Tuesday, May 13, 2014

Public Relations and Advertising Costs - Part 1

This is the first of a four-part series on Public Relations and Advertising Costs. To read the subsequent entries in this series, follow these links:

Prior to 1986, FAR 31.205-1, Public Relations and Advertising Costs simply covered costs. In 1986, the standard was revised to include public relations costs in addition to advertising. The "advertising" component of this standard is relatively straight-forward. Most advertising costs are going to be unallowable. The "public relations" part is more complex and each case needs to be considered on its merits. The Government is fond of trying to force fit activities into the public relations definition when in fact, they don't meet the definition of public relations.

Over the next few days, we are going to unpack the FAR cost principle on Public Relations and Advertising costs. To begin, we need the FAR definition of the two terms.

Public relations means all functions and activities dedicated to

  • 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 

The term public relations includes activities associated with areas such as advertising, customer relations, etc.

Advertising means the use of any media to (i) promote the sale of products or services and (ii) to accomplish activities required by contract, acquiring scarce items for contract performance, or disposing of surplus property and scrap. To be advertising, the advertiser must have control over the form and content of what will appear, the media in which it will appear, and when it will appear. Advertising media include but are not limited to conventions, exhibits, free goods, samples, magazines, newspapers, trade papers, direct mail, dealer cards, window displays, outdoor advertising, radio, and television. Today, we would add the "internet" to this listing of media.

Public relations and advertising costs include the cost of media time and space, purchased services performed by outside organizations, as well as the applicable portion of salaries, travel, and fringe benefits of employees engaged in the functions and activities meeting the definition of public relations and advertising. The later category of costs is something that many contractors overlook - they forget to exclude salaries and related fringe costs (as well as other directly associated costs) from their proposals and incurred cost submissions..

Tomorrow, part 2.

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