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    Under the scenario above, would you allow proposal preparation costs?


    Proposal preparation costs are allowable indirect expenses, provided they are allocable and reasonable (see FAR 31.205-18(c)). These costs are also allowable as direct costs if the contractor is required to prepare a proposal under the contract. Instances where the contractor can appropriately charge proposal preparation costs directly to a contract include: preparation of a proposal for adjustment in response to a change order, preparation of a value engineering change proposal (VECP), and preparation of a proposal to definitize an undefinitized contractual action. For more information, see DPAP Memorandum, Subject: Direct and Indirect Charging of Contractor Proposal Preparation and Negotiation Support Costs, dtd. 10 Nov 2011.

    In the scenario you described, it seems that the Government made a change to the contract and the contractor has submitted a proposal for a price adjustment. If that is the case, then proposal preparation costs would be allowable as direct costs, provided they are allocable and reasonable. 

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