Overview
This section establishes the OMB Uniform Guidance (2 CFR part 200, subpart E) as the primary authority for determining cost allowability for State, local, and Indian tribal governments, while explicitly listing 16 specific categories of costs that are statutorily unallowable.
Key Rules
- Primary Reference: Cost allowability is determined by the OMB Uniform Guidance at 2 CFR part 200, subpart E and appendices V and VII, based on the version in effect on the contract date.
- Statutory Prohibitions: Even if not restricted by the OMB Guidance, 16 specific cost categories are unallowable under statutes such as 10 U.S.C. 3744 and 41 U.S.C. 4304.
- Social and Personal Costs: Entertainment, alcoholic beverages, social/dining club memberships, and promotional memorabilia/gifts are strictly unallowable.
- Legal and Regulatory Costs: Fines and penalties, costs to defend against fraud proceedings (where found liable), and costs associated with specific criminal or civil proceedings are unallowable.
- Political and Financial Costs: Lobbying expenses, charitable contributions/donations, and "golden parachute" severance payments are prohibited.
- Operational Restrictions: Costs for advertising to promote the contractor, excessive commercial airfare, and insurance for correcting a contractor's own defects are excluded.
Practical Implications
- Contracting officers and auditors must apply a "dual-check" approach, ensuring costs comply with both the OMB Uniform Guidance and the supplemental statutory prohibitions listed in FAR 31.603.
- State and tribal entities must ensure their accounting systems can specifically identify and exclude "expressly unallowable" costs—such as alcohol or lobbying—to avoid potential penalties during government audits.