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    My question is based on the above, is the Loss Damage/Collision Damage Waiver and or Theft insurance charged by the rental car company to the independent contractor an allowable expense and billable to the Federal Government? Would the prime contractor be entitled to reimbursement from the Government for these costs? If these costs are allowable what is being used to justify this allowability? FAR, JTR, combination of both? Thank You.


    This Ask-A-Professor Question lacks sufficient information necessary to provide an answer.  In order to resolve this issue it is imperative to read the terms and conditions of the contract.  A contract is supposed to contain all the appropriate information necessary to satisfactorily complete the requirements of the contract.  When contract disputes arise then it is up to the Procuring Contracting Officer to resolve them.  Information on the loss damage waiver and theft insurance should be included in the prime contract.  Since this situation involves an independent contractor working for a prime contractor then this information should be included in the subcontract.  Providing an adequate answer is not reasonable without knowing what is included in either the prime contract or the sub contract.  The contractor’s Cost Accounting Practices and Disclosure Statement may also provide useful information.


    The allowability of insurance is dependent upon several factors including what terms and conditions are (or are not) included in the contract between the Government and the prime contractor.  Since the independent contractor (subcontractor) is the entity that seems to be concerned with the allowability of the loss damage waiver and theft insurance then they need to resolve this issue with their prime contractor.  The independent contractor needs to check their contract with the prime contractor to see what insurance provisions are (or are not) included.  This issue needs to be resolved between the prime contractor and the independent contractor because the Government has no privity of contract with the independent contractor (the Government has no direct contractual relationship with the subcontractor).  If the prime contractor has difficulty interpreting the contract with respect to the allowability of insurance costs then they need to go to the Procuring Contracting Officer for a resolution.  If there is still a problem then either party may need to seek the advice of legal counsel.


    The following sources on insurance may be helpful in resolving your issue:

    31.201-2 -- Determining Allowability.

    (a) A cost is allowable only when the cost complies with all of the following requirements:

    (1) Reasonableness.

    (2) Allocability.

    (3) Standards promulgated by the CAS Board, if applicable; otherwise, generally accepted accounting principles and practices appropriate to the circumstances.

    (4) Terms of the contract.

    (5) Any limitations set forth in this subpart.

    (b) Certain cost principles in this subpart incorporate the measurement, assignment, and allocability rules of selected CAS and limit the allowability of costs to the amounts determined using the criteria in those selected standards. Only those CAS or portions of standards specifically made applicable by the cost principles in this subpart are mandatory unless the contract is CAS-covered (see Part 30). Business units that are not otherwise subject to these standards under a CAS clause are subject to the selected standards only for the purpose of determining allowability of costs on Government contracts. Including the selected standards in the cost principles does not subject the business unit to any other CAS rules and regulations. The applicability of the CAS rules and regulations is determined by the CAS clause, if any, in the contract and the requirements of the standards themselves.

    (c) When contractor accounting practices are inconsistent with this Subpart 31.2, costs resulting from such inconsistent practices in excess of the amount that would have resulted from using practices consistent with this subpart are unallowable.

    (d) A contractor is responsible for accounting for costs appropriately and for maintaining records, including supporting documentation, adequate to demonstrate that costs claimed have been incurred, are allocable to the contract, and comply with applicable cost principles in this subpart and agency supplements. The contracting officer may disallow all or part of a claimed cost that is inadequately supported.

    FAR 31.205-19 Insurance and Indemnification.





    48 CFR 28

    28.307   Insurance under cost-reimbursement contracts.

    28.307-2   Liability.

     (c) Automobile liability. The contracting officer shall require automobile liability insurance written on the comprehensive form of policy. The policy shall provide for bodily injury and property damage liability covering the operation of all automobiles used in connection with performing the contract. Policies covering automobiles operated in the United States shall provide coverage of at least $200,000 per person and $500,000 per occurrence for bodily injury and $20,000 per occurrence for property damage. The amount of liability coverage on other policies shall be commensurate with any legal requirements of the locality and sufficient to meet normal and customary claims.

    48 CFR 9904.416 Accounting for Insurance Costs.

    Pricing Handbook  14. Cost Accounting Standards

    14.7 Disclosure Statements

    "A Disclosure Statement is a written description of a contractor’s cost accounting practices and procedures." [48 CFR 9903.202-1(a)] It is used as a means to measure the consistency and compliance of a contractor’s day-to-day cost accounting with applicable CAS.


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