These costs can and have been disallowed. Will yours?

A firm in one of our workshops stated that a DCAA auditor disallowed her consulting costs. Based on what she shared with the class it sounded like the cost was allowable. More information was needed so the firm is going to check the FAR after what they learned in the class! I am hoping she discovers her costs are allowable.

So lets look at the cost principle on Professional and Consultant Service costs to minimize the chance of this happening to your firm.

What are professional and consultant service fees? FAR defines them as services rendered by persons who are members of a particular profession or possess a special skill and who are not officers or employees of the contractor.

Examples: Services to enhance the firms legal, economic, financial, or technical positions. Services generally acquired to obtain information, advice, opinions, alternatives, conclusions, recommendations, training, or direct assistance, such as studies, analyses, evaluations, liaison with Government officials, or other forms of representation.

You should be prepared to provide copies of billings from outside professionals and consultants that itemize amounts applicable to retainer agreements, fees for services not covered by a retainer, expenditures for investigative and other services, travel, and miscellaneous expenses. So make sure you ask for them from your outside professionals and consultants. It is not an option.

Professional and consultant service costs are Generally Allowable per FAR 31.205-33. However they must be Properly Supported and Reasonable in relation to the services rendered. There goes that reasonableness definition again.

Retainer fees are also allowable. But to be allowable they too must be supported by evidence that

  1. The services are necessary and customary
  2. That past services justifies the amount of a retainer. If there were no past service that does not automatically disallow the costs. Just be prepared to explain and support the projected use of the services.
  3. The retainer fee must be reasonable as compared with maintaining an in-house capability.
  4. The actual services are documented.

Again very important to remember: Fees for services rendered are allowable only if supported by evidence of the nature and scope of the service furnished. (FAR 31.205-33(f)) But be careful of fees for direct selling costs such as commissions (31.205-38(c)). There are additional restrictions for commissions or agents fees in obtaining new business even if they are supported by evidence. See the article on the Direct Selling Cost Principle.

Examples of Supporting Evidence:

  1. Details of all Agreements (work requirements, rate of compensation, nature and amount of other expenses, etc. as applicable)
  2. Details of Actual Services performed
  3. Invoices or Billings submitted by consultants (in sufficient detail as to time expended and nature of the services provided)
  4. Work Product of consultants and related documents (trip reports indicating persons visited and subjects discussed, and related information)

As you can see, it all goes back to supporting evidence and documentation. However, it is important to provide the support based on the specific guidelines that are requested in the FAR cost principle. In other words, any old support wont do!

The contractor is responsible for producing adequate evidential matter to support the claimed costs. And the auditor should provide you with a reasonable period of time to respond to any request for additional supporting data. And please respond. If not, the auditor can question the costs as expressly unallowable per FAR 31.205-33(f).

What specific professional and consultant costs are Unallowable? Well under any of the following circumstances the costs would be unallowable:

  1. Services to improperly obtain, distribute, or use information protected by law or regulation.
  2. Services that are intended to improperly influence what goes into a solicitation or proposals.
  3. Improperly influence selection of sources for contract award whether award is by the Government, or get this, by a prime contractor or subcontractor. Did you know that?
  4. Services obtained that violate any law related to improper business practices or conflicts of interest.

The first 4 above should not be an issue if you perform your business in a moral and ethical manner. But you should be extra careful of things that can happen or be said that appear innocent but can come back to bite.

  1. Services which are not consistent with the purpose and scope of the services contracted for or otherwise agreed to. You need to read this one again. Don't have services performed and billed that are not agreed to unless you have a revised agreement.

So make sure you have good strong supporting evidence for any outside professional and consulting service fees. Make sure they are not for services that are considered unallowable as listed above. And if you are not quite sure then get another opinion and consider an advance agreement. Advance Agreements are discussed in a separate article.

To see more on professional and consultant costs go to FAR 31.205-33. Then send us any feedback you have if you would like something else discussed.