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  • Question

    Are the costs of insurance for the risk of incurring unallowable costs that are not reimbursed allowable?


    Answer

    According to the FAR a cost is allowable only when it complies with the five requirements of reasonableness, allocability, CAS standards if applicable, the terms of the contract and the limitations of FAR subpart 31.2.  (FAR 31.201-2(a))  Failing any one of these requirements makes a cost unallowable.

    In your situation the cost of the insurance fails the reasonableness test (and well may fail some or all of the other criteria, but failing one is sufficient to be unallowable). 
    The reasonableness test is whether “a prudent person in the conduct of competitive business” would incur this cost.  (
    FAR 31.203-1(a)),  It seems unlikely that a prudent person in competitive business would pay for the cost of insuring risk “x” if they were not going to be liable if risk “x” actually occurred.   Therefore it is not reasonable to expect the government to reimburse the cost of insurance.   

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