Overview
This section mandates the use of FAR Subpart 31.2 cost principles for all contracts and modifications with commercial organizations—excluding educational, construction, governmental, and nonprofit entities—whenever cost analysis or cost reimbursement is required.
Key Rules
- Applicability by Exclusion: Defines "commercial organizations" as any entity not classified as an educational institution, construction/architect-engineer firm, State/local government, or nonprofit organization.
- Pricing Requirement: Subpart 31.2 must be used to price negotiated supply, service, and research contracts whenever cost analysis is performed per FAR 15.404-1(c).
- Mandatory Incorporation: Contracting officers must incorporate Subpart 31.2 by reference into contracts to serve as the legal basis for financial determinations.
- Scope of Application: These principles govern several critical areas, including:
- Determining allowable costs for cost-reimbursement contracts and the "cost" portion of Time-and-Materials (T&M) contracts.
- Negotiating indirect cost rates (overhead, G&A, etc.).
- Settling costs associated with terminated contracts.
- Adjusting prices for incentive contracts, redetermination contracts, and general contract modifications.
Practical Implications
- Commercial contractors must maintain accounting systems capable of segregating and identifying costs according to FAR 31.2 to ensure they can successfully recover reimbursable expenses and negotiate indirect rates.
- Because these principles apply to contract modifications and price revisions, even contractors with fixed-price agreements may be subject to FAR 31.2 audits if a change order or equitable adjustment requires cost analysis.