DCAA UPDATE: Expressly Unallowable Costs – newly issued MRD

DCAA MRD: Expressly Unallowable Costs – newly issued MRD updating DCAA’s view of expressly unallowable costs. Guidance is largely the same as issued 4 years ago with new specific references to a few recent Raytheon cases. A few observations – I) many of the cost principle excerpts include conditional language; i.e., the costs are not always unallowable, and II) it is arguable that #1 on the list (31.105) is not a ‘cost principle’ as required – it is widely held and specifically referenced in several parts of the FAR that ‘cost principles’ are at Subpart 31.2

SUBJECT: Audit Alert on Identifying Expressly Unallowable Costs

This audit alert revises the guidance on identifying expressly unallowable costs due to recent court cases. This guidance includes an updated listing of FAR 31 and DFARS 231 cost principles that meet the definition of expressly unallowable costs. We also updated the guidance for determining whether a cost principle identifies expressly unallowable costs. Audit guidance 14-PAC-021(R), dated December 18, 2014, and 14-PAC-022(R), dated January 7, 2015, are superseded.


In order for a cost to be expressly unallowable, the cost principle must state in direct terms that the costs are unallowable, or leaves little room for interpretation or differences of opinion as to whether the particular cost meets the allowability criteria. The Government must show that it was unreasonable, under all the circumstances, for a person in the contractor’s position to conclude that the costs were allowable. Determining Whether a Cost Principle Identifies Expressly Unallowable Costs We are providing the enclosed list to assist audit teams in determining whether a questioned cost is expressly unallowable. We updated the list to reflect the impact of recent court cases and for current FAR and DFARS language. Audit teams should use the list as a tool to help determine whether statements from the cost principles that they used as a basis to question costs are expressly unallowable. Even though audit teams have the tool, auditors will need to be use judgment in the evaluation of costs. If an audit team questions a cost that is on this list, it generally should treat the questioned cost as expressly unallowable and subject to penalties.

SUBJECT: Audit Alert on Identifying Expressly Unallowable Costs

Assistance with Determinations If, based on unique facts and circumstances, FAO personnel believe costs are expressly unallowable under cost principles not included on the list, the FAO should alert the appropriate regional or CAD points of contact. Regional/CAD personnel with questions regarding this audit alert should contact Accounting and Cost Principles Division, at (703) 767-3250 or by e-mail at DCAA-PAC@dcaa.m

For more details connect with: www.dcaa.mil

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