Friday, January 19, 2018

Homecoming Celebrations

Desert Storm was a very short war. After 39 days of a devastating air campaign, the U.S. led coalition began to liberate Kuwait on February 24, 1991. A hundred hours later it was all over. Saddam Hussein's army was essentially destroyed. It was a moment of great national pride and the President's approval rating reached an unheard of 89 percent.

When the troops began returning home, many companies, including Defense contractors, hosted homecoming celebrations. A lot of these companies had employees who were also reservists and were called to duty. After some of those celebrations, contract auditors came along and questioned the cost of those celebrations as unallowable entertainment or public relations or whatever prohibitive FAR cost principle might apply to the cost in question.

That led to the not-so-famous DoD memo of June 3, 1991 which stated that Desert Storm homecoming activities are considered to be national celebrations and therefore the costs for participating in honoring the Desert Storm troops and celebrating the operation's success, was allowable (as long as the costs were also reasonable). This has remained the DoD policy ever since regarding the allowability of costs related to celebrating military service.

As a general rule, the costs of participation are allowable because participation costs related to national celebrations are considered as being incurred in different circumstances than public relations or advertising costs. However, cost which weld otherwise be specifically unallowable are still unallowable. Presumably this would include the cost of alcoholic beverages. Allowable participation costs would include material, labor and other direct costs. Employee time to participate in building floats or marching in parades would be allowable.

There is no specific limit on the number or location of celebration activities but reasonableness remains a criteria. Perhaps a week-long celebration might be considered unreasonable.

Certain costs remain unallowable even if associated with such celebrations. Any advertisement to the public of any nature is subject to FAR 31.20-5-1, Advertising and Public Relations, although the contractor is allowed to include its name and logo on a banner, sign, or float. DCAA takes the position that the costs of souvenirs, models, imprinted clothing, buttons, and other mementos distributed during the celebration are unallowable but that position is far from definitive. DCAA also takes the position that contributions to local governments or other third parties to pay for celebration activities are also unallowable.

This is a prime area for securing an advance agreement on cost allowability with your contracting officer prior to the incurrence of costs. Its a good idea to know up front what costs will be allowable and which ones may not be reimbursable. An advance agreement will also avoid conflicts later on when contract auditors review incurred costs.

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