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  • Question

    Are parent costs allowable to subsidiary's contract?


    Answer

    According to FAR 31.205-26(e), “Allowance for all materials, supplies, and services that are sold or transferred between any divisions, subdivisions, subsidiaries, or affiliates of the contractor under a common control shall be on the basis of cost incurred in accordance with this subpart.”  (This section continues with some variations for certain circumstances, so please review it in full.)

    The fact that
    FAR part 31 deals with how to value the cost of transfer materials/supplies/services leads to the extremely reasonable inference that parent costs are allowable to a subsidiary’s contract.  The pertinent question in your circumstances would be whether the parent and subsidiary are under “common control,” the term used in the referenced section, and of course, whether the costs are otherwise reasonable, allocable, consistent with the terms of the contract and with CAS/or accounting standards,  and not prohibited by some other FAR section (FAR 31.201-2(a)).

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