Overview
FAR 31.105 establishes the cost principles for contracts involving construction, alteration, or repair of real property and related architect-engineer (A-E) services. It primarily adopts the commercial cost principles of FAR Subpart 31.2 while adding specific provisions for construction-unique expenses such as heavy equipment usage and job-site costs.
Key Rules
- Applicability: Applies to all negotiated cost-based contracts and modifications for real property (e.g., buildings, bridges, roads). It excludes contracts for personal property like vessels or aircraft.
- Primary Standard: Costs are generally determined according to FAR Subpart 31.2, but the contracting officer must incorporate these principles specifically for reimbursable costs, indirect rates, terminations, and price revisions.
- Advance Agreements: Due to the complexity and duration of construction projects, the FAR strongly encourages advance agreements (per FAR 31.109) for home office overhead, partners' compensation, and equipment usage.
- Construction Equipment Costs:
- Actual vs. Scheduled: Actual cost data is preferred. If unavailable, agencies may use predetermined schedules (e.g., USACE Construction Equipment Ownership and Operating Expense Schedule).
- Adjustments: Schedules must be adjusted to remove unallowable costs such as interest, replacement costs, or improper cost-of-money computations.
- Standby Costs: During work suspensions, equipment ownership costs are limited to standby rates defined by the schedule or contract.
- Rentals: Reasonable rental costs are allowable. While minor maintenance and "running repairs" are allowable, costs for major overhauls and repairs of rented equipment are strictly unallowable.
- Job Site Expenses: Costs for site-specific superintendence, clerical work, engineering, and utilities are allowable as either direct or indirect costs, provided the contractor’s accounting treatment is consistent across all work.
Practical Implications
- Avoidance of Double-Counting: Contractors using predetermined equipment schedules must be careful to "credit" or remove those specific costs from their indirect cost pools to ensure they are not charging the government twice for the same expenses.
- Risk Mitigation: Negotiating an Advance Agreement is a critical best practice for construction firms to prevent future disputes over high-volatility items like executive compensation or equipment depreciation.
- Consistency in Accounting: Contractors must maintain a consistent policy for "Job Site" costs; switching between charging superintendence as a direct cost on one contract and an indirect cost on another can lead to audit findings and cost disallowances.