Selected Costs Series, Part 8 (FAR 31.205-12 & 14, Economy and Entertainment)

If someone were to have told me 5 years ago to make an “economic plan” for a company I am not sure my plan would have even come close to what actually happened.  The good news, though, is if I worked for a government contractor, doing so would have been an allowable cost – even if it was wrong.

FAR 31.205-12, Economic Planning Costs

Econ 101Long-range planning attempts to show the strategic growth of a company in its given industry.  Taking into account all the possible outcomes and determining their probability across time takes some forward thinking, time, effort, and money.  The costs of “economic planning costs” are allowable.  However, the cost of organization and reorganization costs (31.205-27 will be covered another time, later).  Also, these costs shouldn’t be confused with market research and planning costs that are covered under 31.205-38, even though those costs are also, generally, allowable.

We will diverge momentarily from the ordinal list and jump to 31.205-14, Entertainment Costs, so we can come back to the larger issue of Employee Morale another day. 

You remember that Ferris Wheel that was set up on the company’s back lot last summer?  Although fun and perhaps arguably a “morale building” event, those costs were unallowable – were the beer tent (for so many reasons) and the petting zoo for the kids (ok, I admit I like the petting zoo, too).ferris-wheel-carousel-space-ride

FAR 31.205-14, Entertainment Costs

This section is pretty clear – “[c]osts of amusement, diversions, social activities, and any directly associated costs such as tickets to shows or sports events, meals, lodging, rentals, transportation, and gratuities are unallowable.”  I saw a lot of times when there was the argument under 31.205-13 that the costs of some items were considered to be “morale,” but keep in mind this part also excludes other principles from making these kinds of costs allowable.

Don’t try to sneak these costs in – these are the low-hanging fruit that auditors and inspectors crave.  Don’t waste time trying to justify the entertainment as “improving working conditions” or any of the other reasons under 31.205-13 where it could be allowable.  It just isn’t and you will lose the time spent, the cost, and the penalties associated with these unallowable costs in the end.

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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