Wednesday, May 14, 2014

Public Relations and Advertising Costs - Part 2

This is the second in our series on looking into what the Federal Acquisition Regulations have to say concerning the allowability of public relations and adverting costs (refer to FAR 31.205-1). Yesterday we laid out the definitions as FAR would have them. Its important that when contractors consider the allowability of costs, they do so using the correct definitions. The Government often times performs nomenclature reviews based on account titles and often questions entire accounts based simply on a name. Advertising is one of those. The Government sometimes throws out the entire account without analyzing any transactions. It could be that costs charged to, say, an account called "advertising" do not meet the FAR definition of "advertising" and therefore should not be evaluated using the criteria in this standard.

While most advertising costs are unallowable, FAR specifically lists cost that are allowable. These include:

  1. Costs specifically required by contract, or that arise from requirements of Government contracts, and that are exclusively for
    • Acquiring scarce items for contract performance, or
    • Disposing of scrap or surplus materials acquired for contract performance
  2. Costs of activities to promote sales of products normally sold to the U.S. Government, including trade shows, which contain a significant effort to promote exports from the United States. Such costs are allowable, notwithstanding restrictions listed elsewhere. However, such costs cannot include memorabilia, alcoholic beverages, entertainment, and physical facilities that are used primarily for entertainment rather than product promotion.
  3. Allowable in accordance with FAR 31.205-34; essentially "help-wanted" advertising.
If a cost meets the definition of "advertising" and does not meet one of these "allowable" examples, the cost is unallowable.

FAR also specifically lists the type of public relations that are allowable under Government contracts. These include:
  1. Costs specifically required by contract
  2. Costs of
    • Responding to inquiries on company policies and activities
    • Communicating with the public press, stockholders, creditors, and customers, and
    • Conducting general liaison with news media and Government public relations officers, to the extent that such activities are limited to communication and liaison necessary to keep the public informed on matters of public concern such as notice of contract awards, plant closings or openings, employee layoffs or retirees, financial information, etc
  3. Costs of participation in community service activities (e.g. blood bank drives, charity drives, savings bond drives, disaster assistance, etc (but there are restrictions here that we'll discuss later).
  4. Costs of plant tours and open house (also subject to restrictions discussed later)
  5. Costs of keep laying, ship launching, commissioning, and roll-out ceremonies, to the extent specifically provided for by contract.
Tomorrow we will look at examples of unallowable public relations costs.

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