Overview
FAR Subpart 31.7 establishes the cost principles for determining the allowability of costs in government contracts performed by nonprofit organizations. Rather than creating a separate set of rules, this subpart integrates the OMB Uniform Guidance (2 CFR part 200) as the primary standard for financial oversight of charitable, scientific, and educational entities.
Key Rules
- Definition of Nonprofit: To qualify under this subpart, an entity must be a business organized exclusively for charitable, scientific, or educational purposes, where no profits benefit private individuals, no substantial lobbying/propaganda is conducted, and it maintains 501(c) tax-exempt status.
- Primary Standard: Cost allowability is governed by 2 CFR part 200, subpart E and appendix IV (the OMB Uniform Guidance) rather than the standard for-profit cost principles found in FAR 31.2.
- Effective Date: The version of the OMB Uniform Guidance in effect on the specific date of the contract award is the version that governs cost determination for the life of that contract.
- Statutory Prohibitions: Even if certain costs might otherwise be considered, specific costs deemed unallowable by 10 U.S.C. 3744 and 41 U.S.C. 4304 (referenced via 31.603(b)) remain strictly prohibited.
- Restrictions on Agencies: Federal agencies are generally discouraged from adding their own unique restrictions on individual cost items, promoting a uniform application of the OMB guidelines.
Responsibilities
- Contracting Officers (CO): Responsible for determining the allowability of costs in accordance with the OMB Uniform Guidance and ensuring the correct version of the guidance is referenced in the contract.
- Nonprofit Contractors: Must maintain their status as a legitimate nonprofit (avoiding political campaigning and private inurement) and ensure their accounting systems align with 2 CFR 200 requirements.
- Federal Agencies: Tasked with adhering to the Uniform Guidance without imposing additional, non-standard cost restrictions unless mandated by statute.
Practical Implications
- Consistency Across Funding Types: Because many nonprofits receive both grants and contracts, the reliance on 2 CFR 200 allows these organizations to maintain a single, consistent accounting standard across their entire federal portfolio.
- Audit Readiness: Nonprofit contractors should focus their compliance efforts on the "Cost Principles" and "Indirect Cost" sections of the OMB Uniform Guidance (Subpart E and Appendix IV), as these will be the benchmarks used by auditors.
- Strict Lobbying Barriers: The definition of a nonprofit under this subpart is very narrow regarding political activity. Organizations that engage in significant lobbying or political campaigning risk being disqualified from using these cost principles or losing their eligibility for "nonprofit" status under FAR definitions.
- Statutory Overrides: Contractors must be aware that while the OMB Uniform Guidance is the general rule, specific federal statutes (like those regarding executive compensation or certain legal costs) may still override the Uniform Guidance to disqualify specific costs.