Q. DCAA has recently questioned membership costs as well as costs of attending meetings to several DOD type organizations we belong to - Navy League, Assoc of Old Crows, etc – citing FAR 31.206-43. Are these costs unallowable? Are they explicitly unallowable where penalties would apply.

A. Section 7-1102.2(a) of the DCAA Contract Audit Manual does identify the types of organizations you cite and does state membership and meeting expenses are unallowable. We are unaware of any court decisions that have challenged these assertions so I would say you would have little likelihood of changing DCAA’s position. However, a quick review of FAR 31.205.43 indicates that no mention of the types of organizations is made and in fact the sections addresses types of costs that are allowable. Hence, I would argue that the unallowable costs are not explicitly unallowable and hence not subject to the penalty provisions of such unallowable costs.

Q. Our fringe benefits include payroll taxes, health insurance, workers comp and 401(k) contributions and we want to include fringe benefit costs in our overhead base so as to create a lower overhead rate. DCAA says we can’t. What do you say?

A. I say yes. I am quite surprised that DCAA would say no because inclusion of fringe benefits in the overhead base is a common, acceptable practice and we are unaware of any prohibitions to doing so. The only reason I could see for legitimately rejecting your approach is that DCAA believes the fringe benefit costs included in the base are not complete. For example, I see no mention of paid time off (e.g. holidays, vacation, sick leave, etc) in your description of fringe benefit costs which are cost elements of DCAA’s definitions of fringe benefit costs. (Editor’s Note – the questioner confirmed that our suspicion was correct and the reason their approach was rejected was that paid time off was excluded in the base.)

Q. How have you seen companies handle the cost of security such when part of a facility is used specifically for special contracts but other parts are used to support multiple contacts as well as contain general “Home office” type effort reviewing staff & visitor clearances. If the costs were charged direct, what happens when a contract is completed? Have you seen the ongoing costs now shift to overhead or a service pool?

A. The situation you describe is similar to an example in the CAS 402. In that they distinguish between 10 firemen that provide general fire protection for multiple facilities and are charged indirect versus three fireman hired to protect one building used exclusively for one contract and they are charged direct. The example states this is compliant with CAS 402 since the similar costs are incurred for different purposes.

In your circumstances, you can distinguish between the general security support and the specific support needed on specific contracts. When that support is no longer allocable as a direct charge to an identifiable contract, it needs to be charged indirect like the other costs. Make sure you identify these differences in your disclosed practices.

Q. We seem to be seeing CO’s not wanting to pay for costs that are part of the requirements on their contract. Have you seen an increasing trend here lately? Most recently, they are refusing to reimburse us for sales and use taxes incurred for items charged directly to the government.

A. I haven’t seen a particular increase of such trends at the federal level but I definitely see clear signs at the local and state levels. Why wouldn’t sales and use taxes be considered a cost component of the items you charge the government? Unless the contract explicitly prohibits it I see no reason why you should not include the taxes.

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