(Editor’s Note. In our continuing series on cost principles and cost accounting standards, we will address legal costs. These expenses are often significant and are considered a high risk account (e.g. potential for including unallowable costs) by government auditors. For our discussion of cost allowability and allocability we have relied on an article by Karen Manos of the law firm of Howrey LLP in the April 2005 issue of Briefing Papers and the Defense Contract Audit Agency’s Contract Audit Manual for our discussion of DCAA’s audit guidance.)

This article will provide an overview of the two provisions of the FAR cost principles that govern allowability of legal fees: FAR 31.205-33, Professional and consultant costs and FAR 31.205-47, Costs related to legal and other provisions. Though we focused on FAR 31.205-33 a few years ago in our discussion of consultant costs, this discussion will primarily address the costs as they relate more directly to legal costs. Since Ms. Manos selects very pertinent board and court decisions we will also discuss some of her selections that pertain to interpretations of cost allowability and allocability issues as well as notable guidance by the DCAA.

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