Are costs associated with responding to CPAR evaluations allowable and allocable?
The cost of preparing the REA including legal and accounting fees as well as negotiation expenses generally are allowable but interest is not. The goal should be to resolve the REA as quickly and equitably as reasonably possible in order to minimize cost as much as possible.
A cost must comply with the five-part test as outlined in FAR 31.202-2(a) to be considered allowable. The five-part test includes,
(3) Standards in CAS or GAAP
(4) Terms of the contract and
(5) Limitations set forth in FAR 31.2.
All five must be met before a cost can be considered allowable.
Of course, the first place you should look is the contract itself to determine if it says anything about paying CPARS costs or puts limitations on how those costs can be charged to the contract.
The standard for reasonableness is provided at FAR 31.201-3(b)(1), where it states and I’m summarizing: reasonableness depends upon a variety of considerations and circumstances, including "whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor’s business or the contract performance and the contractor’s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large." I think it’s fair to say that completing CPARs is fulfilling a Contractor responsibility to the Government.
I, also reviewed the selected cost in FAR 31.205, and the closest one I could find pertaining to the issue at hand was FAR 31.205-28 Other Business Expenses, which simply states the following recurring types of business costs are allowable:
(d) Preparing and publishing reports to shareholders.
(e) Preparing and submitting required reports and forms to taxing and other regulatory bodies and
(g) Other similar costs.
Completing CPARS reports might be construed as a “similar costs” to “preparing reports for other regulatory bodies” which would make it allowable for purposes of FAR 31.205-28.
What about allocability? You have to read FAR 31.201-4 where it states “a cost is allocable to a Government contract if it-
(a) Is incurred specifically for the contract;
(b) Benefits both the contract and other work, and can be distributed to them in reasonable proportion to the benefits received; or
(c) Is necessary to the overall operation of the business, although a direct relationship to any particular cost objective cannot be shown.”
And FAR 31.203(b) which states the following: “After direct costs have been determined and charged directly to the contract or other work, indirect costs are those remaining to be allocated to intermediate or two or more final cost objectives. No final cost objective shall have allocated to it as an indirect cost any cost, if other costs incurred for the same purpose, in like circumstances, have been included as a direct cost of that or any other final cost objective.” In other words, the same cost cannot be charged to a contract twice, once as a direct cost and again as an indirect cost. Therefore, I recommend that you determine how the contractor normally charges CPARs directly or indirectly (via an indirect rate) to their contracts and is the contractor’s request here consistent with their accounting practices for recouping CPARs costs. Personally, I’m not used to seeing cost for completing CPARS included in an REA. However, if the contractor has very few government contracts, it’s possible this cost might be included if it had a direct bearing on the costs being claimed under the REA.
Finally, I recommend that you contact your local financial comptroller organization, acquisition legal counsel and Contracting Officer for more information and their policy interpretation of this issue.