Allowability of B&P Costs to Prepare Cost Overrun Proposal

Bid and Proposal (B&P) costs are addressed in the FAR cost principles under FAR 31.205-18, Independent Research and Development and Bid and Proposal Costs (IR&D/B&P). The definition of B&P is given in Section (a):

"Bid and proposal (B&P) costs” means the costs incurred in preparing, submitting, and supporting bids and proposals (whether or not solicited) on potential Government or non-Government contracts. The term does not include the costs of effort sponsored by a grant or cooperative agreement, or required in the performance of a contract.

The allowability of B&P costs is given in Section (c):

Except as provided in paragraphs (d) and (e) of this subsection, or as provided in agency regulations, costs for IR&D and B&P are allowable as indirect expenses on contracts to the extent that those costs are allocable and reasonable.

Given this background, we come to a situation where a contracting officer was faced with a contractor that was overrunning a contract baseline due to no fault of the Government and was wondering whether the cost for the contractor to prepare a cost overrun proposal was allowable.

Obviously, the contracting officer did not want to reimburse the contractor for costs that wouldn't have been incurred had the contractor not overrun the contract in the first place. It seemed to the contracting officer that the contractor was being rewarded when it should have been penalized.

The response from DoD to the contracting officer's plea was not very helpful (at least for the contracting officer). DoD essentially stated that if the contracting officer needed a basis for disallowing the costs, it should look to the FAR 31.201-2(a), Determining Allocability. Forget about FAR 31.205-18 because that is not going to help.

DoD concluded that there is no specific limitation in FAR subpart 31.2 that make bid and proposal costs expressly unallowable. But in order to determine if the bid and proposal costs you are concerned with are allowable, a thoughtful examination of the Allocability clause is in order. Then, DoD goes on to paraphrase the allocability cost principle.

DoD also instructed the contracting officer to compare the proposed accounting practice for the bid and proposal costs at issue with the established accounting practices of the contractor. If different, the contractor could be cited for noncompliance with FAR 31.202 which imposes the requirement that costs incurred for the same purpose and under the same circumstances be accounted for as either direct or indirect, but not both methods. That guidance could be problematical because there are situations where contractors are allowed to charge B&P costs direct and indirect both. For example, a contract with a line item that requires contractors submit a proposal for a follow-on production would be a situation where contractors can (and have) deviate from their regular charging practices.