FAR Part 31.205 — Selected Costs
Date fetched: 2026-05-23 Authoritative source: https://www.acquisition.gov/far/part-31 (FAR official site, fetched 2026-05-23). Cross-referenced against https://www.ecfr.gov/current/title-48/chapter-1/subchapter-E/part-31. Coverage: Subsections 31.205-1 through 31.205-52, including reserved entries. Currency: checked 2026-10-05 against eCFR's version history. FAR Part 31 was last amended 2024-09-25, before this text was fetched, so the text below is current. Arcvue's regulation monitor re-checks FAR Part 31 daily and raises a review item when it changes.
FAR Part 31.205 enumerates the allowability rules for specific cost items. Cost items NOT listed here are governed by the general allowability tests in FAR 31.201 (reasonableness, allocability, applicable cost accounting standards). Each subsection below is one specific selected cost. Allowability statuses are abbreviated:
- A = Allowable
- U = Unallowable (expressly disallowed)
- C = Conditional (allowable only when specified conditions are met)
- R = Reserved (intentionally blank)
How Arcvue auto-identifies unallowable costs
Arcvue tags every unallowable cost with the governing FAR 31.205 citation for the Incurred Cost Submission (Schedule G). The citation is resolved in a fixed order of precedence, and every row records which of the two produced it:
- Human-confirmed —
chart_of_accounts.allowable_far_subsection. If a controller has assigned the subsection for that account, that value wins outright and nothing below is consulted. - Proposed from the account's meaning — the keyword table below, matched against the account NAME. This is a proposal for human confirmation, not a determination.
- Otherwise the cost is recorded as FAR citation not assigned rather than being given a citation Arcvue cannot stand behind.
If the determination cannot run at all, because the ledger table is missing or the query fails on a renamed column or a locked database, Arcvue refuses and says the determination could not run. It never returns an empty list in its place. So an empty Schedule G means the query ran and found nothing unallowable, not that nothing was checked.
Matching is on what an account MEANS, not on its number: account NUMBERING is
specific to each tenant's chart of accounts, so a chart that does not use the
92.xx block is served exactly as well as one that does. The table below is
enforced in the engine and generated directly from it, so it always matches
product behavior. Order is significant — the engine takes the FIRST match, so
the more specific phrases are tested first:
| # | If the account name contains | Proposed FAR citation | What the subsection covers |
|---|---|---|---|
| 1 | excess comp, excessive comp | FAR 31.205-6 | Compensation above allowable limits |
| 2 | goodwill, amortization, tradename, intangible | FAR 31.205-49 | Goodwill and other intangible amortization or write-down |
| 3 | m&a, merger, acquisition | FAR 31.205-33 | Professional and consultant service costs tied to a merger or acquisition |
| 4 | lobby | FAR 31.205-22 | Lobbying and political-activity costs |
| 5 | entertainment, meals | FAR 31.205-14 | Entertainment costs, including meals with an entertainment purpose |
| 6 | charit, donation, contribution | FAR 31.205-8 | Contributions and donations |
| 7 | advertis, marketing | FAR 31.205-1 | Advertising and public-relations costs (unallowable portion) |
| 8 | penalt, fine, bank service charge, bank fee | FAR 31.205-15 | Fines, penalties, and mischarging costs |
| 9 | interest | FAR 31.205-20 | Interest and other financial costs |
| 10 | legal, litigation | FAR 31.205-47 | Costs of legal and other proceedings (unallowable portion) |
| 11 | travel | FAR 31.205-46 | Travel costs above the federal per-diem ceiling (unallowable portion) |
| 12 | life insurance, officers life, insurance | FAR 31.205-19 | Insurance and indemnification (unallowable portion) |
| 13 | gift | FAR 31.205-13 | Employee morale and gift costs (unallowable portion) |
| 14 | bad debt | FAR 31.205-3 | Bad debts, and collection costs associated with them |
Operators can additionally designate any other GL entry as unallowable — see the Unallowable Cost controller guide.
31.205-1 Public relations and advertising costs
Status: Conditional Public relations costs are unallowable except for: (i) costs specifically required by contract, (ii) costs for communications with the public/government required by law/regulation, and (iii) costs for general liaison with news media and government officials when responding to inquiries. Advertising is unallowable except for: recruitment, acquisition of scarce items, disposal of scrap/surplus, and specific export promotion. Image/goodwill advertising and trade-show souvenirs are unallowable.
31.205-2
Status: Reserved
31.205-3 Bad debts
Status: Unallowable Bad debts, including actual or estimated losses arising from uncollectible accounts receivable and any directly associated collection or legal costs, are unallowable.
31.205-4 Bonding costs
Status: Conditional Bonding costs required by the contract are allowable. Bonding costs required by the contractor as a matter of general business practice are allowable if reasonable in nature and amount.
31.205-5
Status: Reserved
31.205-6 Compensation for personal services
Status: Conditional — heavily restricted Compensation (salary, wages, bonuses, deferred comp, fringes) is allowable if reasonable for the work performed, conforms to an established compensation plan, and meets the conditions of paragraphs (b)-(p). Key sub-restrictions:
- Statutory cap (b)(2): Compensation of any contractor employee is capped at the OMB-published Senior Executive Service benchmark (covers most contracts; civilian agencies under DoD use the SES level — for awards on or after June 24, 2014 the cap applies to ALL contractor employees, not just the top 5).
- Owners of closely held corporations: Compensation must be reasonable for services rendered, not a disguised distribution of profits.
- Severance pay (g): Allowable only if required by law, employer-employee agreement, established policy of pay-on-termination, or circumstances of particular employment.
- Pension costs (j): Must be funded by the time of the federal income tax return filing date (with extensions). Defined-benefit and defined-contribution plans have separate rules.
- Deferred compensation (k): Allowable in the year of award if measurable and probable.
- Stock options/SARs/phantom stock: Compensation based on changes in the price of corporate securities is unallowable.
- Backpay: Generally unallowable except court-ordered or settled.
31.205-7 Contingencies
Status: Conditional Reserves or contingency amounts are unallowable, except: (i) contingencies for accrued costs (e.g., pensions, deferred comp) where the event giving rise to the cost has occurred and the amount is reasonably estimable, and (ii) where contract or advance agreement permits a contingency for known unknowns.
31.205-8 Contributions or donations
Status: Unallowable Contributions and donations, including cash, property, and services, regardless of recipient, are unallowable.
31.205-9
Status: Reserved
31.205-10 Cost of money
Status: Conditional Facilities capital cost of money (computed per CAS 414) and cost of money as an element of the cost of capital assets under construction (per CAS 417) are allowable if measured, assigned, and allocated per CAS, identified in the cost proposal, and the cost of money excluded from any other cost. Imputed interest on owner equity is NOT allowable except via this mechanism.
31.205-11 Depreciation
Status: Conditional Allowable if computed using a method that reflects the pattern of consumption of the asset's economic benefits, applied consistently, and consistent with CAS 409 for CAS-covered contracts. Special rules for gains/losses on dispositions, sale-leasebacks, and idle assets.
31.205-12 Economic planning costs
Status: Allowable Costs of generalized long-range management planning concerned with the future overall development of the business are allowable. Organization costs (31.205-27) are excluded.
31.205-13 Employee morale, health, welfare, food service, and dormitory costs and credits
Status: Conditional Reasonable aggregate costs for employee morale (e.g., wellness programs, employee assistance programs, meal subsidies, employee publications, recreation, gifts, and similar activities) are allowable. Costs of gifts to employees in recognition (e.g., service awards) are allowable. Costs of recreation are unallowable except costs of employee participation in company-sponsored sports teams or employee organizations.
31.205-14 Entertainment costs
Status: Unallowable Costs of amusement, diversions, social activities, and any directly associated costs (e.g., tickets to shows, sporting events, meals, lodging, rentals, transportation, gratuities) are unallowable. Costs of memberships in social, dining, or country clubs are unallowable.
31.205-15 Fines, penalties, and mischarging costs
Status: Unallowable Costs of fines and penalties for violation of federal, state, local, or foreign laws/regulations are unallowable EXCEPT when incurred as a result of compliance with specific terms of the contract or written instruction from the contracting officer. Costs incurred in connection with, or related to, the mischarging of costs on government contracts are unallowable when the costs are caused by, or result from, alteration or destruction of records, or other false or improper charging or recording.
31.205-16 Gains and losses on disposition or impairment of depreciable property or other capital assets
Status: Conditional Gains and losses on dispositions are generally included in indirect cost pools (subject to limits — gain limited to the difference between acquisition cost and net book value). Impairment losses and gains/losses from involuntary conversions follow specific rules.
31.205-17 Idle facilities and idle capacity costs
Status: Conditional Costs of idle facilities are unallowable UNLESS necessary to meet fluctuations in workload or were necessary when acquired and now idle because of changes in requirements, production economies, reorganization, termination, or other reasonable causes. Allowable for a reasonable period (ordinarily one year). Idle capacity costs (operational costs of underused otherwise productive facilities) are allowable if the capacity is necessary or was originally reasonable.
31.205-18 Independent research and development (IR&D) and bid and proposal (B&P) costs
Status: Conditional — allowable as indirect costs IR&D and B&P costs are allowable as indirect costs allocated to all contracts on a basis consistent with the allocation of other G&A. Major contractors (≥$11M IR&D+B&P in prior year) must report annually to DTIC for IR&D projects. IR&D is unallowable if the work is required for contract performance.
31.205-19 Insurance and indemnification
Status: Conditional Insurance premiums (or self-insurance charges) for protection against the risks of loss of company assets, employee dishonesty, and similar risks are allowable when reasonable. Insurance for unallowable costs (e.g., punitive damages, owners' life insurance where the company is beneficiary) is unallowable. Self-insurance charges must follow CAS 416.
31.205-20 Interest and other financial costs
Status: Unallowable Interest on borrowings (regardless of source), bond discounts, costs of financing and refinancing capital (net worth plus long-term liabilities), legal and professional fees paid in connection with preparing prospectuses, costs of preparing and issuing stock rights, and costs related thereto are unallowable. (Exceptions: cost of money under 31.205-10, late-payment interest required by Prompt Payment Act.)
31.205-21 Labor relations costs
Status: Allowable Costs incurred in maintaining satisfactory relations between the contractor and its employees, including costs of shop stewards, labor management committees, employee publications (other than those covered by 31.205-1), and other related activities, are allowable.
31.205-22 Lobbying and political activity costs
Status: Unallowable Costs associated with the following activities are unallowable: attempts to influence outcomes of any federal/state/local election, referendum, or initiative; establishment/operation of political committees; attempts to influence introduction of federal/state legislation; attempts to influence federal/state/local officials regarding pending legislation or executive actions; and related activities. Limited exceptions exist for providing technical/factual information requested by a legislator.
31.205-23 Losses on other contracts
Status: Unallowable An excess of costs over income under any other contract (including the contractor's contributed portion under cost-sharing contracts) is unallowable.
31.205-24
Status: Reserved
31.205-25 Manufacturing and production engineering costs
Status: Allowable Costs of (a) developing/applying production methods, materials, and processes for new or improved products, (b) improving manufacturing methods, (c) improving plant layout, and (d) tooling design are allowable.
31.205-26 Material costs
Status: Conditional Costs of materials are allowable, with adjustments for: cash discounts, trade discounts, rebates, allowances, credits, salvage, and inventory adjustments. Inter-organizational transfers must be at cost (per 31.205-26(e)) unless qualifying as an arms-length transaction (the "established practice" exception).
31.205-27 Organization costs
Status: Unallowable Expenditures in connection with (a) planning/executing the organization or reorganization of the corporate structure (including mergers/acquisitions), (b) resisting/planning to resist the reorganization, and (c) raising capital, are unallowable. (Legal/accounting fees incurred for these activities are unallowable.)
31.205-28 Other business expenses
Status: Allowable Costs of registry/transfer agent fees, shareholder meetings, shareholder reports, proxy solicitations, listing fees, and similar costs are allowable.
31.205-29 Plant protection costs
Status: Allowable Costs of plant protection (wages, uniforms, equipment for personnel engaged in plant protection; depreciation on plant protection capital assets; necessary expenses incident to operating an emergency plant protection program) are allowable.
31.205-30 Patent costs
Status: Conditional Patent costs are allowable if the contract requires the contractor to furnish patent rights to the government. Otherwise: costs of preparing invention disclosures, reports, and other documents required by contract are allowable; general counseling on patents, and costs of filing/prosecuting patent applications for the contractor's benefit, are unallowable.
31.205-31 Plant reconversion costs
Status: Conditional Costs incurred in restoring facilities to a condition substantially equivalent to that immediately before the contract are unallowable EXCEPT for production area or equipment dedicated specifically to the contract, restoration which is required by the contract, or when an advance agreement is in place.
31.205-32 Precontract costs
Status: Conditional Costs incurred before the effective date of the contract, in anticipation of contract award and at the contractor's risk, are allowable if necessary to comply with the proposed contract delivery schedule, AND would have been allowable if incurred after award.
31.205-33 Professional and consultant service costs
Status: Conditional Costs of professional and consultant services rendered by persons who are not employees of the contractor are allowable, subject to demonstrated reasonableness via: written agreement, scope of work, deliverables, and evidence of services rendered. Retainer fees are allowable only if necessary, supported, and reasonable. Costs of consultant services connected with lobbying (31.205-22), organization (31.205-27), or legal proceedings (31.205-47) are unallowable.
31.205-34 Recruitment costs
Status: Allowable Costs of help-wanted advertising, operating an employment office, operating an aptitude/educational testing program, travel for prospective employees interviewing, and travel of employees engaged in recruiting are allowable. Costs of help-wanted advertising that does not describe specific positions/conditions of employment, includes color/photographs not necessary, or is excessive in size, are unallowable.
31.205-35 Relocation costs
Status: Conditional Relocation costs of an employee (or new hire) being permanently reassigned for ≥12 months are allowable, subject to specific limits on: house-hunting trip costs, travel to new location, packing/transportation of household goods, temporary lodging, miscellaneous expenses, and home-sale assistance. Home-purchase costs at the new location are NOT allowable. Loss on sale of home is allowable up to 8% of selling price (or 14% if employer-sponsored relocation services). Spouse search costs are unallowable.
31.205-36 Rental costs
Status: Conditional Reasonable rental costs are allowable for rentals from unrelated parties. Rentals between organizations under common control are allowable only up to the normal cost of ownership (depreciation, maintenance, taxes, insurance, cost of money) — NOT at market rate. Sale-leasebacks are limited to depreciation, taxes, insurance, maintenance.
31.205-37 Royalties and other costs for use of patents
Status: Conditional Royalties on patents/copyrights are allowable if the contract does not provide a royalty-free license, the patent has been adjudicated valid, and the royalty rate is reasonable. Royalties paid to persons (including corporations) affiliated with the contractor are limited to the cost to that affiliated person.
31.205-38 Selling costs
Status: Conditional Selling activities include direct selling, advertising (31.205-1), corporate image enhancement, bid and proposal costs (31.205-18), market planning, and other selling efforts. Direct selling efforts (to induce specific customers to purchase specific products/services) are allowable. Indirect selling is allowable if reasonable. Sales commissions are allowable if reasonable, but contingent-fee restrictions in FAR 3.4 apply.
31.205-39 Service and warranty costs
Status: Allowable Costs of warranties or repair/replacement of defective items are allowable; specific procedures must be in place for accumulating and reporting these costs.
31.205-40 Special tooling and special test equipment costs
Status: Conditional Special tooling and special test equipment costs are allowable when (i) chargeable to the specific contract, or (ii) treated consistent with CAS. The cost basis is acquisition cost; recovery via depreciation or direct charge follows CAS 404.
31.205-41 Taxes
Status: Conditional Federal, state, and local taxes required to be paid (and that have been paid or accrued in accordance with GAAP) are allowable, EXCEPT: (a) federal income and excess-profits taxes; (b) taxes that the contractor is required to collect (e.g., sales taxes collected from customers); (c) state/local income/franchise taxes treated under CAS 403; (d) taxes from which exemptions are available; (e) special assessments on land that represent capital improvements; (f) taxes on real or personal property used solely in connection with an unallowable activity.
31.205-42 Termination costs
Status: Conditional Contract termination generally gives rise to costs that would not have been incurred had the contract not been terminated. The following are allowable: common items inventory, costs continuing after termination (unavoidable in reasonable termination period), initial costs (starting/learning), loss of useful value of special tooling/test equipment, rental costs under unexpired leases, settlement expenses (accounting/legal/clerical to terminate subcontracts, dispose of inventory, prepare termination proposal), and subcontractor claims.
31.205-43 Trade, business, technical, and professional activity costs
Status: Allowable Allowable: (a) memberships in trade/business/technical/professional organizations; (b) subscriptions to publications; (c) attendance at meetings/conferences for technical/professional activity sponsored by professional/technical societies or organizations, when the principal purpose is dissemination of trade/business/technical/professional information OR stimulation of production/improved productivity.
31.205-44 Training and education costs
Status: Conditional Costs of training and education that are related to the field in which the employee is working (or may reasonably be expected to work) are allowable. Tuition reimbursement for courses leading to a degree are allowable subject to a 2-year period from completion. Salaries during full-time graduate-level training are allowable only with prior approval. Contributions to college savings plans are unallowable.
31.205-45
Status: Reserved
31.205-46 Travel costs
Status: Conditional — with hard caps Travel costs (transportation, lodging, meals, incidental expenses) are allowable to the extent they do not exceed the maximum per diem rates in effect at the time of travel as set forth in the Federal Travel Regulation (CONUS), Joint Travel Regulation (Alaska/Hawaii/OCONUS for civilian DoD), or Department of State Standardized Regulations (foreign). Airfare is limited to the lowest priced airfare available during normal business hours (no first class unless required). Contractor-owned/leased/chartered aircraft is allowable only with documented cost comparison showing it is the cheaper option, AND with advance agreement.
31.205-47 Costs related to legal and other proceedings
Status: Conditional — generally unallowable Costs incurred in connection with any proceeding by federal/state/local government or contractor employee/3rd party for (i) violation of/failure to comply with law/regulation, (ii) commencement of False Claims Act qui tam suit, OR (iii) other matter, are unallowable when the proceeding results in conviction, civil judgment, debarment/suspension, or settlement that includes an admission of fault. Costs of in-house counsel are subject to the same restrictions. Costs of any proceeding brought by a federal government party in connection with mischarging are unallowable.
31.205-48 Deferred research and development costs
Status: Unallowable Costs incurred in the performance of work under a previously terminated/completed contract that are subsequently identified as direct charges to a current contract are unallowable.
31.205-49 Goodwill
Status: Unallowable Costs for amortization, expensing, write-off, or write-down of goodwill (however represented) are unallowable.
31.205-50
Status: Reserved
31.205-51 Costs of alcoholic beverages
Status: Unallowable Costs of alcoholic beverages are unallowable.
31.205-52 Asset valuations resulting from business combinations
Status: Conditional For asset costs that are step-up valuations due to a business combination, the contractor's depreciation, cost of money, etc., are allowable only up to the amount that would have been allowed had the combination not taken place (i.e., the predecessor's net book value carries forward).
Common contractor failure modes (drawn from DCAA findings, NOT from FAR text itself)
These are NOT prescribed by FAR but are documented in DCAA / Redstone GCI / Aronson / VSingh CPA published findings:
- 31.205-6 (compensation): Failing to apply the SES compensation cap to ALL contractor employees (post-2014 contracts); treating owner draws as compensation rather than profit distribution; expensing pension contributions before the tax-filing-deadline funding test.
- 31.205-14 (entertainment): Failing to flag client meals containing alcohol AND being held in an entertainment venue (caught by both 31.205-14 and 31.205-51).
- 31.205-22 (lobbying): Failing to track time of executives who attend trade-association lobbying days; failing to identify the lobbying portion of professional society dues.
- 31.205-33 (consultants): Lack of written agreement, scope of work, or evidence of services rendered.
- 31.205-46 (travel): Lodging or airfare exceeding the federal per diem without documented exception; first-class airfare without documentation of required exception.
- 31.205-47 (legal proceedings): Charging defense costs of an investigation that subsequently results in a settlement with admission of fault.
These are addressed in detail in dcaa_common_deficiencies.md.
Summary table — allowability at a glance
| Subsection | Title | Status |
|---|---|---|
| 31.205-1 | Public relations and advertising | C |
| 31.205-2 | (Reserved) | R |
| 31.205-3 | Bad debts | U |
| 31.205-4 | Bonding | C |
| 31.205-5 | (Reserved) | R |
| 31.205-6 | Compensation for personal services | C |
| 31.205-7 | Contingencies | C |
| 31.205-8 | Contributions or donations | U |
| 31.205-9 | (Reserved) | R |
| 31.205-10 | Cost of money | C |
| 31.205-11 | Depreciation | C |
| 31.205-12 | Economic planning | A |
| 31.205-13 | Employee morale, health, welfare | C |
| 31.205-14 | Entertainment | U |
| 31.205-15 | Fines, penalties, mischarging | U |
| 31.205-16 | Gains/losses on dispositions | C |
| 31.205-17 | Idle facilities / idle capacity | C |
| 31.205-18 | IR&D and B&P | C |
| 31.205-19 | Insurance and indemnification | C |
| 31.205-20 | Interest and financial costs | U |
| 31.205-21 | Labor relations | A |
| 31.205-22 | Lobbying and political activity | U |
| 31.205-23 | Losses on other contracts | U |
| 31.205-24 | (Reserved) | R |
| 31.205-25 | Manufacturing/production engineering | A |
| 31.205-26 | Material costs | C |
| 31.205-27 | Organization costs | U |
| 31.205-28 | Other business expenses | A |
| 31.205-29 | Plant protection | A |
| 31.205-30 | Patent costs | C |
| 31.205-31 | Plant reconversion | C |
| 31.205-32 | Precontract costs | C |
| 31.205-33 | Professional/consultant service | C |
| 31.205-34 | Recruitment | A |
| 31.205-35 | Relocation | C |
| 31.205-36 | Rental | C |
| 31.205-37 | Royalties for patents | C |
| 31.205-38 | Selling | C |
| 31.205-39 | Service and warranty | A |
| 31.205-40 | Special tooling/test equipment | C |
| 31.205-41 | Taxes | C |
| 31.205-42 | Termination | C |
| 31.205-43 | Trade/professional activity | A |
| 31.205-44 | Training and education | C |
| 31.205-45 | (Reserved) | R |
| 31.205-46 | Travel | C |
| 31.205-47 | Legal and other proceedings | C |
| 31.205-48 | Deferred R&D | U |
| 31.205-49 | Goodwill | U |
| 31.205-50 | (Reserved) | R |
| 31.205-51 | Alcoholic beverages | U |
| 31.205-52 | Asset valuations from business combinations | C |
Tally: 5 Allowable, 10 Unallowable, 31 Conditional, 6 Reserved.
Sources
- FAR Part 31 official: https://www.acquisition.gov/far/part-31 (fetched 2026-05-23 — primary source).
- eCFR Title 48 Chapter 1 Subchapter E Part 31: https://www.ecfr.gov/current/title-48/chapter-1/subchapter-E/part-31 (cross-reference).