Examples of ODCs include
- special tooling and test equipment, dies, jigs, and fixtures
- plant rearrangement
- packaging and packing
- consultant's fees
- outbound freight
ODCs can be charged direct to contracts, allocated on some representative basis, or charged partially direct and partially by allocation.
When it comes to auditing ODCs, contract auditors are always wary of inconsistent charging practices between fixed price and cost-type contracts. Cost type contracts are "riskier" than fixed price contracts because contractors might be tempted to charge ODCs direct on cost-type contracts because they would be fully reimbursable while charging ODCs indirect on fixed price contracts so as to allow their cost type contracts to share in the absorption of ODCs.
Auditors are also cautious to determine whether costs charged to ODCs might also have continuing use on other contracts or on successor contracts and therefore should be capitalized rather than expensed. Plant rearrangement costs to configure a facility for a particular contract might fall in this category.
Contractors should generally charge everything direct that can be identified direct to a contract. In the case of ODCs where charging practices could go either way, contractors should establish firm practices, document them, and consistently follow them. That will help avoid potential audit issues.