Maximize Your FAR (Federal
Acquisition Regulations) Overhead Rate
Document, Document, Document! This cannot be overemphasized. If you want
to recover your overhead costs to the greatest extent possible, document the
costs incurred and have support showing payment for claimed expenditures.
Travel costs (including lodging, meals and vehicle related expenses)
incurred by a consultant’s personnel while on official company business are
allowable overhead costs, subject to the limitations prescribed by the FAR.
These costs are often not documented properly. Best practice firms use
expense report forms and mileage logs to ensure these costs are allowable.
Travel costs must be supported by documentation that includes the following
information:
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Date and place of the expenses (the “WHEN” and “WHERE”)
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Purpose of the trip (the “WHAT” and “WHY”)
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Name of the person and that person’s title or relationship to the consultant (the “WHO”)
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Maintain detailed source documentation (i.e., receipts, vendor invoices)
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Odometer readings
All direct mileage costs and mileage costs associated with unallowable
advertising and selling must be excluded from overhead. Additionally, the
cost of company-owned vehicles that relates to personal use by employees
(including transportation to and from work) is unallowable regardless of
whether the cost is reported as taxable income to the employees.
Consultants are required to convert all costs associated with the business
use of vehicles (e.g., lease, depreciation costs, insurance, maintenance and
repairs) into a per-mile recovery rate. This rate then is compared against
the standard federal mileage rate for the audit period. Vehicle-related
overhead costs in excess of the federal mileage rate are removed from
overhead.
Remember — Document, Document, Document
Another form of effective marketing involves participating in charitable
activities that add a positive association to your business’s name. Sponsor
a kids’ sports team or volunteer materials and time to help build a
playground, a baseball diamond or a soccer field at a local school or park.
Be sure to send a press release to media outlets in your community that
outlines your involvement. Mention your charitable work in any business
profiles or brochures you create.
You may be reluctant to spend money on marketing your business, especially if you’ve never undertaken any marketing efforts before. However, carefully directed marketing dollars can go a long way toward helping your contracting firm stand out from your competitors.
Selling is a generic term encompassing all efforts to market a consultant’s services. Selling includes such broad categories as advertising, public relations, bid and proposal, market planning and direct selling.
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Advertising is defined in FAR section 31.205-1 as the use of media (conventions, exhibits, free goods, magazines, newspapers, outdoor advertising, radio, television, etc.) to promote the sale of products or services. The only allowable advertising costs are those that are specifically required by contract, costs related to employee recruitment or costs to promote sales of services normally sold to the U.S. government.
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Public relations is defined in FAR section 31.205-1 as maintaining, protecting, and enhancing the image of a concern or its products or maintaining or promoting reciprocal understanding and favorable relations with the public at large, or any segment of the public. Allowable public relations costs include costs specifically required by contract, costs of responding to inquiries on company policies and activities, costs of participation in community service activities, and costs of plant tours and open houses (but not if designed to call favorable attention to the consultant and its activities). Unallowable public relations activities include activities whose primary purpose is to promote the sale of products or services, messages calling favorable attention to the consultant for purposes of enhancing the consultant’s image to sell products or services, costs of trade shows which do not contain a significant effort to promote the export sales of products normally sold to the U.S. Government, costs of sponsoring meetings, conventions and other special events when the principal purpose is other than dissemination of technical information or stimulation of production, costs of corporate celebrations, costs of promotional material designed to call attention to the consultant or its activities, costs of souvenirs, imprinted clothing, buttons and other mementos provided to customers or the public, costs of memberships in civic and community organizations.
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Bid and proposal costs are defined in FAR section 31.205-18 to mean the costs incurred in preparing, submitting, and supporting bids and proposals (whether or not solicited) on potential contracts. Bid and proposal costs are allowable to the extent that those costs are reasonable.
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Market planning (per FAR section 31.205-38) involves market research and analysis and generalized management planning concerned with development of the consultant’s business. Market planning costs are generally allowable to the extent that they are reasonable.
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Direct selling efforts (per FAR section 31.205-38) are those acts or actions to induce particular customers to purchase particular products or services of the consultant. Direct selling is characterized by person-to-person contact and includes such activities as familiarizing a potential customer with the consultant’s services, capabilities, etc. It also includes negotiations, demonstrations, liaison between customer and contractor personnel, etc. The cost of direct selling efforts is allowable if reasonable in amount.
These costs are often commingled on the consultant’s books. Consultants should establish procedures for segregating these costs within their accounting systems—even if the costs are incurred by the consultant’s marketing department who may participate in both allowable and unallowable activities. Segregation of unallowable costs is required under the FAR and such unallowable costs are not allowable merely because they are incurred in connection with allowable selling activities.
Please contact
Chris Mayfield if you have
any questions or to discuss this topic further.
Work-In-Process is provided by
Somerset for our clients and other interested persons upon request.
Since technical information is presented in generalized fashion, no
final conclusion on these topics should be made without further review.
For additional information on the issues discussed,
please contact
Ken
Hedlund,
Jay Feller,
Steve George,
Chris
Mayfield or
Rebecca Ogle
of our
Construction & A/E Team.
This document is not intended or written to be used, and cannot be used,
for the purpose of avoiding tax penalties that may be imposed on the
taxpayer.
Somerset CPAs, P.C.
3925 River Crossing Parkway, Third Floor
Indianapolis, Indiana 46240
317.472.2200 • 800.469.7206 • FAX 317.208.1200
www.somersetcpas.com
