31.109 Advance agreements.

(a) The extent of allowability of the costs covered in this part applies broadly to many accounting

systems in varying contract situations. Thus, the reasonableness, the allocability and the allowability

under the specific cost principles at subparts 31.2, 31.3, 31.6, and 31.7 of certain costs may be

difficult to determine. To avoid possible subsequent disallowance or dispute based on

unreasonableness, unallocability or unallowability under the specific cost principles at subparts 

31.2, 31.3, 31.6, and 31.7, contracting officers and contractors should seek advance agreement on

the treatment of special or unusual costs and on statistical sampling methodologies at 31.201-6(c).

However, an advance agreement is not an absolute requirement and the absence of an advance

agreement on any cost will not, in itself, affect the reasonableness, allocability or the allowability

under the specific cost principles at subparts 31.2, 31.3, 31.6, and 31.7 of that cost.

(b) Advance agreements may be negotiated either before or during a contract but should be

negotiated before incurrence of the costs involved. The agreements must be in writing, executed by

both contracting parties, and incorporated into applicable current and future contracts. An advance

agreement shall contain a statement of its applicability and duration.

(c) The contracting officer is not authorized by this 31.109 to agree to a treatment of costs

inconsistent with this part. For example, an advance agreement may not provide that,

notwithstanding 31.205-20, interest is allowable.

(d) Advance agreements may be negotiated with a particular contractor for a single contract, a

group of contracts, or all the contracts of a contracting office, an agency, or several agencies.

(e) The cognizant administrative contracting officer (ACO), or other contracting officer established

in part 42, shall negotiate advance agreements except that an advance agreement affecting only

one contract, or class of contracts from a single contracting office, shall be negotiated by a

contracting officer in the contracting office, or an ACO when delegated by the contracting officer.

When the negotiation authority is delegated, the ACO shall coordinate the proposed agreement with

the contracting officer before executing the advance agreement.

(f) Before negotiating an advance agreement, the Government negotiator shall-

(1) Determine if other contracting offices inside the agency or in other agencies have a significant

unliquidated dollar balance in contracts with the same contractor;

(2) Inform any such office or agency of the matters under consideration for negotiation; and

(3) As appropriate, invite the office or agency and the responsible audit agency to participate in

prenegotiation discussions and/or in the subsequent negotiations.

(g) Upon completion of the negotiation, the sponsor shall prepare and distribute to other interested

agencies and offices, including the audit agency, copies of the executed agreement and a

memorandum providing the information specified in 15.406-3, as applicable.

(h) Examples for which advance agreements may be particularly important are-

(1) Compensation for personal services, including but not limited to allowances for off-site pay,

incentive pay, location allowances, hardship pay, cost of living differential, and termination of

defined benefit pension plans;
(2) Use charges for fully depreciated assets;

(3) Deferred maintenance costs;

(4) Precontract costs;

(5) Independent research and development and bid and proposal costs;

(6) Royalties and other costs for use of patents;

(7) Selling and distribution costs;

(8) Travel and relocation costs, as related to special or mass personnel movements, as related to

travel via contractor-owned, -leased, or -chartered aircraft; or as related to maximum per diem rates;

(9) Costs of idle facilities and idle capacity;

(10) Severance pay to employees on support service contracts;

(11) Plant reconversion;

(12) Professional services (e.g., legal, accounting, and engineering);

(13) General and administrative costs (e.g., corporate, division, or branch allocations) attributable to

the general management, supervision, and conduct of the contractor’s business as a whole. These

costs are particularly significant in construction, job-site, architect-engineer, facilities, and

Government-owned contractor operated (GOCO) plant contracts (see 31.203(h));

(14) Costs of construction plant and equipment (see 31.105(d));

(15) Costs of public relations and advertising; and

(16) Statistical sampling methods (see 31.201-6(c)(4).

Parent topic: Subpart 31.1 - Applicability