “selected” tends to be one to give heartburn to contractors and auditors alike. I can remember sitting in Technical Indoctrination at the DCAA Contract Audit Institute in Memphis, TN back in 2000 and having an example of an advertisement put in front of us. The debate within our small groups was good enough, but when the class started discussing, the topics went all over. There were debates about whether color versus black-and-white made a difference in the “calling favorable attention” standard held up. In the end, though, the intent never seemed that complex.
The principle has been revised twice since I was in that class. The substance is basically the same though. This may come as a surprise to some, but the Government is not necessarily interested in the best interests of the way your business is run. Yes, they want to encourage small businesses. Yes, they want you to be able to make a profit. No, they are not going to help you run the whole thing. This applies to the costs of your business also.
Advertising is inherently a business cost meant to call favorable attention to your company, your products, your events, or whatever else is listed in the advertisement. The Government will let you know what it needs and when it needs it by way of a RFP. I haven’t heard of many COs that decide to go searching the newspaper or listen to the radio to decide on what kind of equipment the troops need or the right computer to buy. They go to GSA. They go to FBO. If they already have experience with you – they even go to your catalog.
Public relations and advertising can still get a bit tricky. The mantra I have followed throughout my career is “When in doubt, leave it out.” I will probably mention this a few more times as we go through the costs.
The Government is interested (overall) in increasing exports and transparency. This principle deals with some specifically unallowable items and some that are allowable with restrictions.
Specifically unallowable public relations and advertising costs include:
- Those that specifically stimulate interest in a product or product line (unless allowable under FAR 31.205-38(b)(5);
- Those that enhance the contractor’s image to sell products or services;
- Trade Shows and special events that do not contain a significant effort to promote exporting;
- Sponsoring meetings, conventions and other special events that do not primarily disseminate technical information or stimulation of production;
- Cost of ceremonies;
- Cost of promotional materials designed to call favorable attention to the contractor and its activities;
- Cost of membership in civic and community organizations; and,
- Donation of food to nonprofit organizations.
Allowable advertising costs include:
- Those that are specifically required by contract;
- Promote the export of products;
- Allowable under FAR 31.205-34; and,
- Plant tours and open houses (unless the favorable attention standard applies).
Next up… ADP and Bad Debt