What Takes Precedence - Contract Terms or FAR?

From time to time, we encounter situations where contract terms and the Federal Acquisition Regulation conflict with one another. When these conflicts involve costs charged or allocated to Government contracts, it becomes necessary to determine which document takes precedence.

The general rule is that the contract takes precedence if it is more restrictive than the FAR. If the contract is less restrictive, FAR takes precedence. In other words, the contract terms cannot allow a cost that is:

• Unreasonable;
• Improperly measured, assigned and allocated to the contract; or
• Unallowable in accordance with specific cost principles.

A recent case involved a contract that restricted certain kinds of insurance that the Government would reimburse. That particular insurance was allowable under FAR cost principles but since the contract contained the prohibition on reimbursement, the contractor voluntarily deleted it from its pool of G&A costs.