How to Interpret FAR Cost Principles | RKL LLP
Posted on: August 25th, 2014

Grey Areas: How to Interpret FAR Cost Principles to Stay on the Right Side of DOT Auditors


When claiming expenses as part of a project with the state or federal government, A/E firms need to be diligent about documentation.

When it comes to doing business with State and Federal governments, there are many guidelines about what types of costs can and cannot be claimed on these contracts.  Most of these guidelines are laid out in FAR Part 31, specifically 31.205. However, when it comes to applying these principles, many states will differ in their interpretation.

Without debate, all state DOTs and Federal Government Agencies will agree that the costs of alcohol are unallowable no matter what.  But, that may be where the consistencies stop.  For instance, let’s say you treat your employees to breakfast.  Some state DOTs will take the position that the meal is unallowable because an employee should provide their own breakfast and it’s not reasonable for you to pay for it.  But, if as part of that breakfast, you are gathering your employees to report on company performance, most states would agree that the costs are allowable.

Another area that is an area of debate is travel, specifically, first class airfare costs.  You may encounter some states that see first class airfare and automatically disallow the costs.  But, what if the use of coach or economy class caused you significantly delays in travel and circuitous routing that wouldn’t allow you to get to your destination in a timely manner?  Then the cost may be justified.

How do you protect your firm and try to achieve consistency?  The best thing you can do is keep appropriate documentation.  Any time you wish to treat your employees, make sure to provide an explanation on the expense report and keep as much detail about the gathering as possible (e.g., an agenda and list of attendees); and as long as it is not an everyday occurrence it should be considered reasonable to want to take care of your employees to keep morale high.  On the off chance you do have to use first class airfare, make sure it’s documented that the coach/economy class airfare would have taken too long and it was time sensitive that you get to your destination.

Overall, the best bet is to be consistent in the way your firm accounts for its expenses and maintain sufficient documentation for the DOT auditors to understand your firm’s justification for those costs.

Have questions about FAR cost principles or other issues impacting your A/E firm? Contact Keith Eldredge, partner, at 717.843.3804 or

Contributed by Marco Angelone, CPA, staff accountant, who brings experience working with government contract audits with a focus on compliance with FAR and cost accounting standards. 

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