Friday, April 12, 2013

Market Planning and Economic Development Costs

There is and has been for many years, a focus by Government auditors on consulting costs. Consulting costs need to be supported with an agreement, a work product, and an invoice. That in itself doesn't make the costs allowable because the cost must also meet allocability, allowability, and general reasonableness criteria.

Small companies often do not have the resources in-house to provide some of the functions necessary to survive, grow, and comply with the daunting array of applicable rules and regulations (e.g. labor laws). So they outsource some of the functions.

One area that may be getting some increased focus is consulting firms hired to perform market planning and economic planning services. In two recent cases, auditors challenged such costs as either "unallocable" (i.e. those costs did not benefit the government contract) or unallowable selling or advertising costs. Let's see what the FAR says.

Market planning involves market research and analysis and general management planning concerned with development of the contractors business (FAR 31.205-38(b)(4). Long-range market planning costs are subject to the allowability provisions of FAR 31.205-12. All other market planning costs are allowable.

Long-range market planning costs (also called economic planning costs in FAR 31.205-12) are also allowable, for the most part. Economic planning costs are costs of general long-range management planning that is concerned with the future overall development of the contractor's business and that may take into account the eventual possibility of economic dislocations or fundamental alterations in those markets in which the contractor currently does business. These costs are allowable under Government contracts. Economic planning costs involving organization or reorganization however are unallowable.

Any market planning costs meeting these definitions are allowable costs under Government contracts, whether performed in-house or by consulting firms hired to provide the services.

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