Overview
FAR 31.202 defines direct costs and establishes the fundamental requirement for consistency in cost accounting, ensuring that costs are charged directly to a contract when they can be specifically identified with it. It prohibits "double-counting" by preventing contractors from charging similar costs as both direct and indirect under the same circumstances.
Key Rules
- Consistency Requirement: A cost cannot be charged as a direct cost if other costs incurred for the same purpose in like circumstances have been included in an indirect cost pool.
- Identification: Any cost specifically identified with a final cost objective (such as a specific contract) must be treated as a direct cost.
- Exclusion from Indirect Pools: Direct costs identified with other projects cannot be charged to a specific contract either directly or through an indirect cost allocation.
- The "Practicality" Exception: Contractors may treat minor dollar direct costs as indirect costs, provided that the practice:
- Is consistently applied across all final cost objectives.
- Produces substantially the same financial results as if the costs were treated as direct.
Practical Implications
- Contractors must maintain clearly defined accounting policies to ensure that "like costs in like circumstances" are treated consistently to avoid audit findings and disallowed costs.
- This regulation allows contractors to reduce administrative burdens by permitting small, project-specific expenses (such as inexpensive hardware or specialized fasteners) to be pooled into overhead rather than being meticulously tracked to individual projects.