This response is based on the information provided. We suggest you discuss with your contracting team, program manager and/or legal department as appropriate.
We believe you will find support for your question in the DCAA contract audit manual. Industrial Participation (IP) activities are not specifically addressed in the FAR or DFARS. As described IP activities equate to offset activities and thus it makes sense to apply the same rules and guidelines.
A key question to ask is, "What does the company’s business unit disclosure plan say?"
DFARS 225.7303-2 (a)(3)(iv) states:
“(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.”