(Editor’s Note. We receive numerous questions about relocation costs. The cost principle, which is more detailed than most, sometimes makes costs unallowable that are normally part of relocation packages offered to employees. Contractors need to understand these provisions so they can identify those relocation expenses provided by the company that need to be screened. Also, some companies choose to align their relocation reimbursement policies with the cost principles. Questions sometimes arise because there are occasional proposals to significantly change the cost principle which up till now have not been passed. For example, in 1998 the government proposed to remove the ceilings on specific relocation costs, provide for a lump-sum payment rather than actual costs and make tax gross-ups and assistance for employee spouses allowable. There are also both allowability and allocability questions. When preparing company written procedures these rules should be taken into account (though not necessarily followed to the letter where, for example, companies may want to provide "tax gross-ups" to employees even though they are unallowable). We have relied on a careful reading of the cost principle, our experience as former government auditors, contractor employees and consultants,, Mathew Bender’s "Accounting for Government Contracts" and the DCAA Contract Audit Guidance.)

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