Overview
FAR 31.102 establishes when the cost principles in Part 31 must be applied to the pricing, negotiation, and modification of fixed-price contracts and subcontracts.
Key Rules
- Mandatory Application: Cost principles must be used whenever cost analysis is performed or when a specific contract clause requires the determination or negotiation of costs.
- Total Price Focus: The use of cost principles does not require the parties to reach an agreement on every individual element of cost; the final agreement is based on the total price.
- Fair and Reasonable Standard: Despite the technical application of cost principles, the primary objective of the negotiation remains achieving a total price that is fair and reasonable.
- Scope: These rules apply equally to prime contracts, subcontracts, and any subsequent modifications to either.
Practical Implications
- Contractors must ensure their cost estimates and accounting data comply with FAR Part 31 when submitting proposals for fixed-price contracts that require certified cost or pricing data.
- During negotiations, the government may use cost principles to identify "unallowable" costs to lower the total price, but the contractor is not legally bound to the government's specific line-item calculations as long as the bottom-line price is accepted.