IS IFF unallowable like federal income tax?
In order to answer this question, I was forced to first find out more about what GSA IFFs are. I always try to go to the source whenever possible, so I went to the GSA website that talks about IFFs (https://72a.gsa.gov/ifffaq.cfm). On the top of that page, it states, “The Federal Supply Service (FAS) Multiple Award Schedule (MAS) Industrial Funding Fee (IFF) Program was developed by working closely with industry and customer agencies. The IFF is a fee paid by customers to fund the cost of operating the MAS program. Customer agencies pay this fee when they purchase items from a MAS contractor with a contract containing IFF provisions. The fee is included in the price of the item and is not a separate line item; therefore, the award prices or discounts that appear in contractors' price lists already include the fee.” I am going to assume that your client is a MAS contractor who has one, or several, federal agencies that go through them to purchase items from the FAS. Now, someone at one of those federal agencies is claiming that because they are a federal agency they should not have to pay the IFF that is included in the cost of the items that they are purchasing. I hate making assumptions, but I have to in this case in order to explore solutions.
Next, anytime that someone asks a question about allowability, I take a moment to discuss just that concept before getting into the specific question. The reason that I want to discuss allowability is that nowhere in the Federal Acquisition Regulations (FAR) is the term actually defined. Therefore, let us be absolutely clear that allowability means that a cost can be charged to a government contract, and the government will pay the contractor for that cost. The reverse of the idea of allowability is the term unallowable. Unallowability means that a cost cannot be charged to a government contract, and even if it were, the government will not (cannot) pay the contractor for that cost.
Even though the term is not defined, FAR 31.201-2 spells out the criteria that must be used to determine if a cost is allowable.
31.201-2 -- Determining Allowability.
(a) A cost is allowable only when the cost complies with all of the following requirements:
(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.
Finally, we will us these five criteria for determining allowability and our knowledge of GSA IFFs to determine if GSA Industrial Funding Fees (IFF) are allowable or unallowable for government contracting.
- First, FAR 31.201-3 talks about reasonableness. After reviewing what that section says and recognizing that 1.) GSA annually sets the IFF amounts, and 2.) ALL MAS contractors with IFF provisions have to pay the IFF, reasonableness seems covered. IFF costs are reasonable – check!
- Second, FAR 31.201-4 discusses the idea of allocability. It specifically states, “A cost is allocable if it is assignable or chargeable to one or more cost objectives on the basis of relative benefits received or other equitable relationship.” I find it extremely interesting that the GSA’s IFF website says, “The fee is included in the price of the item and is not a separate line item…” What that means is that even the GSA recognizes that the cost is allocable. But more specifically, it means that the IFF is allocable as a direct cost to the contract that is being used to purchase the FAS items from the MAS contractor. IFF allocable as a direct cost – check!
- Third, Cost Accounting Standards (CAS), if applicable, and/or GAAP and accounting practices. I would doubt that your client has any contracts that are CAS covered (either partially or fully). However, even if they are CAS covered, there are none of the standards that would change the way the IFF cost is accounted for. If the contracts are not CAS covered, I know of no GAAP accounting principle or practice that would not require the IFFs to be charged as direct costs to government contracts. IFF costs accountable under CAS and/or GAAP – check!
- Fourth, I trust that your client did not allow a provision to be included in any of their MAS contracts that stated that GSA IFFs could not be charged to the contract. Remember, while the terms of a contract can never be less stringent than regulation (law), they can be more stringent. As an example, FAR 31.205-41(b)(1) says that Federal income and excess profits taxes are not allowable, therefore you could not have a contract provision saying that on this contract the government will pay (allow) those costs. However, FAR 31.205-41(a)(1) states that, other than the taxes listed in -41(b)(1)-(8), Federal, state and local taxes are allowable. But a provision could be included in the contract that stated that even though another type of tax is allowable per 31.205-41, it will not be allowed on this contract. No extra term on the contract making IFFs unallowable – check!
- Finally, limitations set out in Subpart 31. FAR 31.205, commonly called the “Cost Principles,” consists of around fifty-two categories of costs that are either always allowed, always unallowed, or allowed with some restrictions. These Cost Principles change frequently due to changes in statute, regulations, or Executive Order. This particular question would seem to want to tie Federal income tax and GSA IFFs into the same category for the determination of allowability per FAR 31.205-41. While it is true that Federal income tax is unallowable per FAR 31.205-41(b)(1), Federal income tax and GSA Industrial Funding Fees are absolutely NOT similar in any way. There is a long legal dissertation regarding the difference between a tax and a fee that I do not have the time to go into here. Let it suffice to say that an IFF CANNOT be a tax for the sole reason that GSA has NO statutory authority to be a taxing agent of the federal government. NO Cost Principles in FAR 31.205 that make GSA Industrial Funding Fees unallowable – check!
Summary: With the admission that I have never been a Defense Contract Management Agency (DCMA) ACO/CACO/DACO or a Defense Contract Audit Agency (DCAA) auditor, there is nothing that I can find in FAR or DFARS that leads me to believe that GSA Industrial Funding Fees (IFF) are unallowable for government contracting. In fact, after utilizing the five criteria for allowability that are given in FAR 31.201-2, I have every confidence that GSA IFFs are an allowable cost for government contracting.
Suggestions: First, I would suggest that you read the source documents that pertain to your situation. Explore the GSA website that gives details about the IFF program at https://72a.gsa.gov/ifffaq.cfm. Read the Federal Acquisition Regulation (FAR) Part 31, paying particular attention to Subparts 31.201 and 31.205. Secondly, it is most strongly recommended that you contact your legal counsel for more information and their policy interpretation of this issue.
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