FAR Part 31 Cost Allowability & Indirect Cost Rate Consulting Services

Federal Acquisition Regulation (FAR) Part 31 establishes the cost principles used to determine whether costs charged to federal contracts and certain grants are allowable, allocable and reasonable. These requirements directly affect your ability to recover costs, maintain compliance and withstand audit scrutiny.

Proper cost allowability helps you maximize cost recovery while reducing the risk of questioned or disallowed costs. Consistent cost treatment, documentation and compliance with FAR requirements can strengthen contract performance and improve audit readiness. 

Determining allowability requires evaluating whether a cost meets FAR Part 31 requirements and is appropriately supported and applied. A structured review of your cost framework, policies, and documentation can help identify allowable and unallowable costs and improve compliance. 

Indirect cost rates are used to allocate indirect expenses across contracts and funding awards. They play a critical role in pricing, billing, profitability and financial reporting. Accurate and defensible rates help support compliance while providing greater confidence in financial decision-making. 

A well-supported approach includes developing provisional and final indirect cost rates, aligning rate structures with FAR requirements, and maintaining consistency across pricing, billing and reporting processes. This can help strengthen your financial position and reduce audit risk.

Provisional indirect cost rates are used during the year for billing and contract management, while final indirect cost rates are established after actual costs are known and reconciled. Both should be developed and maintained in accordance with applicable FAR requirements. 

An incurred cost submission is an annual submission used to support indirect costs and cost-reimbursable contract activity. Because these submissions are subject to review, you should ensure calculations, reconciliations, and supporting documentation are complete and accurate.

Preparation typically involves reviewing indirect rate calculations, evaluating supporting documentation, reconciling costs, preparing required submissions and addressing potential compliance concerns before an audit begins. Proactive preparation can help streamline the audit process and reduce disruptions.

Questioned or disallowed costs often result from inconsistent cost treatment, inadequate documentation, unsupported expenses or failure to comply with FAR cost principles. Strengthening internal controls and documentation practices can help reduce these risks.

Well-documented costs support allowability determinations and demonstrate consistency during audits and reviews. Strong policies, procedures and supporting records can help reduce rework, improve financial visibility and support regulatory compliance.

Effective management of allowable costs and indirect rates can improve cost recovery, provide greater visibility into cost drivers and support more informed pricing and business decisions. These activities are not just compliance requirements; they can also contribute to stronger financial performance. 

We help interpret and apply FAR requirements, evaluate cost allowability, develop indirect cost rates, strengthen documentation, prepare incurred cost submissions and support audit readiness across the contract lifecycle.