Selected Costs Series, Part 3 (FAR 31.205-4 & 31.205-5)

This section of the series deals with two more “Selected Costs” from FAR 31.205.  The first is Bonding Costs, the second is [Reserved] but used to be Civil Defense Costs.

Bonding Costs

For as long as I can remember, I have dealt with risk assessment.  In my early years in elementary school I was faced with the bully demanding something from me.  I had to choose whether to give up my money/toy/lunch/etc. or deal with the repercussions of bullying[1]deciding not to.  Later, I would have to decide whether to tell the “psycho girlfriend” it was over or stick it out for a while longer to see if it “got better.”  The backlash from this decision could have been long-lived and included a family.

Risk Assessment gives us the ability to weigh our choices and map out some outcomes in a thoughtful manner.  One potential outcome of risk assessment is the ability to mitigate the risk through insurance (bonding costs).  FAR 31.205-4 allows contractors to include costs of assuring against financial loss as a result of default.  From the Government standpoint, this is practical because they could be a party to any settlement for default.  From the contractor’s standpoint, this is practical because they could be a party to bankruptcy proceedings.  This win-win situation really helps both sides and the mutual benefits are most likely the basis for the allowability of these costs.

In this section, bonding costs required by contract are allowable.  Bonding costs required in the general conduct of business are also allowable to the extent they are in accordance with “sound business practices.”  In either case, the rates and premiums must be reasonable under FAR 31.201-3, too.

[Reserved 12/29/98] Civil Defense Costs

From 1984 through 1998, the FAR included verbiage about Civil Defense Costs – I assume it was removed because we just didn’t have any more civil defense *grin*.  According to the old regulation,

“Civil defense costs are those incurred in planning for, and protecting life and property against, the possible effects of enemy attack.”

civildefenselogoMany costs covered under this part were made allowable – costs including costs in excess of normal plant protection costs, first-aid training and supplies, fire fighting training and equipment, posting of additional exit notices and directions, etc .  Although I never encountered these costs directly, I could see how some confusion would ensue as the costs also had to be “pursuant to suggestions or requirements of civil defense authorities” in order to be allowable.

This section also included allowability for capital assets for civil defense purposes, but made contributions to local civil defense funds and project unallowable.

 

Next up… Compensation for Personal Services… this should be a good one.

About Marty Herbert

With 13 years of government contract administration, analysis, finance, and audit experience, I have established a firm baseline in ethics and a specialization in government contracts that has prepared me to become a subject matter expert in my field. I am currently working on enhancing government contracts management and compliance through workflow tools and product offerings - attempting to make the process proactive as opposed to reactive.
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