Certain costs are clearly direct or indirect. For example, a special policy required by a contract would be direct while general liability and director and officers liability insurance is clearly indirect. Most other insurance costs – workers compensation, property insurance, professional liability, environmental, etc. – can plausibly be considered direct or indirect. Both the FAR and CAS provide wide latitude in how to treat these costs, generally requiring that established policies be set and like costs under like circumstances be treated consistently.

If the insurance costs are material and a change in treatment would yield considerable cost savings for the government, you may expect your practices of allocating otherwise allowable insurance costs to be challenged at some time. No matter what general FAR or CAS provisions are cited, the general allocation issues are in the gray area and should be challenged. If challenged, you will need to demonstrate your methods are consistent with both prior practice and/or written policies; if you change your method, you should be prepared to demonstrate it is a different cost or incurred under different circumstances and benefits the company as a whole (if charged to G&A), multiple contracts (if charged to overhead) or a particular final cost objective (if charged direct).

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