Government Contracts- Unallowable Cost Basics
Marsha Lindquist
Strategic Pricing? at Granite Leadership Strategies Inc., CPP APMP, APMP Fellows, NCMA Fellow
Volume 23 - Issue 13 July 6, 2023
The Gov Con Expert
?? 70% of government contractors believe pricing pressure is the biggest challenge in the current market.
?? Did you know companies that invest in pricing excellence achieve profit margins that are 10-15% higher than their competitors?
?? Surveys have shown?80% of companies believe that they could increase their profits by 5% or more if they improved their pricing strategies.
Government Contracts- Unallowable Cost Basics
Many costs of doing business are valid in the commercial environment, but for Government contracts, they are expressly unallowable. If you advertise for your business, spend money on alcohol during your marketing efforts, or pay interest on debts, you will not be able to seek reimbursement under Government contracts to pay for those costs.
Most companies properly separate those unallowable costs, but many do not.?Auditors are eager to find that out. Let’s delve into what is behind unallowable costs and why it is so important to keep your books clear of these items for Government contracts.
What are Unallowable Costs?
To properly recognize unallowable costs, you need to start with your understanding of the contents of FAR 31.205.?In that section of the FAR, the text distinguishes between allowable and unallowable types of costs. Examples of unallowable costs are public relations and advertising, contingencies, contributions, some employee morale, entertainment, interest & financial costs, lobbying, some taxes, excess goodwill, alcoholic beverages,?losses on other contracts as well as many other costs.?Some allowable cost examples are compensation, engineering, and manufacturing, selling, depreciation, bid and proposal, insurance, material, termination costs among others.?Be sure to read and understand all of FAR Part 31 to completely get the list as well as the explanations.?Read the DCAA Contract Audit Manual Contract Cost Principles and Procedures (DCAAM 7640.1).
Marsha Lindquist is an experienced pricing strategist & finance professional. In her groundbreaking #1 Amazon Best-Selling book, Secrets of Strategic Pricing for Government Contractors Marsha Lindquist delivers the wisdom of strategic pricing for Federal proposals. Marsha has built a tradition of quality consulting for scientific & high technology Government contractors for over 30 years including Ames National Laboratory, Textron Inc., DynCorp International, Cytec Engineered Materials, and Intuitive Machines. Marsha is articulate in authoring customer-focused winning pricing strategies. Ms. Lindquist has achieved the distinguished titles of NCMA Fellow, APMP Fellows & APMP Professional (CPP) as well as Future of Pricing Honoree by ProPricer.
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Strategic Pricing Process
Your strategic pricing process is THE foundation for all your pricing, no matter how small or large. The sustainable process makes common sense, is durable in that it lasts, is changeable as you discover more, and is repeatable. Too many contractors wait until the final RFP is out before they engage in pricing. That is bad news!
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Absolutely, navigating government contracts can be complex! ?? As Benjamin Franklin famously said, "Beware of little expenses; a small leak will sink a great ship." Keeping a tight rein on unallowable costs is key to not only compliance but also ensuring profitability. ???? #wisdom #govcon Follow us!