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    1. Are pre-work ( before the offset agreement is signed) labor activities such as administrative work, bid & proposal, and offset related meetings an allowable charge to USG contracts per DFARS 225.7303-2(iii)? 2. Are all labor activities to support a FMS an allowable cost to USG contracts per DFARS 225.7303-2?


    Answer

    This response is based on the information provided.  We suggest you discuss with your contracting team, program manager and/or legal department as appropriate. 
     
    A key question to ask is, "What does the company’s business unit disclosure plan say?" 
     
    The below paragraph answers the pre-contract cost question:
     
    “DFARS 225.7303-2(c) The limitations for major contractors on independent research and development and bid and proposal (IR&D/B&P) costs for projects that are of potential interest to DoD, in 231.205-18(c)(iii), do not apply to FMS contracts, except as provided in 225.7303-5. The allowability of IR&D/B&P costs on contracts for FMS not wholly paid for from funds made available on a nonrepayable basis is limited to the contract’s allocable share of the contractor’s total IR&D/B&P expenditures. In pricing contracts for such FMS—
    (1) Use the best estimate of reasonable costs in forward pricing; and
    (2) Use actual expenditures, to the extent that they are reasonable, in determining final cost.”
     
    The answer to question #2 is in the following:
    Defense contractors may recover all offset agreement costs incurred for with a foreign government or international organization if the foreign government financed the LOA [DFARS 225.7303-2 (a)(3)(ii)].
    DFARS 225.7303-2 (a)(3)(iv) addresses indirect costs. 
    “(iv) Indirect offset costs are deemed reasonable for purposes of FAR parts 15 and 31 with no further analysis necessary on the part of the contracting officer, provided that the U.S. defense contractor submits to the contracting officer a signed offset agreement or other documentation showing that the FMS customer has made the provision of an indirect offset a condition of the FMS acquisition. FMS customers are placed on notice through the LOA that indirect offset costs are deemed reasonable without any further analysis by the contracting officer.”
     
    “DFARS 225.7303-2 (b) Costs not allowable under FAR Part 31 are not allowable in pricing FMS contracts, except as noted in paragraphs (c) and (e) of this subsection.”

     

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