Friday, January 4, 2013

Donations and Contributions

The FAR cost principle on contributions and donations (FAR 31.205-8) is rarely controversial. The regulation states "Contributions or donations, including cash, property and services, regardless of recipient, are unallowable, except as provided in FAR 31.205-1(e)(3)". The "except for" provision was inserted in 1986 because Government auditors were broadly defining "contributions and donations". The 1986 revision specifically allows costs for participating in community service activities (e.g. blood bank drives, charity drives, savings bond drives, disaster assistance, etc). However, costs associated with the donation of excess food to nonprofit organizations in accordance with the Federal Food Donation Act of 2008 is unallowable (FAR 31.205-1(f)(8)).

There have been a couple of cases that allow the cost of contributions and donations made in exchange for a benefit. In one case, General Dynamics made a $50 thousand contribution to the California State Highway Commission in exchange for a promise that the Highway Commission would expedite construction of an overpass near the contractor's facility. The auditors questioned the cost but ASBCA sustained an appeal on the bases that there was a bargained for quid pro quo.

In another case, contributions by a contractor to a regional hospital planning program were deemed allowable because they produced a readily discernible economic benefit.

Most often, however, contributions and donations are going to be unallowable, particularly if they are deductible by the donor for income tax purposes. Contractors should still review their donations to determine whether any might be allowable based on the aforementioned case law.

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