Did these costs become relocation costs by virtue of the assignment's extension beyond 12 months?
If not, should these costs be evaluated as travel costs under FAR 31.205-46?
FAR 31.205 has specific guidance for determining allowability for a wide range of different types of costs. However, FAR 31.204(d) states that FAR 31.205 does not encompass every possible type of cost. If you are not able to find guidance for the cost you are reviewing in FAR 31.205, this should not be construed as meaning the cost is either allowable or unallowable. Also, the FAR gives the contracting officer some flexibility in determining the applicability of one or more of the selected costs to the cost in question. In particular when the cost at issue is not a perfect fit (but is similar to one or more of the selected costs from FAR 31.205), FAR 31.204(d) tells us that we can use “the subsection that most specifically deals with, or best captures the essential nature of, the cost at issue.” In other words, the contracting officer has the latitude to decide which, if any, of the selected costs is most similar to the cost at issue.
With that said based on the background information you provided, I think there are parts of FAR 31.205-35 which do sound fairly similar to your situation. For instance, paragraph (f) states relocation costs may be considered allowable for employees hired for a specific “long-term project” subject to their employment meeting certain criteria as outlined in this paragraph. Also, the government must verify that the relocation costs meets the specific criteria outlined in paragraph (b) for the cost to be considered allowable including it must benefit the employer and be consistent with their established policy and practice. Also, take a look at paragraph (c) which identifies relocation costs that are expressly unallowable. And, there’s much more information in FAR 31.205-35, but these were the paragraphs I thought were most helpful after a quick read of this subsection.
Finally, I strongly recommend discussing the cost at issue with your contracting officer, legal counsel and cost analyst. (If you don’t have a cost analyst in your local organization, you can elevate this to your contracting higher headquarters where they normally do have these expertise.) Also, DCMA may be able to help you analyze these costs and give you a recommendation.
Applicable FAR references:
FAR 31.204 Application of principles and procedures.
(d) Section 31.205 does not cover every element of cost. Failure to include any item of cost does not imply that it is either allowable or unallowable. The determination of allowability shall be based on the principles and standards in this subpart and the treatment of similar or related selected items. When more than one subsection in 31.205 is relevant to a contractor cost, the cost shall be apportioned among the applicable subsections, and the determination of allowability of each portion shall be based on the guidance contained in the applicable subsection. When a cost, to which more than one subsection in 31.205 is relevant, cannot be apportioned, the determination of allowability shall be based on the guidance contained in the subsection that most specifically deals with, or best captures the essential nature of, the cost at issue.
31.205-35 Relocation costs.
(a) Relocation costs are costs incident to the permanent change of assigned work location (for a period of 12 months or more) of an existing employee or upon recruitment of a new employee. The following types of relocation costs are allowable as noted, subject to the limitations in paragraphs (b) and (f) of this subsection:
(1) Costs of travel of the employee and members of the employee’s immediate family (see 31.205-46) and transportation of the household and personal effects to the new location.
(2) Costs of finding a new home, such as advance trips by the employee or the spouse, or both, to locate living quarters, and temporary lodging during the transition period for the employee and members of the employee’s immediate family.
(3) Closing costs incident to the disposition of the actual residence owned by the employee when notified of the transfer (e.g., brokerage fees, legal fees, appraisal fees, points, and finance charges), except that these costs, when added to the costs described in paragraph (a)(4) of this subsection, shall not exceed 14 percent of the sales price of the property sold.
(4) Continuing costs of ownership of the vacant former actual residence being sold, such as maintenance of building and grounds (exclusive of fixing up expenses), utilities, taxes, property insurance, and mortgage interest, after the settlement date or lease date of a new permanent residence, except that these costs, when added to the costs described in paragraph (a)(3) of this subsection, shall not exceed 14 percent of the sales price of the property sold.
(5) Other necessary and reasonable expenses normally incident to relocation, such as disconnecting and connecting household appliances; automobile registration; driver’s license and use taxes; cutting and fitting rugs, draperies, and curtains; forfeited utility fees and deposits; and purchase of insurance against damage to or loss of personal property while in transit.
(6) Costs incident to acquiring a home in the new work location, except that-
(i) These costs are not allowable for existing employees or newly recruited employees who were not homeowners before the relocation; and
(ii) The total costs shall not exceed 5 percent of the purchase price of the new home.
(7) Mortgage interest differential payments, except that these costs are not allowable for existing or newly recruited employees who, before the relocation, were not homeowners and the total payments are limited to an amount determined as follows:
(i) The difference between the mortgage interest rates of the old and new residences times the current balance of the old mortgage times 3 years.
(ii) When mortgage differential payments are made on a lump-sum basis and the employee leaves or is transferred again in less than 3 years, the amount initially recognized shall be proportionately adjusted to reflect payments only for the actual time of the relocation.
(8) Rental differential payments covering situations where relocated employees retain ownership of a vacated home in the old location and rent at the new location. The rented quarters at the new location must be comparable to those vacated, and the allowable differential payments may not exceed the actual rental costs for the new home, less the fair market rent for the vacated home times 3 years.
(9) Costs of canceling an unexpired lease.
(10) Payments for increased employee income or Federal Insurance Contributions Act ( 26 U.S.C.Chapter21) taxes incident to allowable reimbursed relocation costs.
(11) Payments for spouse employment assistance.
(b) The costs described in paragraph (a) of this subsection must also meet the following criteria to be considered allowable:
(1) The move must be for the benefit of the employer.
(2) Reimbursement must be in accordance with an established policy or practice that is consistently followed by the employer and is designed to motivate employees to relocate promptly and economically.
(3) The costs must not be otherwise unallowable under subpart 31.2.
(4) Amounts to be reimbursed shall not exceed the employee’s actual expenses, except as provided for in paragraphs (b)(5) and (b)(6) of this subsection.
(5) For miscellaneous costs of the type discussed in paragraph (a)(5) of this subsection, a lump-sum amount, not to exceed $5,000, may be allowed in lieu of actual costs.
(i) Reimbursement on a lump-sum basis may be allowed for any of the following relocation costs when adequately supported by data on the individual elements (e.g., transportation, lodging, and meals) comprising the build-up of the lump-sum amount to be paid based on the circumstances of the particular employee’s relocation:
(A) Costs of finding a new home, as discussed in paragraph (a)(2) of this subsection.
(B) Costs of travel to the new location, as discussed in paragraph (a)(1) of this subsection (but not costs for the transportation of household goods).
(C) Costs of temporary lodging, as discussed in paragraph (a)(2) of this subsection.
(ii) When reimbursement on a lump-sum basis is used, any adjustments to reflect actual costs are unallowable.
(c) The following types of costs are unallowable:
(1) Loss on the sale of a home.
(2) Costs incident to acquiring a home in the new location as follows:
(i) Real estate brokers’ fees and commissions.
(ii) Costs of litigation.
(iii) Real and personal property insurance against damage or loss of property.
(iv) Mortgage life insurance.
(v) Owner’s title policy insurance when such insurance was not previously carried by the employee on the old residence. (However, the cost of a mortgage title policy is allowable.)
(vi) Property taxes and operating or maintenance costs.
(3) Continuing mortgage principal payments on a residence being sold.
(4) Costs incident to furnishing equity or nonequity loans to employees or making arrangements with lenders for employees to obtain lower-than-market rate mortgage loans.
(d) If relocation costs for an employee have been allowed either as an allocable indirect or direct cost, and the employee resigns within 12 months for reasons within the employee’s control, the contractor shall refund or credit the relocation costs to the Government.
(e) Subject to the requirements of paragraphs (a) through (d) of this section, the costs of family movements and of personnel movements of a special or mass nature are allowable. The cost, however, should be assigned on the basis of work (contracts) or time period benefited.
(f) Relocation costs (both outgoing and return) of employees who are hired for performance on specific contracts or long-term field projects are allowable if-
(1) The term of employment is 12 months or more;
(2) The employment agreement specifically limits the duration of employment to the time spent on the contract or field project for which the employee is hired;
(3) The employment agreement provides for return relocation to the employee’s permanent and principal home immediately prior to the outgoing relocation, or other location of equal or lesser cost; and
(4) The relocation costs are determined under the rules of paragraphs (a) through (d) of this section. However, the costs to return employees, who are released from employment upon completion of field assignments pursuant to their employment agreements, are not subject to the refund or credit requirement of paragraph (d).